Australia’s climate reporting framework is undergoing a significant transformation, with mandatory disclosure requirements for large entities in effect as of 1 January 2025. Reporting obligations for second phase reporting entities will come into scope from 1 July 2026, followed by smaller reporting entities from 1 July 2027.[1] While climate reporting laws[2] don’t directly apply to small and medium enterprises[3] (SME), the ripple effects are likely to be significant – and for some, game-changing.
No Direct Obligation – But That’s Not the Whole Story
SMEs are not directly subject to the new climate disclosure standards – at least not in terms of reporting to regulators like ASIC, or under the Corporations Act. However, SMEs that supply goods or services to large companies are increasingly finding themselves contractually required to report on their own climate risks and emissions. These obligations are being imposed through updated procurement onboarding criteria and supplier contracts, as large businesses scramble to meet their own Scope 3[4] reporting requirements under the phased rollout of mandatory climate reporting.[5] For SMEs, failure to comply with these contractual requirements may lead to loss of key customers, exclusion from new procurement opportunities, or even breach of contract and related liabilities.
Climate-related disclosures are also becoming increasingly relevant for SMEs seeking capital or finance. Banks, investors, and insurers are progressively factoring climate risk and emissions data into their due diligence, credit assessments, and portfolio decisions. SMEs that can demonstrate climate awareness – or show progress toward low-emissions operations – may be better positioned to access funding and favourable terms.
As an SME in the supply chain of climate-reporting entities, how climate reporting obligations affect you may vary depending on:
- The industry you operate in: High-emissions sectors like transport, manufacturing, agriculture, and construction are more likely to face increased climate-related data demands from large customers seeking to meet their own reporting obligations.
- Your position in the supply chain: First-tier suppliers to large reporting entities are likely to be the first asked for climate-related data, but lower-tier suppliers – and even subcontractors engaged by larger SME head contractors – can also expect flow-down obligations as traceability and emissions accountability become standard practice.
- Your access to capital and finance: Lenders, investors, and insurers are increasingly incorporating climate-related data into credit decisions, funding criteria, and risk assessments – particularly for businesses operating in climate-exposed sectors or seeking growth funding.
A Compliance Burden – or a Strategic Advantage?
For some SMEs, this shift may feel like a compliance burden. But for others, it’s a powerful opportunity.
Businesses that can demonstrate credible climate credentials will stand out in an increasingly climate-conscious economy. Whether through energy efficiency, sustainable procurement, or simply transparent reporting, being able to quantify your environmental impact can differentiate you from competitors.
Larger organisations are increasingly seeking suppliers that can help them manage climate-related risks and meet their own reporting obligations. If your business is climate-aware – or willing to adapt – you may be better positioned to secure long-term contracts, win tenders, and remain competitive in procurement pipelines. You may also benefit from preferential access to finance, attract impact-aligned investors, and unlock funding tied to sustainability-linked criteria.
Conversely, businesses unable to provide emissions data or demonstrate credible climate action may risk being excluded from major procurement opportunities – particularly those involving government tenders, large infrastructure projects, or ESG-focused supply chains.
What Should SMEs Be Doing Now?
In this new environment, climate capability isn’t just about compliance – it’s becoming a core element of commercial competitiveness. SMEs that invest early in building climate literacy, systems, and credentials won’t just keep up – they’ll be well placed to lead.
Here’s how to get started:
- Check Your Customers – and Your Capital Backers
For SMEs, the starting point is simple: do (or will) any of your customers fall within the scope of Australia’s new climate disclosure laws – or are you hoping to win work with companies that do? Are you seeking funding from banks, investors, or government programs that require climate-related disclosures?
If the answer is yes, climate-related data requests may well follow. These could include basic financial data (e.g. total spend), operational metrics (e.g. fuel consumption or freight volumes), or product-specific emissions estimates. Reviewing procurement terms – or proactively engaging with key customers, investors, or financiers – can help you anticipate and prepare for these requests.
If none of your current or target customers are covered by the regime, and you aren’t looking to raise capital, the immediate impact may be minimal – but that could change as climate-related reporting becomes standard business practice.
- Start tracking key metrics
If you’ve worked out that no one in your supply chain or funding network currently requires climate disclosures, you’re probably under less immediate pressure. But tracking your emissions is still a smart and responsible step. It demonstrates leadership, prepares you for future expectations, and shows your customers, financiers, and community that sustainability matters to your business.
Either way, you don’t need a full emissions report to get started. Begin by identifying the most relevant sources of emissions in your business – such as electricity, fuel use, freight, or materials. Many large companies use spend-based estimators to calculate Scope 3 emissions so even basic financial records may be a valuable starting point.
- Explore reporting tools
Tools such as the SME Climate Hub Reporting Tool[6] provide entry-level pathways for SMEs to begin understanding their greenhouse gas emissions. This free resource enables SMEs to create a climate report summarising their annual greenhouse gas emissions and the actions they are taking to reduce them. The tool is designed to be straightforward and accessible for businesses without prior experience in emissions reporting. However, some large customers may require suppliers to use specific emissions calculators, reporting platforms, or data formats to align with their own disclosure systems – so it’s worth checking what’s expected in advance. There are of course other tools available to explore – the above is just one of many examples.
- Prepare for data requests
Large customers may ask you to complete emissions-related questionnaires as part of their procurement, due diligence, onboarding, or reporting processes – and the same is increasingly true of financiers and investors. These questionnaires or assessment criteria often include a mix of qualitative and quantitative questions, such as:
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- Total spend or invoiced amounts
- Freight volumes, fuel use, or electricity consumption
- Emission factors for specific goods or services
- Details of your sustainability practices—such as renewable energy use, net zero targets, or environmental certifications
Being ready with the right data – and responding clearly and consistently – can help you stay competitive in procurement processes, meet rising customer expectations, and improve your access to capital in a sustainability-conscious economy.
If it still feels overwhelming, you’re not alone. In a fast-paced environment, support tailored to SMEs is still catching up[vii]. Start where you can, ask questions early, and stay alert to guidance from your advisors, customers and industry groups as the landscape evolves.
Final Word
Climate reporting isn’t just for big business anymore. As Australia’s new disclosure regime rolls out, SMEs – especially those embedded in supply chains or seeking finance – are being drawn into the frame.
The upside? If we prepare early and treat this shift as a business opportunity – not just a compliance task – we won’t just keep pace. We’ll strengthen our relationships, stand out in competitive tenders, and open doors to capital, customers, and partnerships that value transparency and climate action.
If you’re navigating these changes and not sure what they mean for your business, let’s talk. We can work through the next steps together.
[1] Mandatory climate reporting applies in three phases: (a) Group 1 (from 1 January 2025) – large entities meeting two of: consolidated revenue ≥ $500 million, consolidated gross assets ≥ $1 billion, or 500 or more employees; (b) Group 2 (from 1 July 2026) – medium entities meeting two of: consolidated revenue ≥ $200 million, consolidated gross assets ≥ $500 million, or 250 or more employees; and (c) Group 3 (from 1 July 2027) – smaller entities meeting two of: consolidated revenue ≥ $50 million, consolidated gross assets ≥ $25 million, or 100 or more employees.
[2] The requirements are being introduced through amendments to the Corporations Act 2001 (Cth) and associated regulations, with enforcement overseen by ASIC.
[3] For the purposes of this article, an SME refers to an entity that does not meet the mandatory reporting thresholds. Entities below Group 3 entity thresholds are currently outside the mandatory climate reporting regime. Group 3 entities (and the entities they control) includes those that meet at least two of the following criteria: (1) consolidated revenue of $50 million or more; (2) value of consolidated gross assets of $25 million or more at the end of the financial year; and (3) with 100 or more employees at the end of the financial year. Entities below these thresholds are currently outside the mandatory reporting regime. Other definitions of SMEs may apply in different contexts.
[4] Scope 3 emissions refer to all indirect greenhouse gas emissions that occur in a company’s value chain – such as those from purchased goods and services, transportation, product use, and disposal. This is different from Scope 1 (direct emissions from sources you own or control, like fuel combustion) and Scope 2 (indirect emissions from purchased electricity or energy). For more information, see the GHG Protocol: Scope 3 Standard.
[5] Australia’s mandatory climate disclosure framework is being introduced in three phases, applying to entities based on size thresholds such as consolidated revenue, gross assets, and number of employees. The first group of large entities commenced reporting on 1 January 2025, with reporting entity Groups 2 and 3 scheduled to enter the regime in 2026 and 2027, respectively. Further information on the reporting entity groups see ASIC’s media release
[6] Available at: SME Climate Hub.
[7] ASIC has recently released SME-specific guidance – see What small businesses need to know about sustainability reporting requirements and Sustainability reporting for small businesses.
