Mandatory climate-related sustainability reporting: Your role in the supply chain

With increasing global attention on environmental responsibility, climate-related sustainability reporting is no longer optional for many businesses. In Australia, new regulations continue to emerge that require companies to disclose their environmental, social, and governance ('ESG') impacts in annual reporting. Whilst this presents challenges, it also creates opportunities for businesses in the supply chain to enhance transparency, efficiency, and resilience.

In September 2024, the Australian Government legislated mandatory climate reporting for companies that meet certain size thresholds. Starting in January 2025, companies will be required to disclose their climate-related risks and opportunities in an annual Sustainability Report. Companies are expected to disclose climate-related risks and opportunities that will impact their business prospects over the short, medium and long term.

This is driven by Australia’s commitments under the Paris Agreement and the Australian Government’s Climate Change Act 2022, which outlines Australia’s commitment to reduce greenhouse gas (‘GHG’) emissions by 43% by 2030 and reach net zero emissions by 2050.

Which companies are required to publish a sustainability report?

A staggered approach applies, depending on a company’s size and other criteria. The following table outlines the criteria and timing:

Group 1 companies must report for financial years beginning on or after 1 January 2025; Group 2 companies must report for financial years commencing on or after 1 July 2026; and Group 3 companies must report for financial years commencing on or after 1 July 2027.

Why the supply chain plays a crucial role

Supply chains represent a significant portion of a company’s overall environmental footprint. From warehousing and transportation to packaging and distribution, each step has the potential to contribute to a company’s sustainability performance.

Here are key areas where supply chain partners, like third-party logistics (‘3PL’) providers, can support sustainability efforts:

• Energy-efficient warehousing: Operating warehouses with energy-efficient lighting, equipment, and renewable energy sources can drastically reduce carbon footprints.
• Optimised transportation: Offering route optimisation, fuel-efficient vehicles, and a shift towards electric fleets can help logistics providers contribute to emission reduction targets.
• Sustainable packaging: Collaborating on eco-friendly packaging solutions can lower the amount of plastic and non-recyclable materials used in product distribution.
• Inventory management: Reducing waste through optimised inventory management, including just-in-time stock practices, can prevent overstocking and spoilage, which often lead to unnecessary waste.

What supply chain operators can do to help meet reporting requirements

Whilst the burden of formal reporting may fall on larger companies, supply chain partners are critical contributors. Here’s how your company can position itself to support these requirements:

1. Data transparency: Regularly provide your customers with accurate data on your energy consumption, carbon emissions, and waste management practices. This will help them compile comprehensive sustainability reports.
2. Certifications and standards: Achieve relevant sustainability certifications like ISO 14001 for environmental management or carbon-neutral certifications to bolster your credibility and prove your commitment to sustainability.
3. Collaborative partnerships: Work closely with your clients to align your sustainability goals with theirs. Being proactive in implementing sustainable practices will not only strengthen your client relationships but also ensure you remain a competitive choice in the market.
4. Technology and automation: Embrace technologies that can improve sustainability, such as warehouse management systems ('WMS') that optimise energy use, or data-driven solutions for reducing GHG emissions in transportation.

The benefits of embracing sustainability

Though mandatory sustainability reporting may seem like a challenge, it presents numerous benefits for supply chain operators:

• Attract new business: Companies increasingly prioritise sustainability when choosing partners. By positioning yourself as a sustainability-conscious provider, you can tap into a growing market of eco-minded businesses.
• Cost savings: Implementing energy-saving measures, reducing waste, and optimising transportation can lead to lower operating costs.
• Regulatory readiness: Staying ahead of sustainability reporting requirements ensures you’re prepared as regulations tighten, reducing the risk of non-compliance.

Understanding climate-related sustainability reporting requirements

As part of Australia’s commitment to climate action, from 1 January 2025 companies must report on their climate-related sustainability efforts. Reporting will typically focus on:

• Carbon emissions: Measuring and disclosing GHG emissions throughout business operations.
• Energy consumption: Outlining energy use, especially from non-renewable sources.
• Waste management: Highlighting efforts to reduce, recycle, and manage waste efficiently.

This shift requires not only the companies directly regulated but also their partners, such as supply chain and logistics operators, to track and provide data on environmental impacts.

What are the relevant climate-related sustainability standards?

The new mandatory climate reporting seeks to ensure that large businesses, GHG emitters and energy users in Australia disclose their climate-related strategy, governance, risks and opportunities, in line with international standards and similar reporting requirements in other countries.

The climate reporting must be prepared in line with Australian sustainability reporting standards. These standards provide a structure for reporting this information, which includes governance, carbon footprint, climate-related risks and opportunities, the current financial effects of climate-related risks and opportunities, anticipated future financial effects and the strategies and plans in place to manage the impact, all underpinned by appropriate metrics.

What should your sustainability report contain?

The Australian Accounting Standards Board (‘AASB’) has adapted the International Sustainability Standards Board (‘ISSB’) standards to the Australian context by issuing Australian sustainability reporting standards. This includes the mandatory climate-related disclosures standard, AASB S2.

While only AASB S2 is mandatory, the Australian Government has indicated that other sustainability disclosures, such as those related to nature and biodiversity, which are currently voluntary, may eventually become mandatory as part of its ‘climate first but not only’ policy.  

In the first year of mandatory reporting for your company, your sustainability report must include your climate-related (environmental) impact, most notably, Scope 1 and Scope 2 GHG emissions. In subsequent years of climate-related sustainability reporting, your company will also be required to include Scope 3 GHG emissions.

Prepare for mandatory sustainability reporting

Mandatory sustainability reporting is reshaping the business landscape, and the supply chain is at the heart of this transformation. As a vital partner in the process, supply chain operators, logistics service providers and 3PL operators have a unique opportunity to support their clients while driving their own sustainability agendas forward.

By embracing data transparency, adopting eco-friendly practices, and positioning your business as a leader in sustainable supply chain operations, you not only ensure regulatory compliance but also future-proof your operations in an increasingly green economy.

Are you a product owner who needs to review your supply chain operations to ensure you remain compliant with these incoming changes?

Reach out to the uTenant Supply Chain Solutions team to review your current supply chain and make improvements where required.

Published: 7 October 2024