Small and medium-sized enterprises (SMEs) are on the brink of a major transformation. The days of operating without considering greenhouse gas emissions are rapidly fading into the past. Why? Well, the winds of change are blowing from all directions, thanks to mounting pressure from supply chain partners and customers who themselves are grappling with new climate management standards set by the International Sustainability Standards Board (ISSB) and Australian Treasury consultations.
The ISSB is set to shake things up for both publicly-listed giants and large private corporations. They're about to be handed the task of reporting their emissions, and this obligation will trickle down the supply chain, affecting everyone from upstream raw material suppliers to downstream distributors. The deadline is looming large - disclosure requirements on climate-related risks and opportunities will kick in from January 2024. Companies that meet any two of three criteria - 500-plus employees, consolidated annual revenue exceeding AUD$500 million, or gross consolidated assets over AUD$1 billion - will be expected to integrate this climate disclosure into their financial reports for the fiscal year 2024-2025.
But what's the ISSB framework all about, you ask? Well, it's designed to equip investors and capital market participants with crucial information regarding a company's sustainability and climate-related prospects. Reporting entities will be obliged to delve into:
1. Governance: Delving into the processes, controls, and procedures they employ to oversee sustainability and climate-related risks and opportunities.
2. Strategy: Addressing how these sustainability and climate-related factors could influence their business model and overall financial performance over short, medium, and long-term horizons.
3. Risk Management: Outlining the processes used to identify, assess, and manage sustainability and climate-related risks.
4. Metrics and Targets: This means spilling the beans on gross GHG emissions (Scopes 1, 2, and 3) in metric tonnes of CO2 equivalent and revealing the company’s GHG intensity using the GHG Protocol.
Now, let's break down what these "scopes" really mean. Scope 1 emissions are the emissions a company directly controls and owns, such as those produced by their business-owned vehicles. Scope 2 emissions, on the other hand, are the indirect emissions linked to purchased electricity, steam, heating, or cooling used by the company itself. Scope 3 emissions, perhaps the trickiest, stem from activities not controlled or owned by the organization but are still a result of its activities.
When a company reports on Scope 3, it's essentially opening up a Pandora's box of emissions data from both upstream and downstream partners in its value chain. This means that supplier or customer activities might find their way into the company's emission calculations. In response, reporting entities will likely show a preference for suppliers who not only measure but can also prove that they're cutting down their emission intensity. Some supermarkets are already setting this trend.
So, what's the bottom line for small and medium businesses in this grand scheme of climate reporting? Brace yourselves, because as the pressure mounts on reporting companies under ISSB regulations to slash their carbon footprint, it's sending shockwaves through the entire economy. More and more companies, including SMEs, will soon find themselves on the path to decarbonisation or risk being sidelined from critical supply chains. It's time for SMEs to take stock of their impact on supply chain emissions and calculate their carbon footprint – a vital first step on this exciting journey towards decarbonisation.
Use Carbon Neutral’s online carbon calculator to estimate your annual greenhouse gas emissions or our Carbon Advisors can assist you by conducting an organisational carbon footprint consistent with the Greenhouse Gas Protocol Standard.
Carbon Neutrals’ advisors are available to help by calling +618 9200 4424.
