There is a lot of talk in the business and corporate world about ESG. 

What is ESG? 

It stands for Environmental, Social and Governance and is a framework to evaluate a business’s performance in the areas of environmental sustainability, social responsibility, and governance.

Whilst businesses in these often turbulent times has a lot to worry about it has been difficult for large business not to act and take action to embrace ESG.

There is little doubt that businesses which embrace ESG may well receive a competitive edge to their competitors.

The Treasury Laws Amendment (Financial Market Infrastructure and other measurers) Act 2024 was introduced this year by government.

Mandatory climate reporting will be required by businesses requiring them to prepare an annual sustainability report within the annual financial report in accordance with Australian Sustainability Reporting Standards (ASRS).

The sustainability report will have to include the following:

• A climate statement for the relevant year, including any applicable notes
• Any statement prescribed by the Regulations for the relevant year
• A declaration by the directors relating to the compliance of such statements

Which businesses are affected?

Businesses are divided into 3 groups and an entity has to meet two out of the three criteria before it is required to report:

Date                                      Revenue                                Full time employees

From 1 January 2025             $500 million or more            500 or more

From 1 July 2026                   $200 million or more             250 or more

From 1 July 2027                   $25 million or more               100 or more

What is contained in the sustainability report?

The main issues that have to be disclosed and contained in the report are:

• Governance
• Strategy
• Risk Management
• Emissions
• Financial effects
• Metrics and targes

SMEs and ESG – Is it worth it for my SME?

It is estimated that there are over 2.5 million small to medium enterprises (SME) in Australia.

The Australian Taxation Office defines a small business as one with a turnover of up to $10 million and a medium sized one as having a turnover of $10 million to $250 million.

Whilst it will only affect SMEs who have a turnover of $25 million and above going forward SMEs are now facing pressure from customers, employees, investors and regulators to incorporate ESG into their operations causing a rethink on how they operate and plan for the future.

The benefit for an SMEs to embrace a structured ESG strategy can be beneficial for longevity and success. 

Not only does it assist with risk management and innovation, but it can also drive investment and open up new markets.

Many SMEs supply their products and services to larger businesses and as ESG is increasingly embraced there is no doubt that even though an SME might not be required to formally report, their customers and clients may well require an ESG strategy to supply products or services to them or to tender for their work.

A survey by Deloitte in the UK recently found that the sustainable and ethical practices consumers most value are:

1. Producing sustainable packaging and products
2. Reducing waste in manufacturing processes
3. Committing to ethical working practices
4. Respect for human rights
5. Reducing carbon footprint

It is clear that SMEs that get on board with ESG reporting will benefit from a range of competitive advantages, not the least of which is using it as a strategic tool that aligns their performance with expectations of the customers, clients and stakeholders lending credibility to their business practices and enhancing the overall credibility of the business.

How can FC Lawyers help?

At FC Lawyers our experienced business and corporate team can guide your business, whether large or small, through the ESG framework and reporting guidelines.

Contact our team today to discuss how we can assist you.