Mandatory climate reporting is now being implemented, with the big end of town beginning their reporting for financial years ending on or after 1 January 2025. This reporting will be phased in, with all large companies required to comply by 1 July 2027.
Companies must start considering their governance and strategies to monitor and manage climate-related risks and opportunities. This includes calculating their base year greenhouse gas (GHG) emissions, which will be essential for establishing metrics and targets to measure their performance and progress.
Climate reporting will impact all sectors of the economy, including entities that are currently exempt under existing legislation. Businesses may find themselves integrated into others’ value chains, and the ability to provide stakeholders with emissions data could serve as a competitive advantage during tender processes. Furthermore, banks are likely to implement varying interest rates based on entities’ GHG emissions as they strive to reduce their Scope 3 emissions, which include emissions from investment activities.
One of the most significant challenges of climate reporting is accurately calculating GHG emissions. This encompasses all emissions that a company directly produces, emissions from the electricity it consumes, and those generated upstream and downstream within its value chain. In simpler terms, Scope 1 is what you burn; Scope 2 is energy you buy; and Scope 3 is everything beyond that is indirectly in your value chain.
To effectively reduce its carbon footprint, a company must address all three scopes, particularly Scope 3, where the most complex challenges arise. Key questions include how to obtain data on suppliers’ emissions, how to assess emissions from employee commuting, and what the emissions are for a product’s end-of-life disposal, especially if it ends up in a landfill.
My advice is to begin this process as early as possible, as there will likely be significant trial and error involved. The accuracy of emissions calculations will depend heavily on the quality of the data used. For instance, when we calculated our employee commuting emissions, we distributed a survey asking staff about their modes of transportation, the distance they travel, and how often they work in the office. We achieved an over 80 percent response rate and were initially pleased with the results. However, we later realised we had overlooked key questions regarding engine size and whether their vehicles were electric or hybrid.
As climate reporting continues to evolve, stay tuned for regular updates from the HLB Mann Judd team to help you navigate these requirements and keep your business on track.
This article first appeared in the Summer 2024/25 issue of HLB Mann Judd Perth’s Client Alert.