Navigating Australia’s 2025 ESG Reporting Regulations: What Small Businesses Need to Know

On January 1, 2025, Australia embarked on a significant shift towards enhanced corporate transparency and environmental accountability with the introduction of mandatory ESG reporting requirements. While these regulations primarily target large corporations, their ripple effects are poised to influence small and medium-sized enterprises (SMEs) across the nation. Understanding these changes is crucial for SMEs to remain competitive, compliant and aligned with evolving market expectations.

This article explores how Australia’s new sustainability reporting framework affects small businesses, what practical steps they can take now and what this means for the future of business in Australia.

Understanding the New Regulations

The Australian Government’s initiative mandates large businesses and financial institutions to disclose their climate-related financial risks and opportunities. This framework aligns with global reporting trends and draws from the widely recognised recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The goal is to ensure that climate-related financial risks are clearly communicated to investors, regulators and the public.

Phased Implementation

The rollout is structured into three groups. Businesses are assessed as falling into a group if they meet at least two of the three criteria:

• Group 1 (From January 1, 2025): Entities with consolidated revenue of $500M+, gross assets of $1B+ or 500+ employees.

• Group 2 (From July 1, 2026): Entities with consolidated revenue of $200M+, gross assets of $500M+ or 250+ employees.

• Group 3 (From July 1, 2027): Entities with consolidated revenue of $50M+, gross assets of $25M+ or 100+ employees.

Though these thresholds currently exclude the vast majority of SMEs, the effects will be felt throughout the business landscape.

What Are Large Organisations Required to Report?

Under the new framework, in-scope entities are expected to include sustainability disclosures in their annual reports. These reports must cover:

• Governance – How climate-related risks are managed and overseen

• Strategy – Actual and potential climate-related impacts on operations

• Risk Management – How climate risks are identified and addressed

• Metrics and Targets – Data used to monitor and manage climate performance

The ultimate aim is to increase transparency, support more informed decision-making and foster a resilient, low-emissions economy.

How Does This Affect Small Businesses?

Although SMEs are not directly required to report under this framework, their role in the supply chain means they are increasingly accountable to larger reporting entities.

Here’s how:

1. Increased Supplier Scrutiny

Large companies will need to understand and report on the emissions, climate risks and social practices embedded in their supply chains. This means SMEs providing goods or services to these companies may be asked to:

• Share information on their carbon emissions, waste management and energy usage

• Confirm fair work practices and social sustainability measures

• Demonstrate a proactive approach to climate-related risks

  
  

2. Rising Customer Expectations

Sustainability-conscious consumers are becoming more selective. Even SMEs with no direct connection to large corporations may find that customers are demanding more transparency, ethical practices and environmental stewardship.

3. Access to Funding and Partnerships

Banks, investors and grant funds are aligning lending and funding criteria with ESG performance. SMEs demonstrating sustainable practices may benefit from improved access to capital, grants and partnerships with like-minded businesses.

Practical Guidance for SMEs

The good news is that small businesses don’t need to tackle this all at once. There are practical, manageable steps you can take right now to prepare for what’s ahead.

1. Conduct a Mini Sustainability Audit

Begin by understanding your current position:

• What are your biggest environmental impacts (energy use, travel, packaging)?

• What social contributions do you make (local employment, community support)?

• How resilient are you to climate-related disruptions?

Even a basic audit will help identify quick wins and future priorities.

2. Create a Sustainability Values Statement

Clarify your business’ commitment to sustainability in a way that’s authentic and actionable. This can help guide decision-making, shape culture and communicate your priorities to customers and partners.

3. Improve Operational Efficiency

Many sustainability improvements also reduce costs:

• Upgrade to energy-efficient lighting and appliances

• Reduce paper usage and switch to digital systems

• Explore packaging alternatives to cut waste and freight emissions

These changes often have immediate financial benefits while reducing your environmental impact.

4. Engage Your Supply Chain

Reach out to your suppliers to better understand their practices. Look for opportunities to:

• Choose more sustainable or local suppliers

• Consolidate orders to reduce freight

• Collaborate on shared sustainability goals

Building a more transparent and aligned supply chain now will pay dividends as sustainability reporting expectations grow.

5. Set Simple, Measurable Goals

Choose a few focus areas and set targets. For example:

• Reduce electricity use by 15% over 12 months

• Offset emissions from shipping

• Increase local sourcing by 20%

Track and celebrate progress to build momentum.

6. Share Your Story

Don’t wait until your business is "perfect" to start communicating your sustainability journey. Be transparent about what you’re doing, why it matters and what’s coming next. Use your email marketing, website, social media and customer touchpoints to engage your audience in the process.

What This Means for the Future of Business in Australia

Australia’s sustainability reporting regulations mark a major shift in how business is done, and small businesses are an essential part of that transformation.

Here's what we predict to see over the coming years:

1. Sustainability Will Become the Norm

As large businesses normalise sustainability disclosure, expectations will trickle down. Businesses of all sizes will be expected to demonstrate a clear sustainability strategy, both in operations and in values. Early adopters will gain a competitive edge, not only through improved efficiency and reputation, but by being seen as trusted and future-ready partners.

2. Data Will Drive Decision-Making

Climate and sustainability data will increasingly influence how businesses are evaluated, funded and supported. SMEs that can track and report even basic sustainability metrics will be better positioned for growth, investment and resilience.

3. Collaboration Will Be Key

No business can achieve sustainability in isolation. Supply chain alignment, industry collaboration and knowledge sharing will be crucial. We’ll see more partnerships forming between big and small businesses with shared sustainability values.

4. Regulation Will Expand

While SMEs may not be legally required to report now, that may change in the coming years. As global expectations rise, it’s likely that regulatory thresholds will be lowered.

By getting ready now, small businesses can stay ahead of the curve and influence how sustainability evolves in their industries.

Australia’s 2025 sustainability reporting regulations signal a bold move towards a more transparent, accountable and climate-ready economy. While SMEs aren’t required to report under the new framework (yet), they are far from unaffected.

From meeting supply chain expectations to accessing new markets and building long-term resilience, sustainability is becoming an essential part of doing business in Australia. Small businesses that begin their sustainability journey now through practical steps, strong values and clear communication will be better placed to thrive in this new era of business.