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The construction industry in Australia has long been a pioneer in adopting Environmental, Social, and Governance (ESG) standards.
With established frameworks like Green Star, NABERS, and ISCA, the sector has demonstrated a commitment to sustainability and responsible business practices. But it might be because of this strong history that Australia’s new mandatory climate reporting laws are a challenge for the industry. With so many existing reporting requirements, how will construction businesses manage the additional reporting burden?
What are the new requirements?
Australia's new climate reporting laws, set to commence on 1 January 2025, mandate large and medium-sized companies to disclose climate-related financial information. This includes reporting on climate-related risks, opportunities, and greenhouse gas emissions across their value chains. The legislation, aligned with international standards, aims to enhance transparency and accountability in corporate climate actions.
Initial requirements will apply to companies with over 500 employees, $500 million in revenue, or $1 billion in assets, with phased implementation for smaller entities (more details in RSM’s report here). To ensure the reliability of the disclosures, the information will also be subject to audit.
The real challenge
While these laws are set to align Australia’s reporting with international climate reporting – simplifying reporting for multinational entities as well as comparisons for investors and other stakeholders – they pose more of a challenge for some sectors than others. 
For the construction industry, with its already layered and complex ESG requirements, the introduction of these laws adds another tier of complexity to an already intricate reporting landscape. Construction companies are now faced with the task of integrating these new requirements with their existing ESG frameworks.
One of the biggest challenges for construction companies will be that, at their core, these reporting requirements are significantly different to existing requirements. Current ESG frameworks in construction focus on individual projects meeting certain environmental standards, whereas the climate reporting requirements are whole-of-entity corporate level reporting. This means that while there are data synergies (particularly in emissions), companies will need to elevate the management of this information to executive and board level.
RSM’s research last year indicated that less than 20% of construction companies that will be mandatory reporters are collating and reporting carbon emissions information at the corporate level, with as few as 2% prepared for the more complex disclosures required.
The other standout challenge is that the new climate reporting standards require not just disclosure, but genuine operationalisation and management of climate risk. Companies must take deliberate steps to understand what climate change means for their business and integrate the management of that – not just into an existing risk enterprise system, but throughout the corporate governance and reporting functions, as well as strategic planning.
The ‘Scope 3’ hurdle
Under the new requirements, companies will also need to disclose carbon emissions that occur in their supply chains (scope 3 emissions). Because the company is not directly generating these emissions, they can be difficult to track and measure, making it a source of tension for many organisations. Understanding these emissions requires interaction with your customers and suppliers, and in many ways scope 3 emissions are becoming the great connector between businesses – forcing more collaborative engagement than ever before.
To add to this challenge, the construction industry also often has complex and diverse supply chains, which can mean extensive data collection from numerous suppliers and subcontractors, who are often lacking standardised reporting practices.
The key to scope 3 emissions is understanding where your company has the ability to impact and influence emissions. But to do this, you will need to assess where scope 3 emissions are in the supply chain and identify hot spots that need further investigation. This is likely to be in key customers and suppliers that make up the bulk of your company’s supply chain, and prioritising them will be critical to focussing efforts. But ultimately, the only solution to measuring and reporting scope 3 is to get started as early as possible, and put in place a clear process to avoid getting sidetracked by the scale of work involved.
Where to from here
The great news is that many mid-large companies already have at least some of the key data through existing reporting. The bad news is that the new information required – such as assessing climate risks – is complex and time consuming to develop.
For larger companies that are at the beginning of their journey, they will also be racing against the clock to ensure they are able to report auditable information. The combination of the reporting requirements and a tight timeline can be daunting, but breaking down the requirements and taking a step-by-step approach can simplify the process and give direction to the business.
Our key recommendations on approaching your reporting revolution are:
- Undertake a gap analysis between current governance, risk management and strategic planning, and the legislative requirements.
- Map organisational data including data custodians, reporting frequency and location.
- Start now! Even if your mandatory reporting date is a couple of years away, getting started sooner will put you at an advantage when dealing with complex information such as scope 3 emissions and climate risks.
RSM’s specialist ESG and Climate Services team can help to ready your construction company for these new reporting requirements – from conducting a gap analysis to advising on the best approach to integrate reporting into your business practices.
FOR MORE INFORMATION
For a free initial conversation with our ESG team, please contact your local RSM office.
