Australia’s mandatory climate-related financial disclosure regime is back at the centre of political debate, after the Coalition proposed winding back parts of it. Xero has come out in support of keeping mandatory disclosure, arguing the real issue for small businesses is the burden of repeated reporting requests, not the existence of climate reporting itself.
What’s actually being proposed
Australia’s climate reporting regime, introduced in 2024 and built around the international IFRS S2 baseline, requires large companies to disclose climate-related risks and greenhouse gas emissions, including emissions across their supply chains, as part of annual sustainability reporting. The regime was designed with tiered thresholds: Group 1 entities (the largest) began reporting for financial years starting on or after 1 January 2025, Group 2 entities start from 1 July 2026, and Group 3, the smallest tier captured by the regime, starts from 1 July 2027.
The government has already moved once to ease the burden on smaller entities, proposing in the 2026 Budget to roughly double the thresholds for the Group 3 tier, lifting them from $50 million revenue and $25 million in assets to $100 million revenue and $50 million in assets. Because Group 3’s criteria track the definition used for large proprietary companies, that change would meaningfully shrink the number of smaller businesses captured by the regime at all.
The Coalition’s position goes further than adjusting thresholds. Shadow Treasurer Angus Taylor has previously argued the laws make it harder for Australian farmers, manufacturers and miners to attract capital, insurance and financial services, and reduce Australia’s competitiveness for international investment, pointing to the US wind-back of comparable reporting requirements as part of the rationale for Australia reconsidering its own regime.
Who the rules actually apply to
It’s worth being clear about scope, because the regime captures far fewer businesses than the political debate sometimes suggests. According to ASIC’s own guidance for small business, the majority of Australian small and medium businesses will not fall within any of the three reporting groups, and the new requirements do not directly apply to small-to-medium sized businesses at all. If a business is large enough to meet the mandatory reporting threshold, it’s already preparing and lodging a financial report with ASIC, meaning it’s not a typical small operator to begin with.
The indirect exposure is where most SMEs actually encounter the regime. ASIC notes that many small businesses form part of the supply chain of larger reporting businesses, and because a large company’s Scope 3 emissions disclosure includes the emissions generated by its suppliers, a small business supplying a Group 1 or Group 2 company may be asked to provide emissions data even without any direct obligation of its own. ASIC has flagged that it expects to work with small business representatives on practical guidance addressing exactly this kind of indirect impact.
The case for keeping it, done better
Tamara Somers, GM Sustainability and Impact at Xero, argues the compliance burden critics point to is real, but solvable without abandoning disclosure. “The time and cost of climate reporting is a genuine concern for small business owners, who may receive requests from several large customers and find themselves answering the same questions repeatedly,” she said.
Her proposed fix centres on standardisation rather than removal. “The answer is to reduce that burden, not remove the transparency that climate reporting provides,” Somers said. “Small businesses should be able to report their emissions once, in a standard format, and let their customers access that information with their permission.”
Somers also points to Australia’s international positioning as a reason to keep the current framework intact. “Australia chose to build its regime on IFRS S2, the international baseline. Stepping away from part of it would make Australia an outlier internationally, and investors in Australia would lose visibility that they retain elsewhere,” she said.
Xero’s position aligns with a broader group of Australian business and investor organisations, including the Business Council of Australia, the Australian Institute of Company Directors and the Australian Council of Superannuation Investors, which have previously expressed general support for mandatory climate reporting, even as they’ve pushed for adjustments to reduce compliance burden on smaller entities.
What SMEs can do right now
For small businesses unsure where they stand or how to respond to a customer’s emissions request, a few practical steps help:
Check ASIC’s own small business guidance directly (asic.gov.au, Sustainability Reporting for Small Business), which sets out the three reporting groups in plain terms and confirms whether a business is likely to fall within scope based on revenue, assets and employee numbers.
Don’t assume a request from a large customer means you’re legally required to report. Most SMEs supplying larger businesses are being asked to help a customer meet its own Scope 3 obligations, not meeting a direct obligation of their own. It’s reasonable to ask the requesting business what format and level of detail they actually need.
Use existing accounting data rather than starting from scratch. Platforms including Xero, through its Sumday partnership, and other accounting software providers now offer tools that generate an initial emissions estimate from financial data already on file, reducing the need to build a report manually for every customer request.
Keep a single, reusable emissions summary rather than answering each customer separately. Even without formal standardisation across industry, maintaining one internal document that can be shared on request reduces the repeated-answering burden Somers describes.
Watch the Group 3 threshold changes if your business is near the boundary. If the proposed Budget changes pass, some businesses currently expecting to report from 2027 may be lifted out of scope entirely, worth monitoring rather than preparing for a requirement that may not end up applying.