Navigating Climate Governance for Businesses
A Guide for Large, Medium, and Small Organisations
As climate change demands urgent attention, Australian businesses of all sizes are seeking ways to integrate climate governance into their organisational structures. This guide explores how large, medium, and small enterprises can structure their climate governance within the context of Australian regulatory frameworks and business practices.
Navigating climate governance
Understanding Company Size in the Australian Context
In Australia, company size classifications differ from global standards, impacting how businesses approach climate governance. Here’s how the Australian Bureau of Statistics (ABS) defines business sizes compared to the Australian Sustainability Reporting Standard (ASRS) cohorts:
The classifications of small, medium, and large businesses in this article are based on the Australian Bureau of Statistics (ABS) definitions and the terms business, company and organisation have been used interchangeably. These classifications differ from the thresholds set by the Australian Sustainability Reporting Standard (ASRS) cohorts, which determine the timeline and criteria for mandatory climate-related reporting. By understanding these differences, organisations can better navigate their climate governance responsibilities and prepare for future regulatory requirements. This article explores how each business size can structure their climate governance to align with these standards, ensuring compliance and fostering sustainable practices.
Climate Governance Structures for Large Organisations
Large organisations in Australia, typically defined by the ABS with annual revenues exceeding AUD 250 million, 200 or more employees, and assets over AUD 200 million, often fall under ASRS Group 1. As part of this first cohort, these organisations are at the forefront of mandatory climate-related reporting, requiring them to adopt rigorous sustainability practices and report detailed climate-related data. This increased transparency and accountability can drive more sustainable business practices and enhance corporate reputation, but it also presents challenges in resource allocation and regulatory scrutiny.
Typically, these organisations have a board structure that includes a dedicated sustainability or climate committee, ensuring that climate governance is integrated into the highest levels of decision-making. Executive roles often feature a Chief Sustainability Officer (CSO) and dedicated sustainability departments, with climate specialists integrated into various functions like finance, risk, and operations. This specialization allows for focused attention on climate-related issues across the organization.
Management structures in large organisations feature cross-functional climate task forces, regional climate teams, and dedicated climate data and reporting teams. These teams work collaboratively to implement climate strategies and ensure consistent reporting and compliance. Boards of large organisations conduct formal, frequent reviews of climate strategy and performance, supported by extensive internal audit processes and external assurance of climate-related disclosures. Climate KPIs are integrated into executive compensation, and detailed climate action plans are developed for each business unit, with regular climate risk assessments and scenario analyses being standard practices.
However, large organizations face the challenge of balancing short-term financial results with long-term climate goals. They also experience heightened scrutiny and potential legal risks related to greenwashing and compliance.
Climate Governance Structures for Medium-sized Organisations
Medium-sized organisations, defined by the ABS with revenues between AUD 10 million and AUD 250 million, 20 to 199 employees, and assets ranging from AUD 10 million to AUD 200 million, typically fall under ASRS Group 2 and Group 3. These cohorts are the next waves of organisations required to implement detailed sustainability reporting. Being part of Groups 2 and 3 means these businesses need to develop robust climate governance frameworks and integrate sustainability into their core strategies. While this can lead to improved sustainability performance and stakeholder trust, it also demands significant effort in data collection, reporting, and aligning business operations with regulatory requirements.
Medium-sized organisations in Australia often need to balance resource constraints with growing expectations for climate action. These organisations typically assign climate responsibilities to existing committees, such as Risk or Audit, and may have a board member with specific climate expertise to ensure that climate issues are considered in broader risk management and strategic discussions.
The executive structure in medium-sized enterprises often includes a Sustainability Director reporting to the C-suite, supported by a small sustainability team. This approach allows for dedicated focus on sustainability while leveraging existing resources. Management structures feature cross-functional 'green teams' with representatives from key departments and climate champions within each department. These teams collaborate to implement climate initiatives and promote sustainability across the organization.
Boards of medium-sized organisations review climate performance quarterly and conduct annual climate risk assessments, with limited external assurance on key climate metrics being common. Climate goals are included in performance reviews for senior management, and department-level climate action plans are developed, culminating in an annual climate impact report. Medium-sized organisations face resource constraints, limiting their financial and human resources dedicated to climate governance and reporting. They are also more vulnerable to the impacts of climate change due to limited resilience.
Climate Governance Structures for Small Organisations
Small organisations in Australia, defined by the ABS with annual revenues under AUD 10 million, up to 19 employees, and assets less than AUD 10 million, generally do not fall under ASRS defined cohorts. Therefore, many small businesses are not immediately subject to mandatory climate-related reporting.
However, these businesses are increasingly recognizing the importance of integrating climate governance into their operations. Preparing for future compliance is crucial, as proactively developing sustainability practices can mitigate future regulatory risks and enhance market competitiveness. While small businesses may initially face challenges in resource allocation and expertise, these efforts will position them better to navigate evolving regulatory landscapes.
For small businesses, climate governance is often integrated into existing roles and functions. In many cases, they may not have formal boards of directors. Instead, climate responsibilities can be assigned to key executives or owners. If a small business does have a board or advisory group, it may include a member with sustainability knowledge to ensure climate issues are considered in decision-making.
In the absence of a formal board, climate responsibilities are typically assigned to an existing executive, such as the Chief Operating Officer (COO) or the business owner. This executive oversees climate-related initiatives, possibly with the help of external sustainability consultants for specialized tasks. This approach allows small businesses to leverage external expertise while maintaining internal focus on core operations.
Small businesses often integrate climate responsibilities into existing roles, promoting a culture of sustainability throughout the organization. Employees at all levels may be involved in sustainability initiatives, fostering a collective effort toward climate goals.
Without formal boards, oversight and accountability in small businesses may involve regular reviews of climate strategy and performance by the executive team or business owner. Simplified climate risk assessments and self-reported climate metrics can be used to track progress. Establishing company-wide climate goals and integrating climate considerations into major business decisions help ensure that sustainability remains a priority.
The pathway forward
Collaboration is crucial in overcoming the challenges of climate governance across all business sizes. Effective execution of climate strategies requires coordinated efforts across various departments and external partners. For large organisations, collaboration can help streamline compliance efforts and enhance board confidence through access to external expertise. Medium-sized organisations can benefit from collaborative platforms to align with stakeholder expectations and build support for sustainability initiatives. Small businesses, on the other hand, can leverage industry-wide coalitions to share resources and best practices, ensuring they are prepared for future regulatory changes.
The interconnectedness of environmental challenges underscores the need for holistic governance approaches. Viewing ESG strategies as opportunities rather than regulatory hurdles can drive smarter, more sustainable business practices and ensure long-term success. The evolving regulatory landscape in Australia highlights the importance of proactive climate governance, making it essential for organisations of all sizes.
Important information: This article is for reference only and is not intended for use as a substitute for legal advice on meeting Australian Sustainability Reporting Standards.