New Sustainability Reporting Requirements for Australian Businesses

July 25, 2024

Supply Chain Sustainability Reporting Series by Emma Woodberry

Part 1 - Sustainability Reporting

New Sustainability Reporting requirements are being introduced for Australian businesses and organisations

In June 2023, the ISSB released the inaugural global sustainability standards, which were an exercise in global baselining and alignment – in other words, getting everyone singing from the same song sheet when it comes to sustainability reporting. In March this year, a Treasury Bill was introduced into parliament which outlines the reporting obligations for Australian organisations, with commencement dates from 1 January 2025 – which is expected to be passed sometime this year. Organisations are encouraged to start preparing for what this means for their reporting requirements.

The reporting requirements will cover governance, strategy and risk management processes and controls in place for identifying and mitigating material sustainability related risks, including performance against sustainability metrics. These reporting obligations will have significant impacts on supply chain operations, as it will drive greater transparency, accountability and sustainability across entire value chains both locally and globally. Supply Chain leaders and managers may be called upon to report on or start measuring metrics against specific sustainability or climate related targets. Additional reporting requirements will be linked with existing financial reporting obligations at year end, so organisations will need to provide sustainability inputs to financial statements.

Reporting will need to address opportunities and risks as they relate to sustainability, for example, how climate change related disruption could impact an organisation’s ability to meet customer needs.

Reporting requirements will cover two key areas: Emissions and Climate related risk
Understand your Emissions

Measuring Scope 1 and 2 carbon emissions can be simple – mapping out your supply chain and determining the carbon footprint of your owned and controlled operations. Scope 3 is where the complexity begins – upstream activities can include the carbon footprint of all purchased goods and services, employee travel and waste generation for example, and downstream activities includes how sold products are used and disposed of. Do you know what happens to your products once they are in the customer’s hands?

Supply chain mapping is useful to understand where your value chain starts and ends, from processing of raw materials through to disposal of goods produced in your supply chain. This introduces the first layer of visibility of the extent of your Scope 3 emissions. From here it is important to understand what your suppliers and customers are doing to measure, manage and reduce their emissions, and how you are measuring, managing and mitigating your own emissions.

Risk and Resilience in your Supply Chain

Supply chain mapping provides a good overview of where emissions are generated across your value chain and will also provide a baseline for assessing climate change disruption risk. Conducting a risk and resilience assessment across your supply chain will identify areas of weakness or risk due to climate change related disruption. Areas such as critical infrastructure or vulnerability to disruption will be explored and assessed, identifying risk mitigating actions that need to be taken.

Moving Forward

Baselining your Scope 1, 2 and 3 emissions is the minimum, setting targets and management plans is the next step. This will involve operational initiatives that encourage efficiency within the organisation, as well as working with suppliers to increase transparency and visibility of upstream operations. Best practice then involves setting Science Based Targets (SBTs) that are ambitious and reporting progress against these targets.

Proactive risk mitigation steps for your supply chain extends to core supply chain efficiency activities such as network optimisation, supplier relationship management and lean inventory practices. Understanding your emissions and building a resilient supply chain will drive sustainable practice.

Where we can help

At Trace, we have tried and tested frameworks that support emissions baselining and measurement, as well as risk and resilience assessment.

Carbon Emissions Measurement

We can support you in understanding your emissions, identifying opportunities to reduce your footprint and improve your overall sustainability through the following high level 4-step approach:

1. Map your supply chain including your nodes, upstream supply chains, and downstream product lifecycles

2. Measure emissions using Greenhouse Gas (GHG) Protocol data (Scope 1, 2 and 3)

3. Set targets that are ambitious, measurable and supportive of strategic goals

4. Define and implement a set of initiatives that will support efficiency and emissions reduction activities

Our risk and resilience framework

Our Supply Chain Risk & Resilience Assessment Model aligns with the framework adopted by the Federal Office of Supply Chain Resilience and the Australian Productivity Commission, which are used to assess supply chain risks to critical products and services. Our model covers three stages:

1. Inputs Stage: identifies the qualitative and quantitative inputs to a resilience assessment including supply chain mapping, disruption scenarios, stakeholder engagement and existing plans and policies

2. Assessment Stage: measures the level of resilience, residual risks and sustainability impact through understanding the criticality and vulnerability of the supply chain

3. Actions Stage: identifies the key actions required to update and implement plans and policies that will secure future resilience and mitigate risks identified in Stage 2

Understanding vulnerability to climate change disruption, and the actions being taken to overcome this vulnerability will be key requirements for future reporting regulations.

Get in touch today to see how we can help your supply chain sustainability journey.

Emma Woodberry

Senior Manager

Related Insights

Sustainability, Risk and Governance
April 3, 2023

Leading the Way: Australian Companies Making a Difference in Scope 3 Emission Reduction

In this blog article, we will discuss the importance of addressing scope 3 emissions and explore the investments Australian businesses can make to maximise their emission reduction impact.

Sustainability in the Supply Chain

In the wake of global climate change concerns and increasing regulatory requirements, Australian businesses must consider the impact of their supply chain on greenhouse gas (GHG) emissions. A key area of focus is scope 3 emissions, which encompass indirect emissions from a company's value chain, including upstream and downstream activities. In this blog article, we will discuss the importance of addressing scope 3 emissions and explore the investments Australian businesses can make to maximise their emission reduction impact.

Understanding Scope 3 Emissions

Scope 3 emissions are divided into two main categories:

  1. Upstream emissions: These emissions result from activities that occur before a company's direct operations, such as raw material extraction, production, and transportation.
  2. Downstream emissions: These emissions occur after a product has left a company's direct control, including product use, end-of-life treatment, and disposal.

Investments for Maximising Scope 3 Emission Impact in Australia

Australian businesses can make strategic investments in their supply chains to address scope 3 emissions and contribute to a more sustainable future. Here are some key areas to focus on:

  1. Measure and report: Australian businesses should invest in systems that accurately measure and report their scope 3 emissions. This will help identify areas for improvement and track progress. Standardised measurement and reporting methodologies, such as the Greenhouse Gas Protocol, can provide a solid foundation for such efforts.
  2. Supplier engagement: Engaging with suppliers is crucial for Australian businesses seeking to reduce their scope 3 emissions. Companies can provide incentives, support, and training to help suppliers adopt low-carbon technologies and practices. Collaborating with suppliers on sustainability targets and sharing best practices can also drive emission reductions across the supply chain.
  3. Sustainable procurement: Integrating sustainability criteria into procurement processes can help Australian businesses prioritise suppliers with lower emissions profiles. This may include considering factors such as energy efficiency, use of renewable energy, waste management, and recycling practices when selecting suppliers.
  4. Product design and lifecycle management: By designing products with sustainability and circular economy principles in mind, Australian businesses can minimise emissions throughout the product lifecycle. This includes considering factors such as material selection, recyclability, and energy efficiency during the design phase, as well as end-of-life disposal and recycling options.
  5. Collaboration and innovation: Australian businesses can benefit from collaborating with industry peers, government agencies, and other stakeholders to develop innovative solutions for reducing scope 3 emissions. Joining industry initiatives, partnering with research institutions, or investing in new technologies can drive emissions reductions across the value chain.

Examples of Australian Companies Making a Difference

  1. BHP

Mining giant BHP has made significant commitments to reduce its scope 3 emissions. The company has set an ambitious goal to become a net-zero emissions business by 2050. BHP has implemented initiatives such as investing in carbon capture and storage technologies, collaborating with suppliers to reduce emissions from steel production, and working with customers to reduce emissions during the use of its products.

  1. Qantas

Qantas, Australia's largest airline, has committed to achieving net-zero emissions by 2050. To address scope 3 emissions, Qantas has invested in sustainable aviation fuels (SAF) and partnered with suppliers to develop low-carbon alternatives. Additionally, the airline has implemented a carbon offset program that encourages passengers to offset their emissions by supporting environmental projects in Australia and overseas.

  1. Westpac

Westpac, one of Australia's largest banks, has established a comprehensive climate change strategy that includes reducing scope 3 emissions. The bank has committed to aligning its lending portfolio with the Paris Agreement goals and actively engages with customers in carbon-intensive sectors to support their transition to a low-carbon economy. Westpac has also introduced responsible investment options for customers that consider environmental, social, and governance (ESG) factors.

Addressing scope 3 emissions is an essential aspect of corporate sustainability and environmental stewardship for Australian businesses. By investing in emission measurement and reporting, supplier engagement, sustainable procurement, product design, and collaboration, companies can significantly reduce their scope 3 emissions and contribute to a greener future. As regulations and stakeholder expectations continue to evolve, Australian organisations that proactively address scope 3 emissions will be better positioned to thrive in a low-carbon economy.

Contact us today, trace. your supply chain consulting partner.

Sustainability, Risk and Governance
May 21, 2024

Sustainable Changes to Operating Models to Support Large Scale Cost Reduction Programs: An Interview with James Allt-Graham, Partner of Trace Consultants

Discover sustainable strategies for cost reduction with insights from James Allt-Graham, Partner at Trace Consultants.

Sustainable Changes to Operating Models to Support Large Scale Cost Reduction Programs: An Interview with James Allt-Graham, Partner of Trace Consultants

In today's rapidly evolving business landscape, companies are increasingly pressured to find innovative ways to reduce costs without compromising on quality or customer service. Sustainable changes to operating models have emerged as a critical strategy for achieving these goals. To shed light on this topic, we sat down with James Allt-Graham, Partner at Trace Consultants, who shared his insights on balancing customer service and cost outcomes, right-sizing fixed cost bases, reviewing network footprints and leases, optimising inventory and working capital, workforce planning, and reviewing supplier relationships.

Interviewer: James, thank you for joining us today. To start, could you give us an overview of why sustainable changes to operating models are essential for supporting large-scale cost reduction programs?

James Allt-Graham: Thank you for having me. Sustainable changes to operating models are crucial because they enable organisations to achieve cost reductions in a manner that doesn't compromise long-term business health. Instead of one-off cost-cutting measures, sustainable changes focus on transforming the underlying processes and structures of an organisation. This approach ensures that cost reductions are not only significant but also enduring, providing a solid foundation for future growth and adaptability.

Interviewer: Balancing customer service and cost outcomes can be challenging. What strategies can organisations use to achieve this balance?

James Allt-Graham: Balancing customer service with cost outcomes is indeed a delicate act. The key is to focus on value rather than cost alone. Start by understanding what aspects of your service are most valued by customers and ensure these are protected. Use data analytics to identify inefficiencies and areas where costs can be reduced without impacting the customer experience. Additionally, leveraging technology to streamline operations and improve service delivery can help achieve this balance. For instance, implementing automated customer service solutions can reduce costs while maintaining high service standards.

Interviewer: Right-sizing the fixed cost base is another critical area. What does this process involve, and how can companies effectively manage it?

James Allt-Graham: Right-sizing the fixed cost base involves aligning your fixed costs, such as rent, salaries, and utilities, with the current scale and needs of your business. This process starts with a thorough audit of all fixed costs to identify areas of excess. Companies should look at renegotiating leases, outsourcing non-core activities, and adopting flexible workforce arrangements. It's also essential to regularly review and adjust these costs as the business environment changes. The goal is to create a more agile cost structure that can quickly adapt to market conditions.

Interviewer: Reviewing network footprints and leases is an integral part of cost reduction. What steps should businesses take in this review process?

James Allt-Graham: Reviewing network footprints and leases involves evaluating the physical locations of your operations and determining if they are optimally positioned to support your business strategy. Start by analysing the performance and profitability of each location. Consider factors such as proximity to key markets, supply chain logistics, and lease terms. Businesses should look for opportunities to consolidate locations, move to lower-cost areas, or even adopt remote working models where feasible. Renegotiating lease terms can also yield significant savings, especially in a market where landlords may be more flexible.

Interviewer: Inventory optimisation and working capital management are also critical for cost reduction. How can companies optimise these areas?

James Allt-Graham: Optimising inventory and working capital involves maintaining the right balance between having enough stock to meet demand and minimising excess that ties up capital. Start with a comprehensive analysis of your inventory data to identify slow-moving or obsolete stock. Implementing just-in-time inventory practices can reduce holding costs and improve cash flow. Additionally, improving forecasting accuracy and supplier collaboration can help ensure that inventory levels are aligned with actual demand. For working capital management, focus on improving the efficiency of your accounts receivable and payable processes to enhance liquidity.

Interviewer: Workforce planning is another significant aspect. What are the best practices for effective workforce planning?

James Allt-Graham: Effective workforce planning requires a strategic approach to ensure that you have the right number of employees with the right skills at the right time. Start by analysing your current workforce and projecting future needs based on business goals and market trends. Consider flexible workforce models, such as part-time, temporary, or contract workers, to manage peaks in demand without increasing fixed costs. Invest in employee training and development to build a versatile workforce that can adapt to changing requirements. Technology can also play a crucial role in workforce planning by providing data-driven insights and automating routine tasks.

Interviewer: Lastly, reviewing supplier relationships and spend analytics is vital. What should companies focus on in this area?

James Allt-Graham: Reviewing supplier relationships and spend analytics involves a detailed examination of your procurement practices to identify cost-saving opportunities. Start by categorising your suppliers based on their strategic importance and spend levels. Conduct a spend analysis to identify trends, inefficiencies, and areas where you can negotiate better terms. Focus on building strong relationships with key suppliers to secure favourable pricing, rebates, and payment terms. Additionally, consider diversifying your supplier base to reduce dependency on a single source and increase competition. Technology can assist by providing real-time spend visibility and automating procurement processes.

Interviewer: That's incredibly insightful, James. To wrap up, could you summarise the key takeaways for organisations looking to implement sustainable changes to their operating models?

James Allt-Graham: Certainly. The key takeaways for implementing sustainable changes to operating models are:

  1. Focus on Value: Prioritise changes that enhance customer value and drive long-term sustainability.
  2. Data-Driven Decisions: Use data analytics to identify inefficiencies and guide decision-making.
  3. Flexibility: Adopt flexible cost structures and workforce models to adapt quickly to changing market conditions.
  4. Technology Integration: Leverage technology to streamline operations and improve efficiency.
  5. Continuous Review: Regularly review and adjust your strategies to stay aligned with business goals and market trends.

By taking a strategic and data-driven approach, organisations can achieve significant cost reductions while maintaining or even enhancing their service levels.

Interviewer: Thank you, James, for sharing your expertise with us today. Your insights will undoubtedly help many businesses navigate the complexities of cost reduction and operational efficiency.

James Allt-Graham: It was my pleasure. I hope these insights will help organisations achieve their cost reduction goals sustainably and effectively.

In conclusion, sustainable changes to operating models are essential for supporting large-scale cost reduction programs. By focusing on value, leveraging data and technology, and maintaining flexibility, businesses can achieve significant cost savings without compromising on quality or customer service. The insights shared by James Allt-Graham provide a valuable roadmap for organisations looking to navigate this challenging but crucial aspect of business management.

Sustainability, Risk and Governance
August 2, 2024

Understanding Scope 3 Emissions: A Guide to Visibility and Measurement

Explore the complexities of Scope 3 emissions, why they matter, and how to measure them effectively. Learn how visibility and transparency in your supply chain can drive sustainability and reduce your carbon footprint.

Supply Chain Sustainability Reporting Series by Emma Woodberry

Part 2 - Scope 3 visibility and measurement

What is Scope 3 and why is it so complex to measure?

Scope 3 emissions are all emissions not accounted for in Scope 1 and 2 – that is, all emissions which are generated both upstream and downstream of your direct operations. It includes how your products are used once they are no longer in their control, through to their end-of-life treatment. For example, if you’re a t-shirt manufacturer, then the emissions generated when that t-shirt is either thrown away into landfill or recycled will count toward your scope 3 emissions. This is driving more organisations to think about how their product is used, and support and enable customers to engage in circularity to find a second life for their products. If we look upstream, the carbon footprint of our textile suppliers, as well as the transport into our operations is counted towards our Scope 3 too – driving the emphasis on visibility, transparency and supplier collaboration.

This is what makes Scope 3 complex, particularly when we’re looking at physical supply chains. A truly transparent supply chain will have traceability of all raw materials from harvest/extraction to processing and manufacturing, retail and consumption.

How to increase/improve visibility

The complexity of Scope 3 emissions means it has yet to become an embedded focus and activity for most organisations – emerging regulatory requirements will push organisations to put the spotlight on their emissions, and understand where the greatest contributors are in their supply chain. 50% of you told us that Scope 3 emissions are not on your mind yet, but making up over 70% of all emissions, it’s becoming increasingly clear that we need to know how big our Scope 3 footprint is. Customers are starting to place greater importance on aligning themselves with brands who are sustainable and conscious, shifting the need for understanding your emissions from a regulatory and commercial driver to a brand loyalty and reputation driver.

When reporting on your footprint, The Greenhouse Gas Protocol is one of the most common frameworks guiding carbon emissions understanding, measurement and reporting. You can’t accurately report on your wholistic carbon footprint without knowing you Scope 3 emission, and to know these, you must know your supply chain. Without reporting on Scope 3, it’s likely that you're not seeing the whole picture, which can lead to reputational and commercial risks.

How do I measure scope 3?

Measuring scope 3 starts with mapping your supply chain, including upstream suppliers and processes, through to consumer use and end of life. Boundary setting is an important feature in measuring Scope 3 emissions – it allows an organisation to determine how far their own measurement and disclosure of Scope 3 will reach. For example, a t-shirt manufacturer can decide it will include all entities within it’s operational control, to Tier 1 suppliers. From here, you can attribute emissions to the activities within the supply chain and develop an understanding of your Scope 3 emissions.

Now what?

Measuring emissions is the first step to baselining your activity. It’s critical to set targets and develop an action plan in how you will work towards reduction. Once targets are in place, specific reduction activities can be implemented to support overall reduction. These activities and reduction efforts can be reported in an annual Sustainability Report.

Where we can help

At Trace, we can support you in understanding where your Scope 3 emissions come from. Our carbon emissions measurement approach (link to first article) lays out the practical steps to measuring Scope 3 emissions. From here, it’s critical to identify initiatives and programs of work that will support your organisation in reaching targets.

Get in touch today to see how we can help your supply chain sustainability journey.

Emma Woodberry

Senior Manager