2026 will be a defining year for sustainability in Australia and across APAC. Regulatory pressure, investor expectations, and escalating nature and climate risks are converging to create a tipping point. Sustainability is a core driver of enterprise value and resilience and companies that fail to integrate sustainability into business strategy, risk falling behind in a market where performance is being redefined.

We asked our CEO, Dr. Matt Bell, to share the priorities that will matter most for corporate leaders and how these will shape strategy, strengthen risk management, and accelerate sustainable performance in the year ahead.

Sustainability momentum in APAC

Q1. APAC appears to be bucking the trend of sustainability pullback seen in markets like the US. What is driving this momentum, and how should corporate leaders respond?

APAC’s momentum isn’t a counter-trend; it’s a fundamental realignment. While some regions debate pace, Asia is competing for dominance in the new industrial base: AI, EVs, batteries, solar and the critical minerals underpinning the new, greener economy. The driver is economic sovereignty and export necessity. You don’t pull back from the engine of your own growth.

Corporate leaders must respond by linking sustainability directly to supply chain resilience and market access. EU’s regulatory framing may appear to have waned, but there remain pressing compliance issues that aren’t just foreign policies – they are terms of trade for APAC exporters. Your sustainability strategy is now a direct input into your cost of capital and your customers’ procurement. I view it as a core competitive variable in the region’s manufacturing and technological supremacy.

Action: Treat sustainability as a competitive variable in cost of capital and procurement decisions and start embedding it into your supply chain strategy now.

Sustainability in 2026 – priorities for APAC

Q2. What are the top sustainability priorities that will most influence business strategy and investor expectations in APAC in 2026?

I’m seeing four priorities already starting to dominate early 2026 boardroom discussions:

1. AI excitement and uneasiness: Leveraging artificial intelligence as the decisive force multiplier in sustainability is becoming essential, yet its adoption and application remain patchy and uneven – creating new disruptive market leaders, but also creating new sustainability risks around job displacement, ethics, and the potential for corporate-led “efficiencies” that replicate broken economic models’ reliance on stretched natural resources. AI moves from being a tool to a strategic lever for those who lead with a sustainability-first principle, and with humans embedded in the planning process.
2. Carbon competitiveness: It’s no longer just about your emissions footprint. It’s about how carbon-efficient your operations and products are compared to regional rivals. This dictates attractiveness to global supply chains and exposure to mechanisms like CBAM.
3. Nature & water security: Physical climate risk in Asia is acute and immediate. With approximately 75% of GDP in Asia and the Pacific dependent on nature, according to a 2025 Asian Development Bank report, investors are moving beyond climate pledges to scrutinise operational resilience, particularly water stewardship and natural‑capital dependencies across the value chain.
4. Just transition as operational stability: The social license to operate is paramount. Strategies for workforce transition, community engagement, and ethical sourcing are critical for securing permits, maintaining stable operations, and attracting ESG capital focused on social governance. Investors now see these not as ESG scores, but as direct proxies for systemic risk management and long-term asset viability in the region. ESG adoption and allocation intentions remain high among APAC investors, reinforcing the need for credible social governance and delivery.

Action: Identify which of these priorities most impact your business model and allocate resources to address them immediately.

The 10 worst climate-related disasters of 2025 amounted to more than $120bn in insured losses. Asia accounted for four of the world’s six costliest weather disasters. Only 12.3% of natural disaster losses in Asia-Pacific for 2025 were insured.

Sustainability as a core element of business strategy

Q3. How can companies embed sustainability into core business strategy, so it is recognised as a driver of risk management and value creation, rather than treated as a separate add‑on?

We need to stop enabling the perception of ’embedding’ and start actually integrating from the core.

The North American lesson is that sustainability thrives when tied to P&L levers – efficiency, market share, and innovation premiums. When it moves from a “nice to have add-on” and a core, credible rationale for longer-term returns, it becomes hard to budge.

• Reframe the Language: Shift from ESG projects (which I never understood anyway) to ‘resource productivity initiatives,’ ‘market-access compliance,’ and ‘resilience infrastructure.’
• Hardwire the Sustainability Function into Strategy: The value of seeing wider business functions engage with sustainability initiatives over the years means that many of the activities sitting in CSO teams can be largely undertaken elsewhere – this shouldn’t be seen as a threat but the opportunity for sustainability leaders to do what they always should – help establish credible business strategies that are considerate of longer timeframes, scenarios, and planetary limits.
• Leverage APAC’s Leverage: Use your position in the region’s hyper-efficient supply chains to become the supplier of choice for global brands under intense regulatory and consumer pressure. Your sustainability is their risk mitigation.

Action: Hardwire sustainability into strategic planning and capital allocation to make it inseparable from growth decisions.

The role of AI in sustainability

Q4. What role will technology, including AI, play in accelerating sustainability outcomes in 2026?

In 2026, technology’s primary role is expected to drive operational efficiencies writ large, and that may well be true – but my view is that well-managed AI could well expose and solve the biggest bottlenecks in corporate sustainability: the implementation gap.

AI will commoditise strategic insight, giving every leader access to optimised pathways. The differentiator will no longer be knowing what to do, but doing it at speed and scale. Studies show APAC investors are already refining approaches to ESG, with high adoption and increasing attention to AI’s environmental impact and delivery risk, which raises the bar on credible execution, not just strategy decks.

For corporate leaders, this means your focus must shift:

• From buying strategies and risk-analysis to buying de-risked delivery. The premium will be on partners who can orchestrate the ecosystem: financiers, suppliers, and communities, to turn a plan into a functioning reality.
• From reporting on ESG metrics to managing an AI-powered impact engine. Your data will fuel dynamic systems that continuously optimise for carbon, water, and social equity in real-time operations.
• From pilot projects to portfolio-scale transformation. AI will identify your highest-leverage intervention points, allowing you to move resources from scattered pilots to systemic, outcome-driven programs.

This may come across as techno-optimism, but the risk of not engaging with the technological reform in this manner is the mass “optimisation” of unsustainable business practices – the lure of which could well, in the very short term, seem attractive to leaders.

Action: Shift focus from buying strategies to securing partners who can deliver systemic transformation at scale.

Sustaining credibility when resources are tight

Q5. What practical steps can leaders take to sustain credibility and progress on sustainability commitments during periods of resource and financial constraint?

Constraint is the truest test of commitment, and in many previous periods we’ve seen genuine sustainability innovation – through the global financial crisis, during COVID-19, so don’t see that as the disruptor. The key now however, is strategic focus over meaningless, expansive pledges.

1. Double Down on Materiality: Ruthlessly prioritise the 2-3 material sustainability issues that directly affect your cost, revenue, or risk. Go deep, prove value, and communicate that linkage clearly. Find detractors and understand their position.
2. Unlock Self-Funding Loops: Redirect savings from detailed scenarios that have finance and risk buy-in – understanding hidden costs around the corner means those “savings” can be directly modelled into the next wave of sustainability investments. This creates a virtuous cycle that is more immune to sustainability function budget cycles.
3. Transparency Over Perfection: In constrained times, credibility comes from honest, data-driven communication – but one that has storytelling embedded to create the change agenda we’ve missed for too long. Report on both progress and setbacks with equal clarity, outlining your adaptive plan and placing it in stories that resonate with internal and external stakeholders. This builds more trust than glossy, greenwashed reports promising distant, unfunded goals.

Action: Double down on 2–3 material issues and create a clear linkage between sustainability and financial performance.

Why a credible transition plan is essential

Q6. Why is credible climate transition planning essential in 2026, and how should boards link it to capital allocation and investor confidence?

A credible transition plan is the strategic blueprint for survival in a climate-constrained world. It moves the conversation from ‘what risks might we face?’ to ‘how will we transform and thrive?’

While some regions like the EU have wavered on their mandates, leading UK and now Australian boards are seizing the initiative. They understand that a robust plan, detailing shifts in business models, supply chains, and end markets, is the single strongest signal of long-term governance. It directly answers the investor’s core question: ‘Is this business fit for the future?’

The link to capital is therefore absolute. Boards must treat the transition plan as the primary filter for CapEx. Every major investment in assets, acquisitions, or R&D must be stress-tested against it. Does it advance the transition or lock in stranded assets?

This disciplined alignment doesn’t just allocate capital; it attracts it, by proving strategic coherence in the face of systemic change.

Action: Stress-test every major investment against your transition plan, this is non-negotiable for attracting capital in 2026.

Tackling Scope 3 emissions

Q7. Scope 3 emissions remain a challenge. Where should businesses focus first to make measurable progress?

Stop measuring the fog and start managing the hotspots. Generic spend-based factors give a comforting illusion of progress but reveal nothing actionable.

Focus first on the critical 20%: the suppliers and purchased materials that represent the bulk of your Scope 3 footprint and concentrate your strategic leverage. For a manufacturer, these might be primary inputs. For a retailer, it’s more likely to be agriculture or logistics.

Engage these strategic partners not with audits, but with collaborative investment in efficiency, renewables, material innovation, and, more importantly, more circular models. Use procurement muscle and long-term contracts to de-risk their transition. Partner with banks and financiers also motivated to support supply chain sustainability.

This moves the needle from estimated emissions to verified reductions, transforming a reporting burden into a tangible source of resilience and competitive advantage in your core value chain.

Action: Engage strategic suppliers with collaborative investment and long-term contracts to accelerate verified reductions.

Intergration nature-related risks

Q8. Nature-related risks and opportunities are gaining attention. How can companies integrate nature into decision-making and risk management?

Begin by moving from awareness to an actionable diagnosis. A LEAP assessment (Locate, Evaluate, Assess, Prepare) is the critical first step. It maps your operational and supply chain geography against specific, material nature dependencies and impacts: pinpointing where water stress or biodiversity loss directly threaten production or procurement.

This diagnosis then informs strategy. Use frameworks like those from the Nature Positive Institute to translate risks into measurable targets and ‘Nature Positive’ outcomes. This isn’t about generic reporting for reporting’s sake; it’s about treating natural capital as strategic infrastructure. The goal is to shift investment from mitigating distant reputational risk to securing tangible operational resilience and a sustainable social license to operate in APAC’s most vulnerable and vital ecosystems.

Action: Begin mapping your nature dependencies now, and integrate these insights into risk management and investment decisions.

Final thoughts

So there you have Matt’s thoughts on the sustainability priorities and actions APAC leaders should focus on in 2026.

The year ahead will test which organisations can move beyond compliance and embed sustainability as the foundation for long-term performance. Those that act decisively will not only increase resilience and meet regulatory demands but earn trust and strategic advantage in a world where authentic, sustainable performance is becoming the benchmark for integrity and long-term success. In APAC, this means treating sustainability as inseparable from strategy, capital allocation, and delivery, because in the new industrial economy, leadership will be defined by the ability to turn ambition into action at speed and scale.

Listen to more from Matt on the year ahead in the recent Purposing Podcast | Anthesis Global

An Environmental, Social, and Governance or – ESG materiality assessment is a structured process that identifies and prioritises sustainability issues most relevant to an organisation and its stakeholders. It provides the basis for ESG strategy, risk management, and reporting by focusing resources on areas with the greatest impact and value creation potential. A comprehensive assessment considers both inside-out impacts (how the organisation affects people and the planet) and outside-in factors (how environmental and social trends affect the organisation). It also incorporates input from stakeholders such as investors, employees, and customers. This process is increasingly important with regulatory developments like the Australian Sustainability Reporting Standard AASB S2, which introduces mandatory climate-related financial disclosures. This article explains the fundamentals of ESG materiality, outlines key steps and the concept of ‘double materiality,’ and describes the benefits of integrating this approach into sustainability planning.

What is an ESG Materiality Assessment? 

An ESG materiality assessment is a strategic process companies use to identify and prioritise sustainability issues that are most relevant to their operations and stakeholders. 

Best practice frameworks, such as the Global Reporting Initiative (GRI), make clear that organisations should conduct a materiality assessment to identify their most salient ESG topics. This is done to ensure that sustainability efforts are focused where the business has the greatest impact (both positive and negative). 

A key consideration when conducting a materiality assessment is the methodology you deploy. In the fast-evolving sustainability landscape, best practice is to use a double materiality methodology. 

What is Double Materiality?  

Double materiality is the impact your business has on its stakeholders and how ESG may impact your business performance. Two leading ESG best practice frameworks, GRI and Sustainability Accounting Standards Board (SASB) explore both sides of materiality, where GRI looks at outward impact (onto stakeholders), SASB looks at inward impact (onto business performance). Taken together, these two standards effectively cover a double materiality lens.   

So, what does an ESG materiality assessment consist of? According to GRI, a materiality assessment should involve the following steps:   

• Understand the organisation’s context, 
• Identify actual and potential impacts, 
• Assess the significance of the impact,  
• Prioritise the most significant impacts. 

Learn more in our Guide To Double Materiality Reporting | Australia

Benefits of an ESG Materiality Assessment 

There are many benefits of conducting an ESG materiality assessment. These include: 

• Prioritising your ESG Efforts: Ensure your ESG efforts are focused on your business’s most salient impacts. 
• Strategic Alignment: Align and embed ESG priorities into your overall business strategy. 
• Addressing and Mitigating Risk: Identify and mitigate potential risks associated with ESG impacts, through risk management. 
• Building Stakeholder Trust: Build trust and credibility with stakeholders’ engagement and considerations. 
• ESG Transformation: Enables your leadership and key personnel to upskill and align their understanding around key ESG issues relevant to the business, bringing them along and preparing key people to lead a longer-term transformational change in the organisation. 

Key Steps in Conducting an ESG Materiality Assessment 

Conducting an ESG materiality assessment is the foundation for your business’s ESG efforts. 

To guide this process effectively, several key steps should be taken to ensure objectiveness, inclusiveness and comprehensiveness. Let’s explore these key steps to conduct an ESG materiality assessment. 

1. Understand your company’s context 

Begin by exploring your industry, business model and purpose, ESG drivers and stakeholder landscape. For more guidance, GRI 3: Material Topics outlines what should be considered when understanding your organisation’s context. 

2. Identify actual and potential ESG impacts and conduct stakeholder engagement 

Create a long list of all actual and potential ESG impacts, both positive and negative. These actual and potential ESG impacts can consider double materiality and explore inward and outward impacts on your business. A great starting point for your business may be to review your most suited industry standard dictated by GRI and SASB. 

Following your long list, it is crucial to consult your stakeholders to understand their concerns and priorities in terms of ESG impacts. 

3. Assess impacts and relevance 

Following your stakeholder engagements and identification of ESG impacts, it is important to assess each impact for relevance, including negative impacts and positive impacts, such as likelihood and scale. 

4. Prioritise ESG material topics 

By assessing each impact, your business will find your most salient ESG impacts. It is vital to prioritise your material ESG topics, to understand which requires most consideration. This can involve reviewing your ESG material topics and creating a threshold, and therefore, selecting a maximum number of topics. 

5. Finalise ESG framework 

To ensure the outcomes of your ESG materiality assessment are user-friendly across your business and for key stakeholders, we recommend creating a final ESG framework where you can see at a glance your most material issues. 

6. Regular review and update 

The sustainability landscape, industry trends and stakeholder expectations are ever-changing; that’s why it’s imperative to regularly review and update your ESG material topics. Many businesses aim to conduct a revised materiality assessment annually or biannually. 

7. The foundation for your ESG efforts and strategy 

To ensure this process is utilised effectively, it is important to integrate the findings and your identified material topics into your organisation’s strategic planning, processes, risk assessment and reporting. This can be achieved through the development of a ESG or Sustainability strategy. For more guidance on developing an ESG strategy or reporting, ‘What is ESG and why is it important?’ 

What does an ESG Materiality Assessment Include? 

A materiality assessment varies by industry, but some common ESG impacts and topics that would be covered in an ESG materiality assessment and that would traditionally be workshopped through include: 

Environment: 

• Climate change and greenhouse gas emissions 
• Water usage and conservation 
• Biodiversity and ecosystem impacts 
• Waste management and recycling 
• Pollution prevention and control 

Social: 

• Labor practices and human rights 
• Diversity and inclusion 
• Employee health and safety 
• Community engagement and development 
• Supply chain ethics and fair labour practices 

Governance: 

• Board composition and independence 
• Executive compensation and transparency 
• Anti-corruption and bribery policies 
• Shareholder rights and engagement 
• Ethical business conduct and corporate culture 
• ESG Materiality Assessment in Practice 

We’ve worked with various clients across different industries to support their ESG materiality assessment processes. Learn about our materiality assessment advisory and development of an inaugural sustainability report and ESG strategy to progress Namoi Cotton and the cotton industry towards a more sustainable future. 

Why do an ESG Materiality Assessment?

Amidst the growing drivers and significance of ESG considerations, the adoption of an ESG materiality assessment is emerging as a strategic imperative for future-focused businesses. 

The materiality process gives a valuable overarching view of your company’s risk, enabling you to understand and prioritise the material impacts on both your financial performance and reputation. By addressing stakeholder concerns and aligning efforts with actual and potential impacts, your business can navigate the intricate landscape of ESG and leverage the materiality assessment as an effective tool, offering a clear roadmap in committing your business to embed sustainable practices into your core business strategy. 

Watch this webinar for an in-depth overview of how to use materiality outcomes to better inform your company’s strategic imperatives.

Need Help With Your ESG Materiality Assessment?

If you’d like to learn more, or need guidance with your ESG strategy or materiality assessment, or broader emissions reduction, target setting and sustainability initiatives, please reach out to our experts we’re here to help.

You can also download our Guide to Double Materiality here. and here you can understand the pros and cons of doing DIY or outsourcing.

Originally published July 2024, updated January 2025.

Despite the Coalition government scrapping its commitment to net zero, the current government – set to remain in place for at least the next two and a half years – is increasing national ambition, and by all accounts, the momentum is unstoppable. The Australian Government’s 2035 NDC – or Nationally Determined Contribution, of a 62–70 per cent reduction in emissions, sends a clear signal for action and marks a decisive step toward a low-carbon economy.

Achieving this target will depend on coordinated action. While government policy sets the framework, corporate Australia will carry much of the responsibility for delivery.

With most of the global economy committed to net zero, these ambitions will shape investment priorities, influence market positioning, and define how organisations manage regulatory exposure and operational risk. For companies, establishing a net zero pathway pathway aligned with science-based targets provides a credible north star, a clear direction grounded in climate science. Levering a recognised framework companies can manage transition risk, attract investment, and demonstrate leadership in a market that increasingly rewards transparency and accountability.

Policy and market signals senior leaders must act on

The strengthened 2035 target gives businesses greater certainty to plan capital investment, product development, and supply-chain strategy. It confirms that Australia’s decarbonisation pathway will continue to deepen, with clear implications for corporate strategy.

Aligned to the target, the government recently released its Net Zero Investment Guide – the NDC Investment Blueprint, which sets out how national climate commitments can translate into investable opportunities. Australia’s abundant renewable resources, critical minerals, skilled workforce, and stable political environment make it an attractive destination for global capital.

Policies that are deepening the shift include the focus on climate risk and opportunities in line with the mandatory climate-related disclosures under the Australian Sustainability Reporting Standards (ASRS). From January 2025, Group 1 entities must report, expanding over the next two years to include thousands of companies nationwide. These disclosures will expose how effectively organisations are managing emissions (including scope 3 emissions from year 2) and climate risks and opportunities, while also creating unprecedented visibility for investors and regulators.

Expectations are also intensifying across supply chains. As more companies set climate targets, they demand deeper emissions data and disclosure from suppliers. This is reshaping procurement and driving a shift toward value chain-wide accountability.

Together, these signals point to a single direction, setting a credible decarbonisation pathway and science-based target, will soon be an expected part of core business practice.

Translating national climate ambition into corporate pathways

Australia’s emissions reduction trajectory will be guided by the Net Zero Plan, which outlines six sectoral strategies: electricity, transport, industry, resources, agriculture, and the built environment, each with targeted interventions. This approach mirrors what leading companies must do to operationalise ambition: define specific pathways, based on science, that align with their industry context.

The Science Based Targets initiative (SBTi) provides its own sector-specific pathways for industries, including the built environment, forestry and agriculture, financial institutions, industry, energy, and transport, with more in development. These pathways guide companies in setting emissions reduction targets aligned with science and defining practical decarbonisation strategies. Just as Australia’s Net Zero Plan uses sectoral roadmaps to drive national action, these frameworks help businesses translate ambition into clear steps and position themselves to lead the net-zero transition.

Embedding this sectoral thinking into corporate planning not only strengthens credibility but also helps anticipate regulatory tightening and market shifts. Government pathways are a subset of science-based target pathways, so setting an SBT will inherently cover national commitments under NDCs. This positions companies to act decisively as expectations rise across every part of the economy.

Global momentum on SBT adoption

The SBTi’s 2025 Trend Tracker shows a 227% global increase in companies setting validated climate targets, with Asia-Pacific markets leading growth. ASCI released data this year stating that more than 130 of the ASX200 companies have net zero commitments, an 8% increase from 2023 to 2024.

Additionally, a new report analysing over 4000 companies shows the world’s largest companies are renewing net zero commitments across their value chains and achieving stronger decarbonisation results. The increase in target setting and emissions reduction initiatives is despite an evolving political and regulatory context.

Companies across the world, including North America, are adopting a wider set of tools to reduce emissions and integrating climate action into core business strategies. A key finding in the report is that almost 90% of companies link decarbonisation efforts to business value, positioning emissions reduction as a driver of resilience and long-term competitiveness.

Making the business case: Three key benefits

1. Strengthening Investment and Market Confidence

• Clear investment trajectory: The national target signals to investors and markets that Australia is committed to a rapid transition to a low-carbon economy. Companies with validated, science-based targets and credible net zero strategies are better positioned to attract investment from the growing pool of green and ESG finance.
• Brand and customer trust: Consumers are increasingly favouring sustainable businesses. Committing to a science-based target strengthens brand reputation and can provide a competitive edge, leading to improved customer loyalty and market share.

Case Study: PayPal set ambitious science-based targets aligned with a 1.5°C pathway and committed to net zero before 2040. The company developed a comprehensive emissions inventory and reduction strategy, securing SBTi validation. Targets include reducing Scope 1 and 2 emissions by 25%, cutting Scope 3 by 25%, and engaging 75% of suppliers by 2025, actions that reinforce investor confidence and position the business as a climate leader.

2. Managing Regulatory and Transition Risk

• Alignment with government policies and plans: National policies such as the Safeguard Mechanism and the National Net Zero Plan set expectations for large emitters and key sectors. Setting an internal science-based target enables companies to anticipate compliance requirements and manage regulatory risk proactively.
• Readiness for disclosure: The climate-related financial disclosure requirements under ASRS will will require transparent disclosure of climate strategy and performance, including Scope 3 emissions. Companies that set science-based targets are better placed to meet these expectations because they already follow structured methods for defining near-term and long-term emissions pathways. Science-based target setting supports the preparation of credible transition plans, improves emissions data quality, and strengthens value chain engagement.
  
  Rather than diverting attention from reporting, SBTs provide the foundation needed for consistent, decision-useful disclosure under the ASRS framework. This integrated approach helps organisations demonstrate preparedness and accountability as climate reporting requirements expand.

Case study: A leading food company validated a science-based target and FLAG requirements to align with evolving compliance standards. It established a transparent emissions baseline and a clear roadmap to support accurate reporting and future regulatory obligations, while strengthening supply chain governance and data integrity.

3. Driving Innovation and Operational Performance

• Operational efficiencies: Developing an SBT-aligned roadmap often identifies energy, material, and process efficiencies that deliver direct financial value.
• Future-ready business models: Aligning strategy with the transition to a low-carbon economy supports innovation and reduces exposure to policy or market disruption. Anthesis has supported clients such as Target to achieve a 30% absolute emissions reduction by 2030 and engage 80% of suppliers in science-based target setting.Developing Scope 3 Science-based Targets For Target | Anthesis Global
• Access to opportunity: A stronger national target creates incentives for investment in clean technologies and decarbonisation projects, supported by funding programs such as the Future Made in Australia Innovation Fund – Australian Renewable Energy Agency (ARENA).

Case study: Lipton Teas and Infusions developed an ambitious yet pragmatic reduction roadmap aligned with validated science-based targets. The plan balances rapid decarbonisation with long-term transformation, enabling early action to decouple growth from emissions and set a leadership benchmark for its supply chain.

Preparing for the decade ahead

The coming decade will define how Australian industries adapt and compete in a global net zero economy. Establishing a science-based target is a practical and credible step for aligning with this direction.

It enables better decision-making, sharper capital allocation, and transparent communication with investors and stakeholders.

Our experience shows that organisations that embed science-based pathways not only reduce emissions but also build stronger data capability, improve collaboration, and unlock innovation potential.

Implementing or updating your science-based targets

If you want to know where to start, are going through the process and need guidance, or if you require assistance to update your interim targets, we have many resources to help. Please reach out to us directly if you’d prefer to chat with one of our experts.

Science-based Targets. What Are They And Why Set One? | Australia

Addressing climate challenges, and looking ahead toward a sustainable future – Effective Target Setting: A Critical Pathway To Net-Zero | Australia

A practitioner’s guide to navigating the trade-offs of SBTi target validation To SBTi, Or Not To SBTi? | Australia

Getting the right support – our SBT experts

The Science Based Targets initiative recently launched its first global register of certified target-setting experts to strengthen technical capacity and help organisations develop credible, science-aligned decarbonisation plans. Anthesis has qualified experts around the world, supporting organisations and peers in every region to set and implement robust, science-based targets.

Anthesis has helped hundreds of organisations globally with their science-based targets, enabling them to set credible emissions reduction pathways, integrate climate goals into business strategy, and drive measurable progress toward net zero.

Explore our SBT solutions or reach out to us today for guidance; we’re here to help.

Australia’s 2035 climate target is a new national commitment to reduce emissions by 62–70% by 2035. This strengthens the earlier commitment of a 43% reduction by 2030 and signals a clear shift in expectations for decarbonising Australia. Analysis by the Climate Change Authority (CCA) and consultation with the Government underpins this move, combining economic modelling, sector reviews, and stakeholder input.

We recently hosted a webinar to unpack what this means for business, exploring the implications for strategy, investment, and risk management. As Eliza Murray, Deputy CEO of the CCA, noted, “Australia can be more than a quarry – we can be the workshop of a cleaner world.” This perspective highlights the opportunity for industry growth and innovation alongside compliance, themes we unpack below.

Clearer Outlook for Business Planning

The 2035 target provides a defined national pathway for decision-making. Australia will need to accelerate emissions reduction across the economy with a focus on electricity, transport, industry, resources, and agriculture. For businesses, the electricity transition is largely being managed at a system level, but Tennant Reed, Director – Climate Change and Energy from the Ai Group warns that

“We should not underestimate the breadth and the amount of work to reach the target range.”

Much of what needs to happen will occur within corporate Australia.

“Higher national targets don’t stay confined to Canberra, they cascade. They flow through to stronger policy levers, sharper investor scrutiny, and tighter disclosure requirements. If you’re a board director, you’ll feel it through sustainability reporting standards, the Safeguard Mechanism and forthcoming sector transition plans. If you’re an investor, you’ll see it in the capital flows shifting toward credible science-aligned strategies. And if you’re an executive, you’ll find it in social licence, market licence and regulatory licence increasing. Increasingly the same license, they’re just merging together.

So the business question isn’t really how do we comply, but how do we compete?

Because the same forces that tighten compliance also create opportunity. Investors want credible transition plans. Customers demand low-carbon supply chains and governments are offering co-investment and certainty for early movers. So those who see climate ambition as a strategic signal, not a regulatory chore, will capture the growth markets. We’re looking at green iron, green hydrogen, critical minerals and low carbon manufacturing.” Eliza Murray.

This new target marks a pivotal moment. Higher national targets don’t stay confined to Canberra; they cascade. They flow through to stronger policy levers, sharper investor scrutiny, and tighter disclosure requirement.”

Eliza Murray, Deputy CEO Climate Change Authority

Policy Signals That Will Shape Corporate Action

The government’s new Net Zero Plan will steer a fair and efficient transition, enabling businesses and communities to plan, invest, and act for long-term value. In our webinar, we explored some of the key levers set to drive change and shape corporate strategy.

• Safeguard Mechanism Review
  The next Safeguard Mechanism reform will be conducted by the Clean Energy Regulator in the 2026–27 financial year. Expect discussion on baseline decline rates, coverage thresholds, and offset restrictions. Ai Group anticipates a desire for more abatement within company operations, alongside expanded and intensified federal and state policies. The Carbon Market Institute recently released some interesting analysis on what the new reforms could cover. Safeguard 3.0 at least in draft form is expected within 18 months.
• Mandatory Climate Reporting
  Reporting to AASB S2 under the Australian Sustainability Reporting Standards (ASRS) is underway from the beginning of this year, requiring up to 6,000 companies to disclose climate risks, opportunities, and emissions performance. This transparency will influence investor decisions and regulatory oversight. Setting Scope 1 and 2 targets and eventually Scope 3 is becoming standard through the disclosures. These requirements will cascade beyond the largest companies who have to report, into their value chains. The ASRS Scope 3 component and rising expectations for decarbonisation mean businesses across sectors will need credible targets and transition plans.
• Capacity Investment Scheme (CIS)
  Immediate focus on firming and renewable generation will shape energy markets under the CIS – the a federal program that guarantees revenue for renewable and clean energy projects, reducing investor risk and speeding up infrastructure development. “The government is closely watching the National Electricity Market Review, which is shaping up to be critical for making investment in the full range of electricity services easier, essential for a very clean grid to function,” Tennant Reed.
• New Vehicle Efficiency Standards
  Further reviews for Australia’s new vehicle efficiency standards will accelerate transport sector change, with implications for logistics and procurement.
• Carbon Border Adjustment Mechanism (CBAM)
  Tennant Reed from Ai Group notes the CBAM could interact with the Safeguard Mechanism, creating complexity for trade-exposed sectors.

These signals will cascade through boardrooms, shaping sustainability reporting, capital flows, and compliance strategies. For executives, market licence and regulatory licence are merging, where investors are increasingly linking capital access to credible transition plans.

Implications Across Key Sectors

• Electricity: Expected to deliver about half of the national emissions reduction to 2035 through renewable growth, firming investment, and coal plant retirements.
• Industry: Facilities will need to consider electrification, process changes, and efficiency improvements. Cement, steel, and chemicals may see new policy measures to support competitiveness.
• Transport: Vehicle efficiency standards and electrification will reshape fleets and logistics.
• Agriculture: Improvements in fertiliser use, electrification of equipment, and herd management will lead. Feed supplements remain at an early stage for broad adoption.
• Resources: Mining and extraction operations will face pressure to decarbonise through electrification, renewable integration, and low-emission technologies for processing.
• Built Environment: Buildings will need to adopt energy-efficient design, electrified heating and cooling, and low-carbon materials to meet tightening performance standards

Opportunities for Early Movers

• Investment Confidence: Clear national direction supports capital attraction. Investors favour organisations with credible emissions pathways and transparent reporting.
• Market Differentiation: Customers and supply chains seek reliable climate information and lower-carbon products. Demonstrating progress strengthens competitiveness.
• New Industry Growth: Australia’s renewable resources and critical minerals create opportunities for clean energy supply chains and low-carbon manufacturing.

What Should Businesses Do Now?

1. Review exposure to policy changes across electricity, transport, and industry, and understand implications for your operations.
2. Prepare for mandatory reporting under ASRS, including Scope 3 emissions and a credible climate transition plan aligned with science-based targets.
3. Build internal capability for climate governance, data management, and scenario planning to support long-term decision-making.
4. Engage supply chain partners on emissions data, target setting, and collaboration opportunities.
5. Assess nature-related risks and opportunities, alongside carbon strategies to ensure future resilience and compliance with emerging frameworks.
6. Explore technology investments in electrification, energy efficiency, and low-carbon production methods.

Looking Ahead

Australia’s 2035 target signals a decisive phase of transition. Ai Group expects expanded and intensified policies to meet the target range. For business, this creates a stable setting for planning and an environment that supports innovation and investment.

Organisations that act early with credible, science-aligned strategies will be positioned to adapt and compete in a low-carbon economy.

How Anthesis Can Help

At Anthesis, we guide organisations to turn climate ambition into practical action. From setting science-based targets and preparing for ASRS or Safeguard reporting to designing decarbonisation strategies and integrating nature and ESG priorities, we guide businesses through the complexity of transition. Our focus is on creating credible pathways that manage risk, meet investor expectations, and unlock opportunities for growth in a low-carbon economy. A goal we describe as driving sustainable performance. Contact us today for guidance on your sustainability initiatives.   

In today’s market, value creation extends beyond mainstream financial metrics.

Investors demand credible ESG performance, regulators mandate sustainability disclosures, and public stakeholders demand transparency. As a result, ESG is no longer a siloed, perception-driven exercise but is now strategically embedded in business planning, delivering measurable value under financial, regulatory, and competitive pressures.

Following ‘The Cost of Silence’, we now turn to its counterpart: what do companies gain when actively integrating ESG principles into value creation strategies?

ESG action does not replace traditional strategic growth and value creation strategies —it enhances them.

It’s not about sacrificing profits for purpose or inventing new sources of value; ESG principles help reveal value that has always existed. They force firms to rethink value creation as a dynamic, systemic process linked to broader ESG topics, rather than a series of isolated levers. Environmental considerations uncover operational inefficiencies, social factors align with talent and culture strategies, and governance underpins execution across all areas.

This article explores how recognising and measuring these connections can translate into practical value creation and solidify the synergy between sustainability and financial performance.

Traditional vs ESG-aligned value creation approaches

Unlocking long-term value by tackling hidden operational inefficiencies

Traditional operational value creation seeks maximum efficiency from existing assets and processes, often by cutting discretionary expenses, renegotiating supplier contracts, consolidating facilities or automating manual processes. While effective for short-term margin improvement, they risk creating a “race to the bottom,” undermining long-term value.  

 An ESG-aligned approach broadens the lens by examining how resources like energy, water, and labour are sourced, consumed, and wasted across the value chain. This exposes hidden costs — from energy loss and emissions hotspots to supply chain vulnerabilities — that may be absent from financial statements but have a material impact on future performance.

By addressing systemic inefficiencies through energy audits, waste assessments, and supply chain analysis, companies can reduce costs while also building resilience to climate and resource risks. A recent study by the UNDP, for example, found that organisations that actively mitigate climate-related supply chain risks realise measurable improvements in economic performance alongside reduced emissions. This shift reframes efficiency as both a financial and sustainability imperative.

Anthesis helps companies design, implement, and scale operational ESG initiatives. Examples of our support include unlocking £1.8m in energy-related savings for JLL; reducing 17,550 kg of food waste per year for Righteous Gelato without major capital investment; and helping over 3,500 suppliers cut production costs and reduce waste through a circular supply chain platform with Tesco Exchange.

From efficiency to engagement – how purpose transforms performance

There are multiple value-creation levers that align with social priorities such as health and safety (H&S) and diversity, equity and inclusion (DEI).Traditional talent & culture value creation relies on extrinsic motivators – KPIs, performance reviews, and financial incentives – to drive employee productivity. While these mechanisms can improve efficiency, they often reduce employees to resources, overlooking how culture and purpose drive long-term engagement and innovation.

An ESG-aligned approach builds on these levers by also activating intrinsic motivation. A purpose-driven culture creates performance advantages that profit-only structures cannot match. When employees see their work tied to meaningful goals, such as reducing environmental impact or creating positive social outcomes, they bring deeper commitment, creativity, and collaboration. Research from Great Place to Work shows that organisations with clear purpose and values achieve stronger outcomes in revenue growth, innovation, and employee engagement.

Rather than asking only what people deliver, companies should also focus on why they choose to contribute, unlocking lasting organisational value. This requires a clear organisational purpose and create engagement programs that connect daily work to meaningful impact.

Anthesis supports organisations by designing tailored sustainability strategies that embed behavioural and cultural change from the outset. Our work with the Billington Group purpose platform engaged 2,000+ employees, with over 90% purpose-driven within six months, and Yorkshire Valley Farms’ purpose-driven strategy achieved 3.4x higher social media engagement.

Technological enablement

Among the many governance value creation levers, technology enablement stands out as it rarely operates in isolation. Traditionally, the focus is either operational efficiency, through automation, or commercial growth, through new digital services and markets.

An ESG-aligned approach applies these same capabilities into sustainability. Internally, digital ESG tools help companies systematically capture complex non-financial data and simplify reporting Externally, ESG systems originally developed for internal compliance, are increasingly becoming marketable assets, transforming ESG technology from a cost of doing business into new sources of revenue and competitive advantage.

Technology has evolved from an external disruptor to a core value creation lever and ESG is following a similar trajectory. Companies that embed ESG into digital strategy from the outset position themselves to monetise sustainability data and capabilities as market demand accelerates.

Anthesis helps organisations achieve this by designing and implementing digital solutions,  including  ESG data collection with Anthesis Mero across 300+ Grupo Éxito stores, implementing Anthesis RouteZero to track and document emissions, supporting Belu Water in demonstrating carbon neutrality in line with PAS060, and developing Reckitt’s Sustainable Innovation Calculator, completing life cycle assessments in under 30 minutes and 700 product analyses.

Redefining market growth

Traditional growth strategies target market expansion through new geographies, products or acquisitions to capture market share and increase revenue. Yet this assumes a narrow definition of markets, where value is determined only by buyers, sellers, regulators, and intermediaries.

An ESG-aligned approach reframes markets as living ecosystems, shaped by a broader set of stakeholders. Regulators impose evolving compliance requirements; communities influence brand reputation; employees drive innovation; and institutional investors reward sustainable performance with higher exit multiples. Strong ESG performance not only reduces risk but also enables access to new customer segments, premium pricing, and entry into markets with stricter sustainability standards, with recent research showing, for example. that consumers are willing to pay more for products and services that demonstrate clear sustainability credentials.

In today’s environment, markets reward authenticity, sustainability, and responsibility, not just scale. Companies that analyse their strategic landscape through this enhanced ESG lens uncover growth opportunities that traditional approaches miss.

Anthesis has supported clients in this shift, such as supporting Energy Capital Partners (ECP) by delivering UK Plastic Waste Market Assessments, evaluating UK ESG regulations, infrastructure capacity, market pricing and key players to pinpoint growth opportunities and regulatory risks. This informed a market expansion strategy aligned with sustainability trends and long-term value creation.

Realising the ROI of ESG

It is clear that companies that identify where ESG can amplify existing levers, set targets, and design initiatives are best positioned to deliver both financial and meaningful impact.

An ESG strategy translates principles into measurable initiatives, aligns them with business priorities, and embeds sustainability into decision-making rather than treating it as a silo. We partner with organisations to model the financial ROI of ESG initiatives, build business cases, and implement programs that deliver measurable performance outcomes.

For organisations unsure where to start, Anthesis provides the expertise and tools to develop and implement ESG strategies that are actionable, scalable, and measurable, ensuring sustainability drives real value creation.

Climate and nature are inseparable, with intertwined impacts on business, society, and daily life. However, most companies still analyse and report on climate and nature separately, creating blind spots in corporate strategy and resulting in sourcing, investment, and land use decisions that are based on an incomplete picture of the risks involved. By integrating climate and nature risks, companies can instead leverage a more comprehensive foundation for resilience and can gain a competitive edge in an uncertain future.

From frameworks to foresight: Using TCFD and TNFD together

The consequences of a fragmented approach to climate and nature risks can be significant. Climate risks like extreme weather events and the transition to a low-carbon economy can accelerate biodiversity loss and ecosystem degradation. In turn, degraded ecosystems weaken natural defenses against physical risks like flooding or drought, amplifying sourcing and the supply chain disruptions for businesses dependent on critical commodities. When climate and nature risks compound each other, assessing them separately creates gaps and dangerously underestimates true exposure.

Integrated assessments of both climate and nature can work to close these gaps. The Task Force on Climate-related Financial Disclosures (TCFD) and the Taskforce on Nature-related Financial Disclosures (TNFD) are complementary frameworks for assessing and disclosing the financial impacts of climate-related and nature-related risks and opportunities, respectively.

TCFD helps organisations disclose the financial impacts of physical risks (extreme climate events) and transition risks (policy, technology, market, and reputation) from climate change, while TNFD addresses nature-related risks, including ecological dependencies and impacts, through tools like the LEAP (locate, evaluate, assess, prepare) approach. Importantly, TNFD highlights the ecosystem services businesses and their supply chains rely on to grow commodities or maintain continuity in their operations, like pollination, water regulation, soil fertility, and disease control, which are often missing in traditional climate risk models.

By integrating TCFD and TNFD, companies can go beyond compliance to strategic foresight, recognising how climate and nature changes interact and compound financial impacts across operations, supply chains, and markets.

Compounding climate and nature risks in action: Commodities

Climate risk assessments have become more common as financial reporting becomes mandatory, yet many companies still overlook the equally critical, and interlinked, nature-related risks. Deforestation, biodiversity loss, and water stress are not only nature issues – they amplify climate-related disruptions – and assessing climate and nature risks separately can create specific blind spots in sourcing, land use, and resource planning. Integrated assessments are therefore no longer a niche consideration, but a strategic imperative.  

At Anthesis, we support clients in developing integrated assessments that holistically combine climate and nature risk analysis for reporting and planning,  uncovering critical, interacting blind spots. Beyond operations, we also assess how climate change may affect commodity yield, pricing, and productivity across plausible futures.

For example, consider a multinational food and beverage company sourcing soy:

• A standalone climate assessment might show that the region faces future water stress from drought, flagging a moderate risk to supply.
• A regulatory review may flag new deforestation-free sourcing laws or disclosure requirements.
• A separate nature assessment might flag that same region for high rates of deforestation.

An integrated analysis reveals the critical insight these silos miss: deforestation (a nature risk) is eroding the ecosystem’s ability to retain water and regulate local climate. This amplifies the financial and operational impact of the projected climate-driven droughts (physical risk) and exposes the company to compliance and market-access risks from emerging deforestation-free laws (transition risk).

This compounding effect reveals a far greater threat of supply chain disruption and price volatility than either analysis would suggest alone. With integrated foresight, the company can shift from reactive risk management to proactive strategy, enabling smarter, more resilient sourcing and capital investment decisions.

The limits of current frameworks and the power of integration

Increasing water stress on soy crops is a physical climate risk, but its residual effects create nature risks: reducing water availability, crop yields, and biodiversity. These impacts disrupt supply chains, increase production costs, and threaten long-term resource security. Soy expansion is a major driver of deforestation, which destroys habitats, reduces pollinators, and weakens natural buffers against floods, landslides, and water stress. New regulations like the EU Deforestation Regulation add transition risks by limiting market access for soy linked to deforestation.

Viewed separately, these risks understate true exposure. And while TCFD and TNFD provide structured outlines to identify, assess, and disclose these risks, their true power lies in integration. Integrated risk assessments reveal how climate, nature, and policy pressures interact, enabling companies to anticipate systemic disruptions and make better sourcing, investment, and resilience decisions.

TNFD extends TCFD by focusing on the ecosystems and ecosystem services that businesses rely on to function: pollination, water regulation, soil fertility, and more. As an added benefit, aligning with both frameworks not only  meets regulatory and investor expectations under CSRD, SB 261, and ISSB, but also helps companies build adaptive strategies in a world shaped by dual environmental crises and expanding disclosure mandates.

For example, in the food sector, soy expansion upstream drives deforestation and water stress, creating exposure for processors and traders. Downstream, consumer goods companies and retailers face reputational damage and market-access risks if deforestation-linked soy is embedded in their supply chains. Similarly, in the apparel sector, cotton production depends on water-intensive upstream processes, while brands downstream are vulnerable to both physical supply shocks and rising scrutiny over nature impacts.

Bringing the value chain into focus

While the TCFD and TNFD share structural similarities (governance, strategy, risk management, and metrics), there are important differences. Climate risk analysis  benefits from decades of scientific modeling and standardised data, while nature risk evaluation in the corporate context is newer and less harmonised. TCFD, though foundational, is not sufficient on its own: it does not explicitly consider nature-related dependencies and impacts that may pose material financial risks across supply chains, operations, and valuation. For investors and businesses seeking resilience, long-term value creation,  and regulatory alignment, especially under frameworks like the CSRD and the emerging ISSB–TNFD convergence, integrating climate and nature risk is not optional, but essential.

Importantly, value chain analysis is now a regulatory mandate, not just good practice, CSRD and ISSB both require companies to examine upstream and downstream dependencies and impacts. For sectors heavily reliant on commodities like soy, cocoa, or cotton, integrating ingredient risk screening is critical. Dual analysis is also required: understanding risks to the business (like drought affecting soil fertility and crop yields) and risks from the business (like deforestation and biodiversity loss driven by sourcing practices). Tools such as TNFD’s LEAP approach help structure this assessment, capturing both dependencies on nature and impacts to nature, and translating them into financial and strategic terms.

This raises important questions for companies: How does your business connect the dots between climate and nature? Full integration requires a deliberate effort to link nature dependencies (like healthy soil, pollinators, or water availability) with climate hazards (like drought or floods), and then to quantify how those compounded effects translate into operational and financial risk. This is the work that moves companies from compliance to resilience.

Businesses that proactively integrate climate (TCFD) and nature (TNFD) can:

• Address systemic risks: Recognising climate change and nature loss as systemic threats to the global financial system.
• Improve transparency: Enhancing disclosure of interconnected environmental risks and opportunities.
• Enable better decision-making: Providing investors and executives with data that drives smarter capital allocation.
• Drive sustainable outcomes: Catalysing the shift to a more sustainable, resilient economy.
• Anticipate disruptions: Identifying compounding risks and value chain vulnerabilities before they materialise.
• Build resilient strategies: Creating forward-looking plans grounded in a complete risk picture.
• Meet regulatory and investor expectations: Aligning with CSRD, ISSB, and other regimes increasingly requiring integrated climate-nature risk.

Both frameworks are critical to ensuring that financial markets properly value environmental risks and incentivise responsible corporate action. Businesses that proactively incorporate climate and nature into their risk management practices can better anticipate market shifts, address investor concerns, and unlock opportunities for sustainable innovation and natural resource preservation. By understanding the full spectrum of environmental risks and opportunities, companies can not only enhance resilience but also secure long-term competitive advantage.

From insight to action

As climate-related risks become more widely assessed, it’s increasingly clear that nature risks are deeply connected and often overlooked. Companies that treat them in isolation can have blind spots in strategy, especially as environmental disruptions compound across supply chains, assets, and markets. A unified approach that integrates climate and nature risks is no longer just a reporting requirement, but a strategic imperative. Businesses that proactively align with TCFD and TNFD can anticipate market shifts, meet investor expectations, and capitalise on opportunities for sustainable innovation – all while protecting the natural systems their operations depend on.  

At Anthesis, we help companies move from insight to action through integrated climate and nature risk assessments tailored to their value chains. Our approach combines geospatial and financial analysis to identify location-specific exposure, quantify impacts under different scenarios, and prioritise strategic responses. Whether the goal is to meet regulatory requirements, safeguard continuity, or evaluate investment trade-offs, we provide the data, tools, and guidance to turn risks into resilience. By aligning with both TCFD and TNFD, we enable clients to future-proof operations and build competitive advantage in an increasingly risk-aware marketplace.

Methane emissions from fossil fuels are being materially underreported in Australia’s industrial sector. This has direct implications for compliance, carbon liability, and the effectiveness of decarbonisation strategies, especially under the Safeguard Mechanism and the AASB S2 mandatory climate- related disclosures. As scrutiny intensifies and regulatory thresholds tighten, these hidden emissions risk becoming a catalyst for financial exposure and reputational damage.

Australia’s Methane Emissions Under-Reporting

As of March 2025, DCCEEW’s quarterly update shows Australia’s fugitive methane to be 46.3 MtCO2e, accounting for 10.5% of Australia’s annual net emissions. This figure is based on a methane GWP of 28, derived from the IPCC’s 5th Assessment Report (AR5) for non-fossil methane.

This basis is misleading and outdated.

Fugitive methane is of fossil origin, not biogenic. Further, the 2014 AR5 value was superseded in March 2023 by the AR6 report, providing the most accurate figures for Australian reporters. Unfortunately for reporting entities in Australia however, there will be no formal change until the government updates its policy.

The financial implications of these under-reported emissions for Australia’s major emitters are significant.

By reporting fossil methane as non-fossil, $132m of emissions are being under-reported. Should Australia move to the IPCC’s AR6 – while failing to differentiate fossil and non-fossil methane – this gap will widen to 5mtCO2e, worth ~$200m.

This is a missed opportunity to incentivise decarbonisation and a risk exposure that many emitters may not be accounting for.

Implications for ASRS and Director Responsibilities

For organisations preparing to report under the Australian Sustainability Reporting Standards (ASRS), this underreporting of fossil methane emissions presents a serious governance issue.

Directors signing off on climate-related disclosures must ensure that reported emissions reflect a true and fair view of climate risk. Using outdated or inaccurate GWP values when more accurate data is available could expose companies to reputational, regulatory, and even legal risks.

The question boards should be asking is: Does our current reporting reflect the true and full extent of our climate liability? How do we account for future changes in GWP?

Impact on Safeguard Mechanism Baselines and Liabilities

Accurate methane emissions reporting also has direct implications for compliance under the Safeguard Mechanism.

If fossil methane is correctly accounted for using the appropriate GWP (29.8 for fossil fuel methane), our analysis found many facilities could see their reported emissions increase by 7% or more. This would significantly raise their carbon liability and potentially push them over their baseline thresholds, triggering the need to purchase additional ACCUs or invest in abatement. For some emitters, this could mean millions in additional costs or a strategic rethink of their decarbonisation pathway.

Considering the decline rate under the reformed Safeguard Mechanism is already 4.9% annually, this presents a real risk to decarbonisation initiatives and the bottom line.  

What Should be Done About this Under-Reporting of Methane Emissions?

These issues highlight a broader challenge: compliant industrial emitters may be facing greater financial and compliance risks than currently recognised, and the incentive to decarbonise is being weakened by inaccurate data.

To address this, we recommend that large emitters, particularly in oil, gas, and coal, begin assessing and separately reporting fossil methane emissions using the appropriate GWP for their emissions (29.8). This will ensure their risk profile is future-proofed and aligned with evolving regulatory expectations.

Regulators must also act. From 2026 onward, the NGER Determination should adopt AR6 GWP factors, and reporters under both NGERs and AASB S2 must be required to distinguish between fossil and biogenic methane. This will help ensure that climate disclosures are accurate, liabilities are correctly calculated, and decarbonisation incentives are based on real impact.

How Anthesis Can Help

Anthesis are market leading experts in carbon accounting and decarbonisation in the oil, gas and coal sectors. We have deep policy experience and understand how to effectively understand, quantify and mitigate climate risk and offer expert guidance for compliance with the ASRS, Safeguard Mechanism and NGERs. Reach out today and let us help you to future-proof your business.

Ecosystems worldwide, from the ocean depths to terrestrial environments, are facing an accelerating decline in nature. The pressures on nature and ecosystem services have reached a critical level, and there is real concern that we may be, or already have, breached tipping points, and change is becoming self-perpetuating.

With this decline, we are removing the very basis that supports our economic systems; the evidence is very clear on this.

Recent analysis by Ceres in Nature’s Price Tag: The economic cost of nature loss, suggests that the financial impacts of ecosystem decline for eight key sectors, including amongst the critical sectors for the Australian economy, will be up to $430 billion per year under a Business-As-Usual scenario.  

The stakes, quite literally, could not be higher.

However, no country can address the crisis in isolation, nor can it thrive without the ecological richness that defines life on Earth. Solving this crisis will depend on governments and business working in tandem to shift the world and our economies onto the right trajectory.

All businesses depend on nature, and in many ways, the impacts of nature’s decline are already being felt; to date, we simply have failed to put a price on those impacts.

In this article, we unpack what’s needed to meet the challenge head-on and the critical role that business can and must play in the journey to nature-positive.

Aligning Global Commitments to Nature-Positive

The Global Biodiversity Framework sets the stage for protecting nature, but turning global commitments into local action remains a challenge. The goal is clear – to halt biodiversity loss by 2030 and achieve a nature-positive world by 2050. But while COP16 delivered progress such as greater inclusion of Indigenous communities, a clear strategy for financing the economic transformation required is still missing.

This lack of financial commitment risks delaying critical investment, leaving a gap between ambition and the resources needed to deliver nature-positive outcomes.

Critical Components For Achieving Nature-Positive

In the context of having a global commitment but a significant funding gap, protecting and healing nature requires three critical components to come together to involve all actors – governments and business – in the journey towards Nature-Positive:

1. Effective Governance and Regulation: Cascading international commitments at the government level to business and organisations, and sending clear policy and regulatory signals on nature.
2. Valuing Nature in Financial Decisions: Embedding nature’s value into financial and economic analysis and decision-making. This requires a paradigm shift towards recognising nature as a form of capital – natural capital – as the asset that underpins economic prosperity.
3. Market and Financial Instruments: For mobilising public and private capital for restoration.

Let’s unpack what each of these elements mean for business action right now.

1. Governance and Regulation

A growing range of frameworks, tools, and case studies now support businesses and investors in understanding and reducing their impact on nature. Collaborative efforts by leading organisations, including WBCSD, Capitals Coalition, World Economic Forum (WEF), Task Force on Climate-Related Disclosures (TNFD), and Science Based Targets Network (SBTN), have developed the ACT-D (Assess, Commit, Transform, Disclose) approach – a systematic and adaptable process guiding businesses toward nature-positive strategies.

Currently, in Australia, there are no mandatory reporting requirements for nature. This is, however, predicted to change in the not-too-distant future. The most likely scenario is that the Australian Accounting Standards Board (AASB) Standard 1 will follow suit on the already mandatory reporting Standard S2.

AASB S1 is broad and cross-topic and would capture topics related to biodiversity and nature. The value of regulation lies, of course, in sending a clear message that nature risks and dependencies must be incorporated into business strategies and operations, much in the same way as climate and climate risk are becoming embedded as concerns in how organisations operate.

The most critical thing that organisations can do right now is to get ahead of understanding the risks and opportunities posed by nature to their business, rather than to wait for regulation to take effect.

2. Valuing Nature in Financial Decisions

This cuts right to the core of the issue. Nature has been treated as external to the costs and value created by economic activities, when in fact nature forms the very foundation for creating economic value.  

The key step for organisations to take now is to recognise that nature loss poses real, financial risks to most, if not all, organisations.

Equally, natural capital is a form of unrecognised financial value (assets) for organisations. Companies can start today on the journey towards valuing nature in financial terms. One key way that is emerging to integrate nature in this way is to ‘put nature on the balance sheet’.

This involves first understanding nature dependencies and impacts, translating these into measurable units (e.g., litres of water used) and then assigning financial value (e.g., via market or replacement costs, shadow pricing etc.). These values can then be used to link environmental data with financial accounts. In this way, natural capital can be reported on and considered in decision-making, in a language that is intuitive and familiar to decision-makers.   

3. Nature Markets and Financial Instruments

The final piece of the puzzle involves harnessing existing models to mobilise finance for nature restoration and protection. Financial mechanisms, such as payment for ecosystem services, green bonds, and green loans have long supported conservation efforts, and will continue to play a critical role in nature recovery.

However, these tools alone are insufficient. Finance for nature recovery needs to be scaled significantly.

Biodiversity and nature credit markets are now emerging as essential tools that could bridge this finance gap. When designed appropriately, nature credits offer a structured, market-based approach to drive measurable nature-positive outcomes while mobilising private capital and ensuring accountability.

The unitisation of nature through nature credit markets is a key strength of this market-based approach. That is, nature credit schemes turn natural assets or ecosystem services into quantifiable, tradeable units and thereby transform complex and often intangible ecological processes into measurable, financial instruments. For example, forests can provide multiple ecosystem services ranging from habitat provision, through to watershed protection. Applying quantification of species richness and water retention capacity, each of these services can be converted into a tradeable unit as a nature credit.

In other words, nature credit schemes present a mechanism to connect businesses with conservation outcomes delivered by third parties.

Nature credits can be used by organisations in varied ways to respond to nature decline. One scenario is that businesses buy nature credits generated by a third party – possibly within their supply chain – and subsequently retire those credits in response to their identified nature-positive commitments and targets.

Under another scenario, organisations may see an opportunity to generate nature credits to sell to other organisations as a new revenue stream, or in combination with addressing their own nature impacts and dependencies, where surplus credits may be sold to third parties. Connected to this scenario, nature credit schemes also present a pathways to verify conservation outcomes, and hence a method for businesses to report transparently on their response to nature impacts and dependencies.

Ultimately, therefore, nature credit schemes present an opportunity for businesses to manage risk and respond to impacts, whilst also presenting opportunities to get involved in a new type of market to generate revenue, enhance brand value, and innovate business models.

A shift to Nature-Positive Means Changing Our Relationship With Nature

Changing our relationship with nature is essential. Global and domestic policy signals point towards a future state where regulation will drive organisations in the direction towards nature-positive.

But we have no time to lose, and businesses are in a powerful position to act now. The tools and mechanisms needed to respond to the crisis are at our fingertips. Critically, these tools can unlock value for organisations by putting nature on the Balance Sheet, and through participation in new markets and the discovery of new business opportunities.

Want to Learn More About the Nature-Positive, Markets or Nature-based Solutions?

We support companies in understanding Nature Markets, nature-based solutions and how to go nature-positive. Contact us for guidance today, we’d love to help.

As the regulatory environment around sustainability reporting continues to shapeshift, ESG and sustainability leaders are increasingly turning their attention to the mandatory climate-related reporting requirements and the Australian Sustainability Reporting Standards (ASRS). Jurisdictions across Asia, Europe, the United Kingdom, North and South America and Africa are also implementing similar reporting requirements. In Australia and internationally, this is the biggest financial reporting shift in a decade and there is much work to be done, but how can leaders look at this regime as not just a compliance requirement – but a strategic advantage?

Here we explore 7 key ways mandatory climate reporting can strengthen your ESG strategy and how you can leverage it for efficiencies, opportunities, change and innovation.  

1. Driving Stakeholder Engagement

Compliance with climate-related reporting standards can significantly enhance stakeholder engagement, especially at the senior level, given that the responsibility sits with the Board of Directors. Transparent and detailed reporting provides stakeholders with a clear understanding of the organisation’s sustainability efforts, climate risks, and opportunities. This increased visibility helps achieve buy-in from senior management and other key stakeholders, and departments driving sustainability initiatives throughout the organisation.

Reporting organisations are already finding that this approach helps break down silos, build a more unified and resilient organisation, and embed the language and acceptance of climate topics as part of business as usual. At a recent ASRS Executive workshop we held, many senior leaders shared these views.

Mandatory climate reporting places ESG, particularly climate, as a priority for many departments, including the Senior Leadership team, finance team, risk team, and the Board.

Although the current Australian legislation is ‘climate first,’ it is not ‘climate only’. As the Australian Accounting Standards Board (AASB) may adopt the full suite of International Sustainability Standards Board (ISSB) standards starting with IFRS S1 general requirements for sustainability reporting and IFRS S2 climate-related disclosures, and with nature-related standards hot on its heels, this presents an opportune time for sustainability leaders to engage with your stakeholders to advance previously identified initiatives and prepare for future broader ESG requirements.

Getting started early, including voluntary reporting can demonstrate leadership ahead of peers, and prepare you for a smoother transition towards mandatory requirements.

2. Discovering Efficiencies and Savings

Understanding your organisation’s carbon footprint (Scope 1, 2, and 3) through mandatory climate reporting can uncover opportunities for efficiency improvements and cost savings, as well as help understand potential vulnerabilities and opportunities in your value chain.

It can also strengthen relationships with supply chain partners by demonstrating an awareness of emissions and a robust plan to reduce them.

Detailed insights into energy use, waste management, and resource allocation help identify hotspots and inefficiencies that can be addressed to reduce costs and inform strategic decisions that enhance operational efficiency and sustainability. This process forms a comprehensive vision of your organisation’s carbon footprint in both the short and long term.

Below is an example of Meta’s carbon footprint giving insights into where the hotspots lie and where to focus on reductions. Like Meta many organisations also contribute to abatement via insetting or offsetting – ideally into carbon projects with co-benefits.

Carbon accounting software such as RouteZero combined with strategic expertise, is a great way to approach undertaking your greenhouse gas (GHG) inventory and gain a strong and comprehensive data set that positions you for continued success.

The principle “you can’t improve what you don’t measure” is particularly relevant here. Measuring your carbon footprint can yield quick wins and establish the foundation for identifying and implementing improvements that reduce emissions, lower operating costs, and mitigate risks.

Starting early to understand your carbon footprint before disclosure is essential, as data improvement is often necessary to enhance the accuracy of estimates.

Engaging with your supply chain is crucial for acquiring more accurate emission estimates and collaborating on reduction initiatives. Many organisations face barriers in influencing emissions from purchased goods and services and operations within their supply chain, but significant reductions can be achieved through effective supplier engagement.

3. Minimising Climate Risk and Maximising Opportunities

By identifying and understanding climate-related risks and opportunities through mandatory climate-related reporting, companies can ensure they are resilient to risks and can capitalise on opportunities in a decarbonising world.  

Demonstrating strong ESG practices can attract investment, as investors increasingly prioritise sustainability and the links between sustainability and financial performance over the short, medium and long term in their decision-making processes. Companies with robust ESG credentials and reporting are better positioned to access capital markets and secure favourable financing terms.

Climate scenario analysis is a well-established method for developing strategic plans that are more robust to a range of plausible futures. The process of undertaking climate scenario analysis can help a company understand how climate-related risks and opportunities may impact their business model, strategy and financial performance over time. This proactive approach not only highlights how companies need to respond to risks but also uncovers opportunities for potential innovation and growth.

Learn how private equity firms can capitalise on climate risk management to generate value in the transition to net zero.

4. Enhancing Market Access and Talent Attraction

Leveraging the data and initiatives required via mandatory climate reporting can improve market access by aligning with the expectations of consumers, partners, and regulators.

Companies that demonstrate commitment to sustainability are more likely to build strong, trust-based relationships with these stakeholders. For example, suppliers who place ESG principles at the heart of their operations and strategy are more appealing partners.

As global and local community expectations rise along with regulation, the ecosystem must work together to hold one another responsible. A solid reputation for ESG performance can help attract and retain top talent, as employees increasingly seek employers with values that align with their own.

A survey by IBM found that 71% of employees and job seekers find environmentally sustainable companies more attractive. Additionally, over two-thirds are more likely to apply for and accept positions with socially responsible organisations, and nearly half would accept a lower salary to work for such companies.

Being a B Corp, we’ve found, is also a good way to attract and retain talent, as it demonstrates a commitment to social and environmental responsibility, aligning with the values of employees and prospective hires.

5. Improving Sustainable Performance

Mandatory climate-related reporting and related transition planning provide a structured framework to drive sustainable performance (that sweet spot between ‘profit performance’ and ‘purpose performance’) and place sustainability at the heart of decision-making.

By undertaking the process involved in complying with standards such as the ASRS, measuring, monitoring, setting clear targets and regularly tracking progress, organisations can identify areas for improvement, align operations with sustainability goals, and enhance overall performance.

This proactive approach not only meets regulatory demands but also positions the company as a leader in sustainability. Essentially, it serves as your organisation’s sustainable performance analysis, reflecting community expectations and how your organisation measures up. This is particularly the case for organisations that use the reporting framework as a catalyst to prioritise deeper action and to implement a credible climate-related transition plan.

6. Upgrading your Data Capture and Reporting with Digital Tools

Considering mandatory climate reporting will be a compliance requirement, the adoption of digital tools is worth considering for efficient data capture and accurate reporting.

Advanced software solutions can streamline the collection, analysis, assurance and dissemination of ESG data. These tools enable real-time monitoring and facilitate detailed reporting, ensuring that all relevant metrics are captured accurately and timely. This digital transformation supports transparency and accountability, making it easier to demonstrate compliance and communicate performance to stakeholders.

With ESG software such as Mero you can add your suppliers as users to include their data into your database. You can tailor questions targeting mandatory reporting requirements, specific to suppliers and risks associated to suppliers as part of the solution.

7. Strengthening Governance

Mandatory climate-related reporting strengthens the G in your ESG strategy by integrating sustainability into core decision-making processes.

It compels your organisation to establish strong frameworks for monitoring and managing climate risks and opportunities, promoting transparency and accountability. This enhances your oversight mechanisms, ensures compliance, and fosters a culture of continuous improvement. It also helps unify your organisation by aligning teams around shared goals, strengthening resilience, and reinforcing long-term business performance

Improved governance practices build continued trust with your stakeholders and will contribute to long-term organisational resilience and success.

In Summary How Mandatory Climate Reporting Can Strengthen Your ESG Strategy

For senior ESG and sustainability leaders, the road ahead involves continuous learning and adaptation. Stay informed about regulatory changes, engage your people and stakeholders to understand why ESG matters to your organisation, invest in the right tools and technologies, and foster a culture of transparency and engagement.

By utilising mandatory climate-related reporting as a strategic way to strengthen your ESG strategy you can create value, impact, and drive sustainable performance.

By utilising digital tools, engaging stakeholders, discovering efficiencies, minimising climate risks, maximising investment opportunities, and enhancing market access and talent attraction, your organisation can turn these new regulatory requirements into a competitive advantage to drive sustainable performance.

Originally published July 2024, updated September 2025.

Want to Chat about How Mandatory Climate Reporting Can Strengthen Your ESG Strategy?

If you’d like to learn more about any of these topics or would like to discuss mandatory climate reporting, your ESG strategy, decarbonisation or broader sustainability initiatives, please reach out to our experts. We’re here to help.

In July 2025, the Science Based Targets initiative (SBTi) released its updated Financial Institutions Net Zero (FINZ) guidance, marking a significant step forward for the sector and arriving just as early adopters of the previous guidance reach their 5-year target review horizon. The guidance also presents greater alignment with other frameworks, such as the Net Zero Investment Framework (NZIF).

In this article, we outline how and when companies should leverage this updated guidance for target setting, summarise the key points about the new standard’s requirements for climate ambition and reporting, and outline what this all means for financial institutions.

How and when to leverage the new guidance

Companies are encouraged to start applying the new guidance as soon as practicable, but a phase-in period has been proposed. Either the FINZ v1 or the FINZ v2 guidance may be used for companies looking to set targets until December 2026. SBTi suggests:

Redefining climate ambition

SBTi has redefined climate ambition in its FINZ guidance, with more stringent requirements on certain sectors, namely the fossil fuel, transport, industry, energy, and real-estate sectors. The latest guidance introduces the concept of portfolio segmentation – four segments are used to define target-setting requirements and climate ambition:

• Segment A: Fossil fuels (coal, oil, gas).
• Segment B: Transport (air, maritime, land); Industrial (steel, cement); Energy (power generation); Real estate (residential and commercial buildings); Forest, land and agriculture (FLAG).
• Segment C: Other sectors (not listed in segments A or B).
• Segment D: Subset of activities in emissions-intensive sectors and other sectors. This includes private equity, venture capital and private debt in non-fossil fuel sectors with <25% ownership or no board seat, as well as funds of funds.

SBTi’s updated guidance introduces clearer criteria for how financial institutions should treat different types of assets on their journey to net zero. Assets are now categorised as either “in transition” (shifting toward lower-carbon operations), “climate solutions” (assets that directly support decarbonisation, such as renewable energy), or already in a “net zero state”.

For “in transition” assets, the guidance includes an Implementation List of approved benchmarks and third-party methodologies that institutions can use. This expands options for demonstrating portfolio alignment, which previously were limited to either using the ITR methodology or having SBTi-validated targets.

Unlike earlier drafts of the guidance, the final version does not require financial institutions to demonstrate that their portfolio is making progress towards the targets they have set. Institutions must still report their own progress annually and renew targets at the end of each near-term cycle (typically five years). However, there is no requirement to show that portfolio companies are delivering on the targets they have set, as is required in NZIF. In practice, this means financial institutions can meet the standard by ensuring companies set targets, without being responsible for how quickly those companies achieve them.

Climate ambition requirements also depend on the location of assets – financial institutions with assets in developing economies have longer timelines to bring those holdings into alignment, recognising regional differences in transition pace.

As with previous guidance, SBTi mandates that companies make certain over-arching strategic commitments to align with climate goals. These have been expanded with the addition of a commitment to monitor and phase out deforestation and land conversion from the portfolio, as well as to conduct and publish a deforestation assessment by 2030. Requirements for ending new finance to fossil fuel assets and divesting from fossil-fuel related assets remain similar to those outlined in the near-term guidance and are in alignment with coal phase-out by 2030 for OECD countries and 2040 for the rest of the world. The guidance also makes clear that offsets or carbon credits cannot be used to meet near- or long-term decarbonisation targets. Only residual emissions at the point of net zero can be neutralised.

Increased climate reporting expectations

Alongside these ambition requirements, SBTi FINZ also raises expectations for climate reporting and transparency. This includes requirements to report:

• Scope 1 & 2 financed emissions for segments A, B, and C. This was previously only required where companies were setting portfolio coverage targets on an emissions coverage basis. Reporting requirements are stricter if targets are set based on the share of emissions covered rather than the share of assets. If setting portfolio coverage based on emissions coverage, investors must also include segment D activities in their financed emissions statement.
• Scope 3 financed emissions for automotive, coal, oil & gas, and real-estate assets, as these are deemed to be “high impact” sectors. From 2030, Scope 3 financed emissions must be included for all assets.
• Exposure to fossil fuel-related activities and related GHG impacts. This includes a new requirement to report a ratio of fossil fuel financing relative to renewable energy financing.

Addressing private equity concerns

During the consultation period, key concerns raised by private equity firms included the need to maintain the 24-month post-investment grace period for portfolio companies to be integrated into targets, as well as the looser requirements around minority investments (<25% ownership or no board seat). SBTi has honoured these concerns by classifying private equity, venture capital, and private debt of private corporates and SMEs in non-fossil fuel sectors with <25% ownership or no board seat as segment D, on which the least stringent requirements are placed. Segment D assets are only required to be included in near-term targets if the target coverage of segment A-C assets is <67%, but it must be phased in to targets from 2040.

What this means for financial institutions

The new FINZ guidance is currently in a period of transition and will take a while to be adopted more widely in the sector. The target-setting tools and associated documentation are not yet published, and there is a generous transition period to prepare key elements of new target-setting requirements, notably portfolio GHG accounting.

The guidance provides increased flexibility in defining climate alignment targets, which is intended to make internal implementation more straightforward. However, this flexibility may also lead to slight discrepancies in target ambition, as it is not always obvious from the standard SBTi target language how ambitious a target really is.

While it will be a few months before the first FINZ-aligned targets start to be validated and published, Anthesis is already supporting clients in navigating the new guidance and the implications for their businesses. The practice of setting SBTs enables companies get on track and future-proof growth, and is one of the best practices for publicly communicating a company’s commitment to limit the effects of climate change. At Anthesis, we view the process of setting Science Based Targets not merely as a checkbox but as a transformative business journey.