Last week was a big week for ESG in Australia. On 22 August 2024, the Australian Senate passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) with some minor amendments. Schedule 4 of the Bill would implement Australia’s first mandatory climate reporting regime. The day after, ASIC released Report 791 (ASIC’s interventions on greenwashing misconduct: 2023-2024) (ASIC Report) which provides detailed findings, recommendations and good practice examples from its surveillance activities over the past 15 months. In this alert, we deep dive into the latest on mandatory climate reporting and greenwashing.
Latest update on the Bill
The Bill will now return to the House of Representatives to seek the House’s concurrence with the amendment, which would be the last stage before the Bill is sent for Royal Assent. The next House of Representatives sitting dates are scheduled for 9 to 12 September 2024.
The mandatory climate reporting regime is now set to take effect from 1 January 2025, primarily through amendments to the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth).
The legislation establishes mandatory climate reporting obligations for Australian entities, with the introduction of reporting requirements depending on the size of the entity and – where relevant - its existing reporting obligations under the National Greenhouse and Energy Reporting scheme.
Under the reporting regime, reporting entities will be required to assess and disclose their material climate change related risks and opportunities, and the strategies implemented to both monitor and respond to identified risks and opportunities. Entities will also be required to publish the results of scenario analysis of potential climate-related financial impacts over the short, medium, and long term, as well as data detailing the entity’s Scope 1, 2 and 3 greenhouse gas emissions.
The legislation will empower the Australian Accounting Standards Board to prepare a new Australian Sustainability Reporting Standard – due to be finalised in coming months – which will outline the content requirements of the mandatory climate reports. ASIC has also indicated it will provide guidance on mandatory climate reporting its website once the Bill receives Royal Assent.
You can read Owl Advisory’s analysis of the mandatory climate reporting regime’s disclosure requirements here.
The Bill was passed with one amendment in the Senate - to introduce more specific requirements for reporting entities to undertake and disclose the results of scenario analysis under a high warming scenario.
Under the sole amendment made to the Bill, reporting entities will be required to include analysis based on a warming scenario that involves a global average temperature that ‘well exceeds’ 2 degrees of warming (in reference to the goal contained in subparagraph 3(a)(i) of the Climate Change Act 2022 (Cth)).
This high warming scenario analysis will need to accompany an additional low warming scenario analysis in line with the commitment to the 1.5-degree warming goal specified in the Climate Change Act 2022 (Cth) – as was included in the original Bill.
The amendment largely reflects the broad expectations of how scenario analysis would be incorporated within climate reports, with the high warming scenario providing a resilience test for ‘physical’ climate change risks, and the low warming scenario providing the basis of a ‘transition’ risk resilience test.
You can read KWM’s recently published report on ASX50 Sustainability reporting and governance in 2023 which details recent trends on the adoption of climate reporting practices across Australia’s largest companies.
Latest ASIC Report
ASIC has reported that it had made 47 regulatory interventions to address greenwashing misconduct between 1 April 2023 and 30 June 2024. These resulted in:
- 37 corrective disclosure outcomes with various entities;
- 8 infringement notices adding up to over $123,000; and
- 2 civil penalty proceedings being commenced; and
- 1 civil penalty proceeding being finalised which resulted in an $11.3 million penalty.
Regulatory interventions over this period related to:
- sustainability-related claims made without reasonable grounds or without sufficient detail;
- insufficient disclosure on the scope of ESG investment screens and investment methodologies; and
- underlying investments that are inconsistent with disclosed ESG investment screens and investment policies.
In light of its surveillance activities, ASIC recommended that entities:
- be informed by the Australian Sustainability Reporting Standards (once they are finalised) in relation to their climate disclosures;
- ensure that investments made are competently and independently verified as being consistent with any claims being made about sustainable investment strategies;
- ensure they provide adequate explanations of investment exclusions or screening criteria, including in relation to any terms or thresholds used and whether screens are absolute or thresholds based; and
- avoid ambiguity when disclosing potential use of proceeds and ensure disclosure aligns with any current intended use of proceeds (when issuing green bonds or sustainability-linked loans).
ASIC also flags in its report that it will continue to focus on greenwashing misconduct through surveillance and enforcement activities, and that it is currently investigating suspected greenwashing cases, with future enforcement action anticipated.
KWM and Owl Advisory have the expertise and capabilities to support reporting entities to comply with the new mandatory climate reporting regime and manage greenwashing risks. Please reach out to the authors if there is anything that we can do to assist.
