Climate Governance Initiative Australia Newsletter January 2023

Our first newsletter of 2023 covers what directors need to know about ASIC’s recent crackdown on alleged greenwashing, the Government’s proposed Safeguard Mechanism reforms, and the outcomes of the UN’s Biodiversity Conference. We also summarise ACSI’s latest research on investor expectations for a just transition.

Last year’s election saw the Labor party form government, bringing a significant shift in Australia’s climate policy outlook. 2023 will be an important year for action, with mandatory climate reporting to be introduced for large Australian institutions, the International Sustainability Standards Board’s reporting standards set to be finalised, and the roll-out of additional policy settings designed to meet Australia’s 2030 and 2050 emissions reductions targets. Boards will need to be agile to adapt to this rapidly shifting policy environment, the ongoing energy transition and increased frequency of extreme weather events. At the same time, directors should be thinking about how their organisations can embrace the opportunities presented by the transition to net-zero.

Our first newsletter of 2023 covers what directors need to know about ASIC’s recent crackdown on alleged greenwashing, the Government’s proposed Safeguard Mechanism reforms, and the outcomes of the UN’s Biodiversity Conference. We also summarise ACSI’s latest research on investor expectations for a just transition.

ASIC crackdown on alleged greenwashing

Over recent months, ASIC has issued infringement notices against four separate entities in relation to alleged greenwashing, demonstrating the regulator’s heightened enforcement focus. The most recent case took place on 5 January 2023, when ASIC announced that it had taken action against listed energy company Black Mountain Energy Limited (BME). BME has paid $39,960 to comply with three infringement notices in relation to concerns about alleged false or misleading sustainability-related statements made to the ASX.

BME claimed it was creating a natural gas development project with ‘net-zero carbon emissions’, and the greenhouse gas emissions associated with the project would be net zero. ASIC was concerned that BME either did not have a reasonable basis to make the representations, or that the representations were factually incorrect.

ASIC Deputy Chair Sarah Court said, ‘ASIC will continue to closely monitor sustainability claims and take action where we consider representations cannot be substantiated or are factually incorrect.’

Since the end of October 2022, ASIC has issued infringement notices responding to alleged greenwashing against Tlou Energy Limited, Vanguard Investments Australia and Diversa Trustees Limited.

For ASIC guidance on how to avoid greenwashing, click here or to access a free webinar with CGI Australia partner, MinterEllison, on the topic click here.

Government’s proposed Safeguard Mechanism reforms

Under proposed reforms to the Safeguard Mechanism, around 215 of the nation’s largest industrial emitters will be required to cut emissions by an average of 4.9 per cent each year, to help the government meet its 43 per cent reduction target by 2030 and to reach net zero by 2050.

The Safeguard Mechanism was introduced by the Coalition Government in 2016. It requires facilities that produce over 100,000 tonnes of greenhouse gases annually to keep net emissions below a baseline. The August 2022 consultation paper noted previous baseline-setting requirements led to a situation where, in aggregate, facility baselines were well above emissions. This difference between actual emissions and baselines is called ‘headroom.’ The existence of headroom has led to criticism that there are insufficient incentives to decrease emissions. Data suggests facilities’ emissions grew by 4.3 per cent between 2016/17 and 2020/21.

The government wishes to immediately remove headroom and establish an internal market for Safeguard Mechanism Credits (SMCs) by allowing facilities below their baseline to trade with those above their baseline. This will add to the existing ability to surrender Australian Carbon Credit Units (ACCUs) to meet baselines. ACCUs can only be acquired by participating in specific emissions avoidance or sequestration offset projects which are deemed to be eligible by the Emissions Reduction Fund. Following some criticism of the integrity of ACCUs, the ACCUs recently underwent an independent review (known as the Chubb Review).

The government wishes to assist “trade exposed facilities” either through a new Powering the Regions Fund or through a lower baseline decline rate. Altogether, the government estimates these reforms could deliver 205 million tonnes of abatement to the end of 2030, equivalent to cutting emissions from Australia’s cars by two-thirds during this time.

Feedback on the consultation paper closes 24 February 2023. Look out for our detailed article on the proposed reforms in the upcoming Membership Update.

Outcomes of the UN Biodiversity Conference – ambitious goals with corporate reporting in focus

On 19 December 2022, the United Nations Biodiversity Conference (COP15), chaired by China and hosted by Canada, adopted the Global Biodiversity Framework (GBF), which aims to address biodiversity loss, restore ecosystems, and protect Indigenous rights.

Australia helped lead negotiations on the GBF which includes four global goals and 23 targets to protect nature by 2030. Targets includes putting 30 per cent of the planet and 30 per cent of degraded ecosystems under protection by 2030, cutting food waste in half and mobilising US$ 30 billion per year for developing countries by 2030.

Under Target 15, large companies and financial institutions are called to disclose their nature related risks and impacts along their operations, supply value chains and portfolios. Pollination note this will add further impetus to the work underway from the Taskforce on Nature-related Financial Disclosure’s (TNFD) biodiversity reporting framework.

Environment Minister Tanya Plibersek announced Australia will host a global Nature Positive Summit in 2024, which is expected to attract businesses, environment groups, scientists, and government ministers from around the world. The Summit will also build on Australia’s strong support for the TNFD and broader ambition on biodiversity protection policy.

Watch our webinar An introduction to reporting on nature-related risks that highlights natural capital’s link to climate change and why boards should be following this issue closely.

Other Australian climate governance news

• Investor expectations for a just transition (Australian Council of Superannuation Investors) –Latest research outlines investor expectations and policy recommendations for a just transition to a clean energy economy. ACSI calls on listed companies and their boards to address and oversee the just transition by engaging widely with stakeholders, making its response context-specific to the impacted sites and regions, and advocating through partnerships, membership organisations and policy work.
• “‘Climate litigation’ on ice for governments, but industry to feel the heat” (Gilbert + Tobin) – Some major cases are awaiting finalisation, including Australian Conservation Foundation (ACF) v Woodside Energy Ltd where ACF seeks to establish climate change impacts as a consideration for the WA Environmental Protection Authority exercising its approval rights. In 2023, with increased activist litigation domestically, reforms are also progressing internationally (see Guardian article), that could significantly impact entities with offshore interests.
• ASX climate-related disclosures and assurance (AASB and AUASB) – Latest report builds on previous ASIC and ASX regulatory guidance on climate reporting and assurance. Key 2021 findings include ASX100 companies (94) were the most likely to disclose, followed by ASX101-300 (155) and ASX301-500 (155). The amount of companies referencing the Task Force on Climate-Related Financial Disclosures (TCFD) reporting framework has increased from 61 in 2018 to 181 in 2021.

Catch up on recent CGI Australia webinars and international CGI resources

• An introduction to reporting on nature-related risks – Delivered by CGI Australia partner, PwC.
• Biodiversity Risk: Legal Implications for Companies and their Directors – Delivered by the Commonwealth Climate and Law Initiative, including an Australia legal perspective from CGI Australia partner, MinterEllison.