Climate Governance Initiative Australia Newsletter June 2023

This month, we cover key takeaways from the ASIC Chair’s recent AFR ESG Summit speech, discuss the Climate Change Authority’s consultation on Australia’s emission reduction targets and look at the rapidly moving nature and biodiversity agenda for boards.

Insights from ASIC Chair on ESG, greenwashing and climate reporting

Last week, ASIC Chair Joe Longo gave a speech at the AFR environmental, social, and governance (ESG) Summit on three key areas of focus for ASIC – the regulator’s ‘three Gs’ – of governance, greenwashing, and growth in sustainable financing.

Governance

Mr Longo highlighted that ASIC has had a close eye on climate risk disclosures since 2018 and will continue to have a strong interest in robust ESG disclosures being provided to the market.  He further referenced the Australian Government’s clear intention to mandate climate reporting and the work of the International Sustainability Standards Board (ISSB).  The ISSB’s first two standards (IFRS1 – general sustainability requirements and IFRS S2 – climate-related financial disclosures), are expected to be finalised by the end of June, with the latter widely expected to be the basis for the Australian mandatory reporting regime. Mr Longo reiterated ASIC’s support for the shift to mandatory disclosures in Australia and will continue to engage with key stakeholders.

This week, in his CEDA speech , he added that Treasury intends to put out a position paper in the next fortnight on the ISSB standards that will cover the Government’s plans for domestic adoption and operation, and a likely scaled introduction (see further here).

Greenwashing enforcement focus

Mr Longo confirmed greenwashing remains an enforcement priority for ASIC (as published in a recent ASIC report), consistent with other domestic and international regulators. Mr Longo highlighted four categories of problematic behaviour falling under ‘greenwashing’:

• Net zero statements and targets without a reasonable basis or those that are factually incorrect.
• Terms like ‘carbon neutral’, ‘clean’ or ‘green’, that aren’t founded on reasonable grounds.
• Overstatement or inconsistent application of sustainability-related investment screens.
• The use of inaccurate labelling or vague terms in sustainability-related funds.

Mr Longo reflected that ASIC aims to walk the line between ‘encouragement and enforcement’, by providing a proportionate response to facilitate fair and efficient markets and preventing practices such as ‘greenhushing’. Notably, Mr Longo commented that the trend of ‘greenhushing’ in response to ASIC’s scrutiny was another form of greenwashing – “an attempt to garner a ‘green halo’ effect without having to do the work”. This week, in his CEDA speech, he added that ‘misleading by omission’ and failing to engage is not the solution to greenwashing.

Growth in sustainable finance

Mr Longo confirmed sustainable finance is another strategic priority, with ASIC engaging heavily at the domestic and global level to ensure Australian regulatory work on ESG is informed by what is happening overseas. ASIC also recognises the role carbon markets play in supporting private sector action on emissions reduction.

For the first time, the Government is also explicit in requiring APRA to consider climate change risks as part of its mandate. This includes promoting transparency in relation to financial risks and the adoption of climate reporting standards.

Climate Change Authority’s consultation on Australia’s emission reduction targets

The Australian Government’s climate change expert adviser, the Climate Change Authority (CCA), has commenced consultation on setting, tracking and achieving Australia’s emissions reduction targets, including 2035 emission targets.

This development is in line with the Climate Change Act 2022 which established national emissions reduction targets for 2030 and 2050.

Pursuant to the Paris Agreement, each member state is required to develop national targets set out in Nationally Determined Contributions (NDC) and it is intended the targets progressively increase in scale. New targets must be submitted at least every five years and each target must be more ambitious than the last.

In the accompanying Issues Paper, the CCA highlights developments in the broader operating environment, including voluntary corporate action. The private sector is moving to decarbonise with many companies setting short-, medium- and long-term emissions reductions targets. It notes not all action will remain voluntary in nature with the Government pursuing a coordinated sustainable finance strategy in 2023 and reforms that include a mandatory corporate climate-related disclosure scheme.

The Issues paper includes several topical questions including:

• What more could the Government do to help you reduce your carbon footprint?
• What role is there for corporate action to 2030 and beyond?
• What risks and opportunities do you face as the world decarbonises and as Australia responds to the impacts of climate change?

Other climate governance news

• “Efforts to halt biodiversity loss moving faster than climate change agenda: Oliver Wyman” (The West Australian) – Global management and consultancy firm Oliver Wyman said there would be an increasing expectation for businesses to demonstrate how they were reversing biodiversity loss, especially after the Global Biodiversity Framework was approved last December at the Biodiversity COP15. More than 200 global companies are actively testing and piloting the Taskforce on Nature-related Financial Disclosures (TNFD) voluntary framework prior to its September 2023 release, including Rio Tinto, BHP, Westpac and Stockland. For what TNFD means for directors, see further here.
• “Climate Action 100+ Announces Second Phase” (Investor Group on Climate Change) – Climate Action 100+, the world’s largest investor engagement initiative on climate change, has launched its next phase, running until 2030. It intends to ask companies to not only disclose but to implement robust transition plans and to take action with a wider set of stakeholders to address the sectoral barriers to the net zero transition.
• “Appointment of Net Zero Economy Agency and Advisory Board” (Prime Minister’s media release) – The Hon Greg Combet AM has been appointed Chair of the Net Zero Economy Agency. The Chair will be supported by an Advisory Board to design and establish the legislated Net Zero Authority.
• “AUS carbon border tax could spark China tariff on Australia” (AFR) – Trade economists warn that Australia should be wary about embracing a US carbon border adjustment tax too quickly, as it would likely trigger retaliatory tariffs from Beijing on Australian minerals and producers.

Additional climate governance resources

To access a suite of free director-focused Climate Governance Initiative Australia webinars, videos, and resources, click here.