Climate Governance Initiative Australia Newsletter October 2022

In the edition of the Climate Governance Initiative newsletter we are updating you on:

• ACCC begins ‘greenwashing’ crackdown
• Safeguard mechanism reform progresses
• Highlights from the CGI Global Summit
  

ACCC begins ‘greenwashing’ crackdown on companies’ false environmental claims

Australian Competition and Consumer Commission (ACCC) chair Gina Cass-Gottlieb told a House of Representatives hearing last week that ensuring claims are truthful will be an enforcement priority for the ACCC this year, and an enduring one, adding international estimates from consumer protection groups put the level of unverifiable environmental claims at 40%. Domestically, Ms Cass-Gottlieb added that the ACCC are now in the ‘information-gathering, data-gathering, and investigation phase’.

To that end, the ACCC has commenced confidential investigations and internet sweeps to ‘build up a database’ and measure the extent of unverifiable claims in Australia. She flagged internet sweeps would inform business guidance to be released this financial year and there was potential for the ‘building up of standards that customers and consumers can rely upon.’ It was noted that the ACCC was engaging with the Australian Securities and Investments Commission (ASIC) and the Clean Energy Regulator to ensure there is ‘regulatory alignment’ on issues of how claims are made or how conduct occurs.

Similarly, ASIC deputy chair Karen Chester remarked the greenwashing issue has now become a ‘whole of ASIC’ priority, with surveillance across managed funds and superannuation. The Australian Prudential Regulation Authority’s (APRA) Dr Sean Carmody noted that greenwashing might be another source of ‘litigation risk’ for regulated entities, among physical and transitional climate risks, which is reflected in the practice guide APRA CPG 229 Climate Change Financial Risks.

Safeguard mechanism reform progresses

In September, the Department of Climate Change, Energy, the Environment and Water completed its consultation on proposed reforms to the Safeguard Mechanism which covers 215 of Australia’s largest greenhouse gas emitters, representing 28% of current national emissions. The Federal Government will gradually reduce the emissions limits under the Safeguard Mechanism to help Australia reach net zero emissions by 2050. The consultation received over 230 submissions from a range of stakeholders across government, community groups and industry. The Government will consult on the proposed final detailed design of the reforms later in 2022.

Key proposals included:

• gradually reducing baselines to help Australia reach net zero emissions by 2050
• introducing tradeable credits for facilities that emit less than their baseline
• providing tailored treatment to emissions-intensive, trade-exposed (EITE).

Earlier this month, the Federal Government released draft legislation for the introduction of tradeable Safeguard Mechanism Credits (SMCs) which facilities with relatively low-cost abatement, can sell to others that have more costly or limited options thereby incentivising cost-efficient carbon abatement. The legislation includes ongoing consideration for the possible inclusion of international credits, which would need to be of the highest integrity and count towards Australia’s Paris targets. A decision on whether to limit ‘banking’ of SMCs between Phase 1 (2023-24) and Phase 2 (2024-25) has not been made yet.

Public consultation on the draft Safeguard Mechanism (Crediting) Amendment Bill 2022 and the Carbon Credits (Carbon Farming Initiative) Amendment (Safeguard Facility Eligibility Requirements) Rules 2022 is open until Friday 28 October 2022. If passed, the latter draft legislation will prevent facilities from generating Australian Carbon Credit Units (ACCUs) for reducing direct (scope 1) emissions unless they have an existing eligible offsets project.

Key features of the draft Bill:

• creation of tradeable SMCs;
• framework to address incentive overlaps from declining Safeguard Mechanism baselines, Safeguard crediting and opportunities to create ACCUs; and
• increased transparency of emissions accounting and consistent frameworks for information.

Concurrently, the six month review on the integrity of ACCUs (led by former Chief Scientist Professor Ian Chubb) is also due to be delivered to the Government by the end of the year. Concerns had been raised about several aspects of Australia’s carbon crediting system, including the integrity of its key methods and the Australian carbon credit units issued under it.

Highlights from the CGI Global Summit

The Climate Governance Initiative (CGI) hosted the Global Summit 2022: Ambition to Action, a 24-hour virtual conference on Wednesday, 12^th October, 2022 spanning the globe and bringing together highly motivated board members and other eminent speakers who champion effective climate governance.

The event program featured globally relevant keynote speakers and panels, as well as region-specific interactive sessions developed and delivered by CGI’s network of non-executive directors (NEDs). The Global Summit kicked off with a welcome and discussion with CGI Australia Advisory Committee chair Penny Bingham-Hall on the topic “Ambition to Action”.

Check out the global CGI website to access session recordings from the Global Summit. You can find our session available on the CGI Australia website in the coming week. AICD members can self-log and claim 5 DPDs through the normal process for third-party webinars.

• Sustainability or ESG Committees: how to structure your board. Maxine Brenner (Non-Executive Director, Woolworths Group, Origin Energy, Orica Limited, and Qantas Airways) and Naomi Edwards (Independent Chair, Spirit Super) shared valuable insights as part of a discussion panel facilitated by Tim Stutt, Partner and Australian lead, ESG, Herbert Smith Freehills.
  • Panelists remarked that there no ‘one size fits all’, with the appropriate governance model a function of the size, scope, and scale of a board, and the balancing of the stakeholders involved.
  • Key takeaways included that committees may help move the dial on ‘legwork’ and support for climate and ESG, and that specific committees are expected to become more common as regulation increases and companies’ climate and ESG strategies become more sophisticated. Ultimately, committees are supporting structures with the board accountable for oversight of strategy and risk.
  • Finally, there were comments around the role of horizon scanning for future regulatory developments such as reporting under the International Sustainability Standards Board (ISSB) draft standards on sustainability disclosures, and potential tradeoffs between different types of committee structures for efficiency and effectiveness.