With a continuing pushback against ESG initiatives in the United States – evident in corporate retreats from voluntary net-zero alliances and diversity priorities – we examine the potential flow on for Australian boards.
Welcome to the first Climate in Focus for 2025.
We also release a new primer for boards on circular economy opportunities. Developed with Accenture, the resource introduces directors to the circular economy, its role in Australia’s net zero transition, and practical steps boards can take as Australia aims to double its circularity rate by 2050.
Also in this newsletter:
- Mandatory climate reporting is now effective in Australia.
- The world records its warmest year on record, while Australia experiences its second hottest.
- Plus: Australia’s green bank gets $2bn boost; US to exit Paris Agreement; and Australian household insurance affordability could worsen due to global climate events, says Insurance Council.
AICD webinar considers ESG backlash implications for Australian boards
A pushback against environmental, social, and governance (ESG) initiatives in the United States, a growing trend in recent years, has intensified with the change of presidency. President Trump has repealed executive orders addressing decarbonisation and diversity, equity, and inclusion (DEI). Major corporations like Meta and Amazon have dismantled DEI programs, while some financial institutions have exited net-zero alliances (more on this below).
A recent AICD webinar on ESG and sustainability trends explored the US reckoning with ESG and its potential impact on Australian boards. Panellists Jane McKellar FAICD, Dan Wilcock (UN Global Compact Network Australia), and Tim Stutt (Herbert Smith Freehills) suggested a major ESG rollback was less likely in Australia but to expect subtle shifts in public positioning and policy: “ESG remains contested ground. Significant realignment and recalibration of priorities and alliances are clear in the year ahead.”
Directors are encouraged to view ESG through a risk lens and engage stakeholders to align sustainability strategies with broader business objectives: “Actively engage your stakeholders, listen to them, understand their concerns and expectations, and shape your sustainability strategies around that.”
Access the full discussion on the AICD website, including insights on modern slavery, greenwashing, and mandatory climate reporting.
Voluntary net zero alliances under pressure as majors withdraw
The six largest US banks – Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo – have left the UN-convened Net Zero Banking Alliance (NZBA) in the context of increased regulatory, legal, and political scrutiny. Some observers suggest these exits have been in the making for years. Canadian banks, including BMO, National Bank of Canada, Toronto-Dominion Bank, and CIBC, have also withdrawn, with reports that European banks may follow suit. The NZBA, launched in 2021, aims to align banking activities with net zero emissions by 2050. An October 2024 progress report showed the group’s membership – which includes NAB, Westpac, ANZ, Commonwealth Bank, Macquarie, and Bank of Queensland – had tripled to 144 banks since its launch.
The Net Zero Asset Managers (NZAM) initiative has suspended operations following the departure of BlackRock, its largest member, after an adverse legal ruling related to its focus on ESG and other non-financial factors. The Texas court ruling found that American Airlines breached its legal duty to make investment decisions solely in the financial interests of employee retirement plan beneficiaries by allowing its asset manager, BlackRock, to prioritise ESG. Before suspending operations, NZAM had over 325 signatories managing $57.5 trillion in assets. Vanguard had already exited the group in 2022.
Influential voices from Australia’s superannuation sector have said their commitment to ESG integration remains, emphasising its importance in mitigating financial risks and driving long-term sustainable value.
New resource primes boards for the circular economy
The AICD, in collaboration with Accenture, has released a new resource introducing Australian boards to circular economy practices. Opportunities in the Circular Economy: A Primer for Australian Directors outlines key concepts, including the circular value chain and business models, and provides practical steps for boards to get started. It also examines the Australian context, highlighting links to mandatory climate disclosures and the challenges of transitioning to circular systems.
With a circularity rate of four per cent – half the global average – Australia aims to double this by 2035, focusing on high-impact sectors such as the built environment, agriculture, industry, and resources. This approach goes beyond waste reduction, offering organisations a strategic framework to achieve long-term resilience, resource efficiency, and competitive advantage. Access the resource here.
Climate reporting regime now in effect
Large entities with 31 December year-ends are now subject to Australia’s mandatory climate-related financial disclosures reporting regime, with other entities to be phased in as new financial years commence in 2025. The mandatory climate reporting framework was passed into law last year and took effect on 1 January 2025. This month, Treasury released a consultation paper for public comment which seeks to clarify, via amendment, that the modified liability provisions in the legislation extend to all sustainability reports, whether required under the Corporations Act or voluntarily issued by companies not yet subject to the climate reporting regime.
As the regime began, the Federal Opposition announced that, if it wins the upcoming election, it will wind back reporting requirements, with scope 3 emissions reporting identified as a key concern. A potential rollback of these measures by the Coalition would mirror similar developments in the US. In contrast, broad-based EU sustainability reporting, which extends beyond climate to include topics such as human rights, remains firmly in place.
The AICD, in collaboration with Deloitte and MinterEllison, has released A Director’s Guide to Mandatory Climate Reporting, which supports directors in overseeing their organisations' disclosures under the laws.
Build your climate governance knowledge in 2025
Register here for AICD's approved short course, running monthly.
2024: Record global heat breaks through climate thresholds
Global scientific organisations, including the Copernicus Programme, have reported that 2024 was the warmest year on record. For the first time, the global average temperature for a calendar year exceeded 1.5°C above pre-industrial levels – a key climate threshold outlined in the Paris Agreement. This milestone capped off the world’s warmest decade, with the last 10 years being the hottest on record, marked by unprecedented air and sea surface temperatures and rising greenhouse gas concentrations.
These conditions have been linked to significant weather events worldwide, including floods, heatwaves, wildfires and major coral bleaching on the Great Barrier Reef.
Australia experienced its second-warmest year on record, according to the Bureau of Meteorology (BOM)’s Annual Climate Statement for 2024 summary. The national average temperature was 1.46°C above the 1961–1990 average.
Market developments update
- “Back to basics” approach for Australian boards, amid ESG backlash: AICD Managing director and CEO Mark Rigotti told the AFR: “The parallel with the US is the focus on customers, stakeholders and the community, and on the cost of living. You would be tone-deaf to ignore it.”
- A recent AFR Freshwater poll found strong support for Australian businesses addressing environmental and diversity issues but limited backing for social advocacy: 77 per cent believe businesses should reduce environmental impact; 59 per cent support action on diversity, equity, and inclusion (DEI); 36 per cent favour advocacy on social issues, with 37 per cent opposed.
- PwC’s 28th Annual Global CEO Survey found Australia’s business leaders were optimistic about the economic outlook, with almost half (47 per cent) expecting global growth to increase over the next 12 months, up from 37 per cent last year. But less than one in five local CEOs (17 per cent) reported increased revenue from climate-related investments, lagging the global benchmark of 33 per cent.
- The affordability of Australian household insurance could worsen as Californian fires exacerbate reinsurance costs. According to the Insurance Council of Australia, global reinsurance costs have reached their highest levels in 20 years, driven by repeated climate-related catastrophes.
- The UNFCCC funding gap left by the US exit from the Paris Agreement will reportedly be covered by Michael Bloomberg, former New York City mayor and UN special envoy, who similarly stepped in when the Trump administration withdrew from the Paris Agreement during its first term.
- Focus shifts to ‘energy security’ at Davos meeting of World Economic Forum: The meeting, which concluded last week, featured a video address from the US President.
- Australia’s green bank gains $2bn funding boost: The federal government announced the $2 billion in new funding for the Clean Energy Finance Corporation (CEFC), provisioned in the Mid-Year Economic and Fiscal Outlook (MYEFO), to help Australian households, workers, and businesses shift to ‘cheaper, clean, reliable, renewable energy’.
- Rio Tinto welcomes a $2 billion federal government production credit, aimed at supporting a 'green' aluminium sector, provided as part of the Future Made in Australia plan.
- The Australian Government released a First Nations Clean Energy Strategy which sets out the principles and actions required by all jurisdictions of Australian governments, industry and community to ensure that First Nations peoples’ rights and interests are affirmed as an essential part of the transition.
Upcoming events and courses
- 17 February 2024: Nature-related risks and directors' duties – what is the current state of play? A Monash Business School event featuring AICD Senior Policy Adviser, Laura Bacon, alongside legal and industry leaders. Register now.
- 11–12 March 2025: Australian Governance Summit, Sydney, Tuesday–Wednesday, 9am to 5:00pm AEDT. Register now.
- Climate Governance for Australian Directors short course, offered monthly. Book your place.
- Introduction to Climate Governance: A free to member self-paced, 2-hour e-learning module designed to introduce the climate literacy needed to navigate the complexities of climate change for your organisation. Complete the course today.
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