Green Gold: Navigating Mandatory Climate Disclosure and ESG Strategies

Mandatory climate-related disclosure on the horizon

On 27 March 2024, following two rounds of consultation and an exposure draft, Australia’s proposed mandatory climate-related disclosure regime was introduced to Parliament under Schedule 4 to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Proposed Disclosure Regime).

If passed, the Proposed Disclosure Regime will require entities falling within its scope to prepare an annual audited sustainability report containing climate related disclosures made in accordance with sustainability standards to be set by the Australian Accounting Standards Board (AASB Sustainability Standards). The Proposed Disclosure Regime, if passed, will commence as early as 1 January 2025. It is anticipated that the AASB Sustainability Standards will impose standards with respect of greenhouse gas emissions, climate transition planning, governance processes and exposure to climate-related financial risks and opportunities.

This development is consistent with Australia’s recognition of the material risks posed by climate change to global business and will facilitate regulators evaluating and mitigating climate change related risks. The Proposed Disclosure Regime will bring Australia in line with other jurisdictions (eg Europe and the United States of America).

Is my business affected?

The Proposed Disclosure Regime will apply to entities with existing emissions reporting obligations under the National Greenhouse and Energy Reporting (NGER) Scheme or which are required to lodge financial reports with the Australian Securities and Investment Commission pursuant to Chapter 2M of the Corporations Act 2001 (Cth) (capturing, amongst others, public companies and large proprietary companies). Practically, even if your business issues consolidated sustainability reports in another country or at a global level, if the Australian entity meets certain thresholds, it may need to make separate disclosures.

The Proposed Disclosure Regime will be implemented on a phased basis as follows:

What are the contents of the annual sustainability report?

Under the Proposed Disclosure Regime, the annual sustainability report for a financial year will consist of:

• climate statements required by the AASB Sustainability Standards (and any applicable notes);
• any other statements required by the regulations for the year (and any applicable notes);
• a declaration by directors regarding compliance of the statements and notes with the AASB Sustainability Standards; and
• for a financial year commencing within the first three years of the start of the Proposed Disclosure Regime, an opinion by directors as to whether the entity has taken reasonable steps to ensure that the substantive provisions of the sustainability report are in accordance with the Proposed Disclosure Regime.

Besides reporting obligations, what other legal/regulatory considerations are important to factor into an ESG strategy?

When developing an ESG strategy, organisations need to be aware of regulatory risks beyond reporting obligations. Some issues that should be addressed are set out below.

1. Tackling misleading sustainability claims

• A key enforcement priority for 2024-25 announced by the ACCC last month was the continued scrutiny of deceptive or exaggerated claims related to environmental sustainability. This is hardly surprising, given the release of the ACCC’s final guidance on this topic late last year. ACCC Chair Ms Gina Cass-Gottlieb reported that there are several active investigations underway, either originating from the ACCC’s internet sweep in October/November 2022 or as a result of direct complaints.
• Organisations should ensure that any sustainability claims they make are accurate, substantiated with evidence (independently reviewed where possible), subject to legal clearance and aligned with consumer expectations. The ACCC’s final guidance on sustainability claims (on which we have previously reported) provides a good starting point to assess such claims. Having a clearance protocol for these types of claims is key, as well as an action plan when issues arise. Training marketing teams on this topic from a legal and regulatory perspective should also be built into any ESG strategy.
• Misleading claims can result in legal repercussions, as seen in the recent case of MOO Premium Foods Pty Ltd. MOO falsely represented its yoghurt tubs as being made from “100% ocean plastic” when the plastic resin was sourced from coastal areas in Malaysia, not directly from the ocean. In November 2023, the ACCC reported that it had accepted a court enforceable undertaking from the business.

2. Monitoring green advertising cases and developments

• Organisations should stay informed about developments in environmental advertising regulations to avoid engaging in “greenwashing.”
• Signing up to ACCC news alerts (or other resources) can be useful.
• The team at Bird & Bird has developed a Green Claims Tracker to help businesses navigate different national laws and guidelines on green claims applicable in a selection of countries in Europe, the Asia-Pacific region and the UAE as well as in the US. Bird & Bird also offers more tailored horizon scanning services for clients. This is important for organisations that promote and sell products or services overseas or are part of a supply chain for such products or services.