ESG Regulations in Australia

Australia’s National Greenhouse and Energy Reporting Act of 2007 (NGER) requires certain companies meeting specific greenhouse gas (GHG) or energy thresholds to disclose emissions and energy data. Additionally, Australia Securities & Investments Commission (ASIC) has begun providing guidance to companies on environmental reporting and sustainable products, and in 2021 began a greenwashing review. Moreover, the Australian government recently released a consultation paper (in December 2022) that could require large public (and potentially private) companies to provide extensive environmental disclosures consistent with TCFD standards, including Scope 1, 2, and 3 emissions.

The National Greenhouse and Energy Reporting Act of 2007 (NGER)

The National Greenhouse and Energy Reporting Act (NGER) was established in 2007 to establish a mandatory reporting framework in greenhouse gas emissions, energy production, and energy consumption.

If a company meets certain reporting thresholds, they must disclose required Scope 1 (direct emissions) and Scope 2 (indirect relating to the purchase of energy) emissions, as well as energy production and consumption data. There are two reporting thresholds – Facility (an activity or series of activities that generate greenhouse gas emissions and produce or consume energy) and Corporate Group (a controlling corporation and its subsidiaries). The triggers for reporting under each threshold are as follows:

● Facility thresholds:

○ 25kt+ of greenhouse gases; or

○ production of 100 TJ+ of energy; or

○ consumption of 100 TJ+ of energy

● Corporate Group thresholds:

○ 50kt+ of greenhouse gases; or

○ production of 200 TJ+ of energy; or

○ consumption of 200 TJ+ of energy

The NGER Scheme includes a Safeguard Mechanism, which requires covered entities to keep their emissions at or below a certain baseline level. It generally applies to larger emitters with Scope 1 covered emissions of more than 100,000 tons of carbon dioxide equivalent (CO2-e) per year. (Such businesses usually operate in areas such as electricity generation, mining, oil and gas extraction, manufacturing, transport, and waste). Amendments to the Safeguard Mechanism set to take effect starting July 2023 include a new framework for Safeguard Mechanism Credits (SMCs) to be issued and traded, objectives to achieve a ‘cap’ for emissions, and extended reporting responsibilities by the Regulator about covered emissions and 5-year rolling average emissions.

The Australia Securities & Investments Commission (ASIC) Environmental Efforts

ASIC, Australia’s corporate, markets, financial services and consumer credit regulator, has begun to focus on environmental sustainability issues. In June 2022, ASIC published an article with information on what greenwashing is, current regulation about sustainability-related products, and questions to consider when offering these products. Additionally, in the article, they encourage voluntary disclosure that is in accordance with the TCFD framework. ASIC also launched a greenwashing review in July 2021 and sued a company for alleged greenwashing in February 2023. In its complaint, ASIC alleged that this company made false and misleading statements in relation to their sustainable investment options that would exclude investment in companies involved in alcohol production, gambling and in carbon intensive fossil fuels. Moreover, between July 2022 and March 2023, ASIC has taken more than 30 additional greenwashing interventions (including 23 corrective disclosure outcomes and 11 infringement notices).

Other Current and Future Environmental Regulations

The Climate Change Act 2022 legislated country-wide targets of reducing net greenhouse gas (GHG) emissions to 43% below 2005 levels by 2030 and reducing net GHG emissions to zero by 2050. Although the Act does not impose obligations directly on companies, future policy will take into account these goals—as can be seen by new environmental regulations that Australia has in the works.

In December 2022, the Treasury of the Australian government released a consultation paper on the development of a climate risk disclosure framework for companies and financial institutions, with plans to introduce mandatory sustainability and ESG reporting requirements for large Australian entities in a phased approach going into 2024. Disclosures would be mandatory for large, listed businesses, but debate still remains about large, private businesses.

Topics that could be required to be reported on include:

● Climate risk disclosure consistent initially with TCFD

● Material climate and sustainability risks

● Scope 1,2, and 3 GHG emissions

● An overview of the entity's quantitative climate and sustainability targets

● Key climate, sustainability, and ESG metrics and KPIs

● Reporting methodology

Submissions for feedback on the consultation paper closed in February 2023. Going forward, the Australian government will consider the feedback submitted and set out a specific design proposal, which will include more detail of the new reporting requirements, their implementation and sequencing. Regulations are expected to be issued commencing with the 2024/2025 financial year.

Two specific pieces of historic Australian legislation focus specifically on social issues: (1) The Commonwealth Workplace Gender Equality Act (2012), and (2) The Commonwealth Modern Slavery Act (2018).

Under the Workplace Gender Equality Act, private sector organizations with 100 or more employees must file an annual report with the Workplace Gender Equality Agency discussing: (1) gender equality policies and strategies, (2) gender equality action, (3) employee work/life balance, and (4) employee support (including policies on paid parental leave and sex-based discrimination). Subject to privacy policies, the Agency aims to make information collected from relevant employers publicly available in the year it is collected, publish public reports, share aggregated datasets, and make company-specific data available to approved research bodies.

The Modern Slavery Act requires organizations to report annually in a modern slavery statement on how they are addressing the risks of modern slavery in their supply chain and operations. Organizations registered or carrying on business in Australia with a consolidated revenue of at least AU$100 million have mandatory obligation to report (though a AU$50 million threshold is commonly suggested for future amendment). These reporting requirements include (among other topics):

● the structure, operations, and supply chains of the reporting entity;

● the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls;

● the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks;

● how the reporting entity assesses the effectiveness of such actions;

● the process of consultation with any entities the reporting entity owns or controls or is issuing a joint modern slavery statement with; and

● any other information that the reporting entity, or the entity giving the statement, considers relevant.

The Act, however, has been criticized for scarce enforcement. There are currently no penalties for non-compliance. And, in July 2021, one study found that approximately one-third of 151 companies in the ASX200 published mandatory modern slavery statements that are potentially non-compliant.

As discussed above, the 2001 Corporations Act requires listed companies to disclose information that their members would reasonably need to evaluate their operations, financial position and business strategies. The Australia Stock Exchange (ASX) further updated its Corporate Governance Principles & Recommendations for listed companies in 2019. This document sets out “recommended” corporate governance practices for entities listed on the Australia Stock Exchange. Listed companies must have a corporate governance statement that explains how they followed the recommendations, and if they have not followed a recommendation, an explanation for why not—the “disclose or explain” approach. The statement must be disclosed on their annual report or website.

There are 35 recommendations centered around eight key principles:

1. Laying solid foundations for management and oversight (1.1-1.7)

2. Structuring the board to be effective and add value (2.1-2.6)

3. Instilling a culture of acting lawfully, ethically and responsibly (3.1-3.4)

4. Safeguarding the integrity of corporate reports (4.1-4.3)

5. Making timely and balanced disclosure (5.1-5.3)

6. Respecting the rights of security holders (6.1-6.5)

7. Recognizing and managing risk (7.1-7.4)

8. Remunerating fairly and responsibly (8.1-8.3)