Happy new financial year! For many businesses, this time represents a reporting milestone. Fittingly, sustainability reporting was a standout theme across our ESG insights over the past quarter.
Australia and the EU both edged closer to implementing landmark new regimes: mandatory climate reporting Down Under; due diligence checks upstream and downstream in Europe. We also released our annual flagship analysis of the sustainability reporting practices of the ASX50 – a must-read on emerging trends in emissions reduction and risk disclosure.
This quarter also saw the Federal Budget bring initiatives to accelerate Australia’s move to become a renewable superpower (among other decarbonisation efforts), a focus on restoring ecosystems for World Environment Day (June 6) and a consensus at the Boao Forum for Asia to accelerate action on climate change.
Plenty to absorb. But before sharing our latest ESG insights, I want to celebrate the first publication from Owl Advisory by KWM: ‘The Hoot’. I encourage you to have a read – including wise advice on preparing for Australia’s proposed new mandatory sustainability reporting regime.
Until next quarter – stay sustainable.
“The days of ESG being addressed via a brief ESG policy are long gone, with ESG strategies, reporting and disclosure quickly becoming the new norm for fund managers, and investors having increased appetite for ESG-oriented strategies and products.” John Sullivan | Partner, Sydney, Sharon Travers | Partner, Brisbane
ESG Governance, Risk and Litigation
Our fourth annual take on the sustainability and governance of the ASX50 shows the vast majority of the ASX50 (>90%) reported in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD). The must-read full report from Emma Newnham, Jack Hill, Joseph Muraca, Claire Rogers, Ha Dinh and Eugenia Munoz is here.
We also took our annual deep dive into ASX200 AGMs. Among observations: a boost in average support for ESG resolutions (albeit the number of resolutions halved in number) and in strikes (16%, up from 8% in 2022). Emma Newnham, Jack Hill, Joseph Muraca, Diana Nicholson, Ha Dinh and Steven Su share more insights in the full report.
Onto perhaps the story of the quarter: Australia is poised for a transformative new mandatory sustainability reporting regime with the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. As Tim Bednall and Emma Newnham explain, the bill passed the House of Representatives on June 6. It now awaits its third reading in the Senate (July 4 – as we publish this newsletter – is a sitting day. Watch this space!). Despite some contention, it is backed by broad support and follows urging from ASIC chair Joe Longo to ‘marshal data… today’. Read what KWM had to say on the proposed regime here.
At a state level, Queensland’s environmental regulations are set to become more stringent. Matthew Austin, Ebony Sinnathamby and Jessica Owne flagged the second wave of reforms, bringing broader obligations and steeper penalties. It’s crucial to reassess and ensure compliance systems are robust.
This escalation of regulations in Australia is consistent with efforts globally – where the EU is again forging new ground. In April, the Corporate Sustainability Due Diligence Directive moved closer to endorsement and implementation, passing through the EU Parliament. Scott Gardiner and Tiffany Kwong set out 12 things to understand as companies get ready for the measures, which make businesses responsible for identifying, preventing and remediating impacts of activities up and downstream.
Moving to the ‘S’ in ESG… the Australian government introduced a new reporting framework to track progress in gender equality across departments. Part of ‘Working for Women: A Strategy for Gender Equality’, there are also implications for businesses with 500+ employees bidding for government contracts. Jacqueline Field, Hamish McKinnon and Stephen Jaggers share insights on bracing for change.
Andrew Gray, Angela Weber, Jack Carfi and Joshua Brereton share what you need to know about the major IR changes in the Federal Government’s contentious Fair Work Legislation Closing Loopholes package. They set out practical implications – including new wage theft laws, same-job same-pay rules, increased civil penalties for non-compliance and a novel right to disconnect. The changes, largely opposed by business and employer bodies, will come into play progressively over the next year.
KWM and the ESG journey
“KWM is ambitious and excited about our own responsible business journey. We are partnering with our people, clients and communities to meaningfully unpack and report on our impact on people and planet. Collaboration is key, we must work together to create a more sustainable future.” Clementine Johnson | Head of Social Impact & Shared Value, Responsible Business
Carbon and Natural Capital
The way businesses use carbon credits is undergoing dramatic change. The Carbon Market Institute (CMI) launched its inaugural Carbon Market Report in April 2024 with the aim of keeping market participants informed in a rapidly changing environment as we move towards net zero carbon emissions. Dale Rayner, Selena Liu and Nick Forbutt share key takeaways (and a link to the report in full).
In case you missed it, four of our carbon markets experts came together to talk ‘trading green’ as part of our signature Sprint to the Finish series. From fragmented standards to new schemes and opportunities emerging across the region, catch key takeaways from the discussion between Michael Lawson (Singapore), Molly Su (Mainland China), Richard Mazzochi (Hong Kong SAR) and Dale Rayner (Australia).
Have you visited our carbon markets regulatory tracker for Australia? Designed to keep you across developments, we’ve now released versions for Chinese Mainland and Hong Kong SAR. This is an active space, and we’ll keep sharing our latest insights regionwide – like this piece from Molly Su, Xi Suodi and and Xiao Jinyu on international efforts to develop a consistent framework for carbon credits. Keep an eye out for our upcoming regulatory tracker for Southeast Asia.
Keeping the wider Asia lens, David Olsson attended the Boao Forum for Asia in the Hainan province, where collaborating to decarbonise was a key focus. David reported back that there was a sense of ‘quiet confidence’ in the ability of regional leaders to manage challenges.
Back in Australia, among the latest developments is the interim proponent-led approach to developing new Australian Carbon Credit Unit (ACCU) Scheme methods, launched by the Australian Department of Climate Change, Energy, Environment and Water (DCCEEW). Matthew Austin, Claire Rogers, Ebony Sinnathamby and Jessica Owen explain that the DCCEEW is encouraging stakeholders to actively engage – have a read and consider submitting an Expression of Interest!
The Australian government’s much-anticipated (after some delays…) ‘nature positive’ reform package has at last moved to ‘stage 2’: the introduction of bills to establish the nation’s first independent Federal environmental regulator (Environment Protection Australia (EPA)) and Environment Information Australia (EIA). The transformative shift inclused increased penalties and tougher enforcement tools, write Matthew Austin, Mark Beaufoy, Michael Causer, Claire Rogers, Claire Findlay, Nick Galbraith, Paul Libreri and Alexander Madafiglio. Stay tuned for updates!
Energy Transition
The budget brought a boost to the clean energy transition via the $22.7 billion Future Made in Australia package. Aimed at accelerating Australia’s bid to become a renewable energy superpower, the package includes tax incentives for critical minerals and hydrogen production, alongside investments in green technology and infrastructure. Jason Barnes and Joanne Ng detailed the initiative as part of our budget night coverage, also covering measures to measures to the Climate Change, Energy, the Environment, and Water portfolio.
Critical minerals are the focus for a decent proportion of the package: $7.1 billion over 11 years. Measures include a tax incentive and exploration funding. Western Australia (in May 2024) and Queensland (in June 2023) similarly released policies to advance critical minerals including processing facilities. Lorenzo Pacitti, Robert Jackson, Jennifer Bell, Scott Langford and others detail the initiatives.
The Federal Government released its Future Gas Strategy in May. The strategy acknowledges challenges in the east coast gas market and proposes measures to increase supply and streamline approval processes. Craig Rogers, Tim Sumner, Adam Black and Camille Etchegaray set out the key principles and immediate actions proposed.
Looking to Western Australia, a new legal framework for greenhouse gas transport and storage (GHGTS) was enacted in May that is set to pave the way for the development of Carbon Capture and Storage. The Petroleum Legislation Amendment Act 2024 (WA) incorporates GHGTS onshore and within state waters and addresses long-term liability for GHG storage – read more details from Peter Vaughan, Richard Shi and Tom Robins.
Consumer Energy Resources (CER) are becoming an essential part of Australia’s energy framework and net zero ambitions. The second part of our series on CER explores the crucial role of data to maximise CER benefits and ensure efficient grid integration, as well as the fresh challenges around privacy and security within our energy networks CER has introduced. Jess Kruger, Kate Creighton-Selvay, Shirley Cheng, Vishal Ahuja, Josh Thorneycroft, Lauren Bourke and Sienna Hilson examine the privacy and cyber risks to manage.
And finally (in a story that is far from final) – the rapid development of Generative AI is consuming enormous amounts of power (roughly 2.9Wh per ChatGPT request) and water (potentially 6.6 billion litres by 2027). As part of our Risks of Gen AI series, Cheng Lim, Bryony Evans, Claire Rogers and Joey Lim explained the concerns about the environmental impact and the calls for action it is prompting. Keep an eye out for our decarbonisation series, due to start soon.
Green and Social Capital
The impending mandatory climate reporting regime, combined with climate litigation risks and regulatory pressure, is seeing the emergence of new norms in the Australian private funds market. As John Sullivan, Sharon Travers, Marcela Malicka and Giselle Loo write, ESG-oriented strategies, innovative fee structures tied to ESG performance and an appetite for natural capital bring growth opportunities for fund managers and investors.
KWM Compass fact of the quarter: 50%
The proportion of global investors who aim to invest in climate solutions to cut portfolio emissions. From an engaging presentation by JP Morgan global head of M&A Anu Aiyengar at the International Bar Association’s annual M&A conference in New York. Hear more takeaways from KWM Partners Nicola Charlston & Anthony Boogert in this KWM Podcast.
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We’ll end this edition of KWM ESG Compass with a quote from management visionary Peter Drucker: ‘The best way to predict the future is to create it.’ This is how a recent blog post from our Office of General Counsel aptly begins. The OGC has a cracking series of insights – ‘From our Inhouse Counsel to yours’ – and this post from Caroline Hayward and Sharon Ng focuses on steps to take to guide your organisation to ESG compliance. Enjoy!
