Caroline Hayward and Sharon Ng provide an overview of the latest developments in the ESG landscape in Australia, including steps that you, as inhouse counsel, can take to guide your organisation to ESG compliance.
‘The best way to predict the future is to create it.’ – Peter Drucker
In today’s corporate world, there is one term that you simply can’t avoid: ESG. Standing for ‘Environmental, Social and Governance’, ESG has rapidly transitioned from sitting on the sidelines to taking centre stage.
In Australia, regulators are diving headfirst into the ESG scene: rolling out new laws, making enforcement a priority, and issuing recommendations that mirror global trends and guidelines. With increasing scrutiny from regulators, investors and consumers, Australian businesses can no longer treat ESG as an optional tick-box exercise – they need to demonstrate their efforts in this area and be held accountable for their actions.
Think of ESG as a compass which guides organisations towards sustainability, social responsibility and ethical governance.
- ‘Environment’ focuses on an organisation’s impact on the planet and their sustainability practices. This may include carbon footprint reduction initiatives, renewable energy adoption, recycling and waste management programs, and pollution reduction measures.
- The ‘Social’ aspect covers how an organisation manages its relationships with employees, suppliers and consumers, as well as their involvement in promoting practices that have a social impact. This could include implementing human rights policies, diversity and inclusion initiatives, health and safety programs, supply chain management and philanthropy.
- ‘Governance’ looks at the internal systems and practices that an organisation adopts to govern itself, make decisions, comply with legal and regulatory requirements, and meet the needs of its stakeholders. Examples include having transparent corporate governance structures, ethical leadership and accountability, anti-bribery and corruption policies, board diversity and independence, and shareholder rights.
Let’s dive into some of the latest developments in the ESG landscape and explore how you, as inhouse counsel, can support your organisation to stay afloat as it navigates the turbulent seas of ESG!
What are the latest developments?
Keeping up with ESG developments could sometimes feel as difficult as keeping up with the Kardashians!
To help you get started, here are some of the key developments that you should be aware of:
- Climate Change Act 2022: The Australian Government has legislated an emissions reductions target of 43% from 2005 levels by 2030 and net zero emissions by 2050. While the Act puts the Australian Government in the hot seat, their commitments will ultimately be passed on to the private sector in order to achieve those targets. For example, private sector organisations can expect sustainability-related clauses being included in government contracts and requirements to disclose details of its emissions reduction measures as part of government tenders. Such requirements may be granular to assist the Government in their reporting of emission related measures.
- Mandatory climate-related financial disclosures: In January 2024, Treasury released the exposure draft of the Treasury Laws Amendment Bill 2024: Climate-related financial disclosure to implement a mandatory sustainability reporting framework in Australia. This is done through amendments to the Australian Securities and Investment Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth). Mandatory reporting will be phased in from 1 July 2024 to 1 July 2027, depending on the size and type of the reporting entity. You can read more about that here.
- Climate Active reforms: In October 2023, the Australian Government announced proposed updates to its Climate Active certification program, a scheme that recognises Australian organisations that take voluntary action to measure, reduce and offset their greenhouse gas emissions. Amongst other things, the proposed updates include putting an end to the use of the term ‘carbon neutral’ (currently defined as reducing emissions where possible and compensating for the remainder by investing in carbon offset projects to achieve net zero overall emissions) to achieve more clarity on what certification under the Climate Active program means. Read more about that here.
- Greenwashing: The ACCC describes greenwashing as ‘where a business uses any claim, or omits key information, that makes a product or service seem better or less harmful for the environment that it really is’. Greenwashing obscures crucial information that investors need to make well-informed investment decisions. Businesses also have responsibilities under the Australian Consumer Law and the ASIC Act not to make false or misleading claims. Both the ACCC and ASIC have identified greenwashing as an enforcement priority for 2024, with greenwashing actions (including civil penalty proceedings) on the rise. Read more about that here.
- Bluewashing: Described as giving misleading and deceptive statements about an organisation’s social responsibility and objectives, bluewashing is also increasingly on the radar of regulators. An organisation that is required to report under the Modern Slavery Act 2018 (Cth), for example, must carefully consider the information it releases about its modern slavery risk profile and ensure that it is giving an accurate picture. For tips on managing modern slavery risks, see our post here.
- Anti-bribery and corruption: The Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 (Cth) is due to come into force on 9 September 2024. It amends the Criminal Code Act 1995 (Cth) and will, amongst other things, introduce a ‘failure to prevent bribery’ corporate offence that carries absolute liability (i.e. there is no requirement to prove fault and no defence of honest and reasonable mistake of fact) and significant penalties. This will serve as a wake-up call for organisations to take a good, hard look at their corporate governance and tighten their anti-bribery and corruption policies.
What can you do to stay afloat?
As inhouse counsel, there are several ways in which you can work with the business to make ESG compliance less daunting.
- Undertake a materiality assessment: Because ESG covers such a broad range of issues, it is often difficult to know where to start! By carrying out a materiality assessment, you can identify which areas your organisation needs to focus on. Ask yourself – what ESG issues affect your organisation the most, and what does your organisation do which has the most impact on its people, its stakeholders, the environment and the community?
- Understand stakeholder expectations: Gather information from your shareholders, investors, customers and employees to ensure that your organisation’s ESG initiatives and goals align with stakeholder interests.
- Review your ESG policies: It’s time to look back at your existing policies to ensure that they reflect changing regulatory requirements and stakeholder expectations. This includes policies relating to sustainability, modern slavery, anti-bribery and corruption, pro bono work and diversity & inclusion.
- Track the latest developments: Monitor the latest ESG trends, regulations and best practices to stay up-to-date with emerging risks, opportunities and action items. A good place to start would be to subscribe to KWM’s publications under the ‘Environment Social & Governance’ category here.
- Collaborate with other teams: Even when an organisation has an ESG-dedicated team, there are others within your organisation that you will likely need to work with to develop a holistic approach to ESG compliance. For example, you will need to involve your Finance team when it comes to preparing mandatory climate-related financial reporting, Human Resources for social metrics reporting, Procurement for modern slavery and supply chain reporting, Marketing to ensure that there are no marketing gimmicks that could land you in hot water, and Risk & Compliance on making risk assessments.
- Get senior management buy-in: It is widely accepted that directors, as part of their statutory duties, must consider and take responsibility for ESG within the organisation. Gone are the days where a director can take a back-seat to ESG related matters on the basis that they do not have the expertise or knowledge of such matters.
Directors and senior management should be actively involved in assessing and understanding ESG related risks and developing a commensurate framework. Inhouse counsel can play an important role in educating directors of ESG related requirements, and making the board aware of directors’ responsibilities for ESG related matters.
- Review public material and credentials: While it is impossible for inhouse counsel to be across everything that is released to the public, keep an eye out for any overstatements or unsubstantiated claims (including in any submissions to regulators) that may put your organisation in danger of engaging in greenwashing or bluewashing. Ensure that your green credentials are verifiable.
Evolution, not revolution
ESG developments and compliance may seem relentless and overwhelming, but it’s one worth tackling.
From dodging legal headaches to maintaining your reputation, embracing ESG isn’t just a trend – it’s smart business.
Further information
If you need further guidance or specialised legal advice on navigating the ESG landscape, please reach out to your KWM contact or Claire Rogers.
Check out other insights from the Office of General Counsel team here and subscribe to KWM Pulse using the button below to stay across upcoming articles in areas of interest.
