Welcome to the September edition of Herbert Smith Freehills’ Australian ESG bulletin, ‘Keeping Up with ESG’.
Our monthly ESG bulletin provides a targeted snapshot of key developments we see as reflecting the “must know” trends in the Australian market. In this edition, we spotlight the release of the Taskforce on Nature Related Disclosures (TNFD), bringing biodiversity to the Boardroom.
Key highlights
- Third Wheel Podcast: Episode 32 – A First Nations Voice in the Australian Constitution
- In the spotlight: Launch of TNFD and the increasing pressure on business leaders to address biodiversity in the Boardroom
- Climate Action 100+ releases “Net Zero Standard for Diversified Miners”
- Passage of the Financial Accountability Regime and the importance of ethics at an all-time high
- Broader rights for employees, gig economy workers and others
- Regulatory and litigious developments in the climate change space
Third Wheel Podcast: Episode 32 – A First Nations Voice in the Australian Constitution
Melanie Debenham, a partner in our Environment, Planning and Communities team, is joined by Gemma McKinnon and Bianca Janovic from our Pro Bono and Responsible Business teams to take us through the Regional Dialogue process that led to the Uluru Statement from the Heart and how it relates to the Voice referendum proposal. They discuss the proposed constitutional amendment and principles of the Voice to Parliament. They address some of the more “lawyerly” considerations and practicalities of implementing a Voice to Parliament – as well as its accountability to the community and recognition of 65,000 years of continued care for country by First Nations people.
We recognise that voters must make their own decision at the ballot box and hope to assist people to make their own informed decision.
In the spotlight: Launch of TNFD and the increasing pressure on business leaders to address biodiversity in the Boardroom
On 18 September 2023, the TNFD released its final recommendations for nature-related risk disclosure, bringing in a new chapter of sustainability reporting.
The TNFD was set up to develop a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. The TNFD follows the signing of the Kunming-Montreal Global Biodiversity Framework (GBF) in December 2022, which has been called the nature equivalent of the Paris Agreement for climate. Put simply, the TNFD builds on the Taskforce of Climate-related Financial Disclosures (TCFD), but with a nature-focussed lens. Where TCFD seeks to improve reporting of climate-related financial information and drive investment towards Paris Agreement-aligned business activities, the TNFD seeks to contribute to a shift in global financial flows towards nature-positive outcomes and the goals of the GBF.
The TNFD recommendations require disclosing companies to identify and locate their nature-related dependencies and impacts, assess their risks and opportunities stemming from nature, and prepare to respond to nature-related risks and opportunities.
The TNFD is currently voluntary, however we expect that the TNFD will take a similar trajectory as the TCFD framework, with regulatory adoption expected around the world. The TNFD was designed to be consistent with the language, structure and approach of the International Sustainability Standards Board (ISSB) reporting standards. Australia is in the process of introducing mandatory climate reporting, informed by the TCFD and ISSB.
Illustrating the increasing investor focus on nature-related disclosures and action by corporates, on 26 September 2023, Nature Action 100, a global investor engagement initiative on biodiversity, announced its list of 100 companies that it will target for engagement on reversing nature and biodiversity. Nature Action 100 has written to each company, calling for urgent actions to protect and restore nature and ecosystems and thereby mitigate financial risk. The letters seek an initial overview of how the company is working to address Nature Action 100’s investor expectations. The companies have been drawn a range of sectors, including: biotechnology and pharmaceuticals, chemicals, household, personal and consumer goods, retail, food, forestry and paper, and metals and mining.
Assistance to navigate the emerging nature and climate regulatory landscape
To assist our clients to navigate the emerging regulatory landscape designed to protect nature and biodiversity, Herbert Smith Freehills has released a toolkit “Why think about biodiversity in the corporate context?”.
We have also released helpful bite-sized insights on ESG reporting, including the introduction of mandatory climate reporting and its interaction with ISSB sustainability reporting, at our Reporting for duties – ESG reporting in Australia series below.
- Read our article on release of TNFD
- Read our toolkit on biodiversity in the corporate context
- Read/Listen to Reporting for duties – ESG reporting in Australia
Climate Action 100+ releases “Net Zero Standard for Diversified Miners”
On 7 September 2023, Climate Action 100+ (the world’s largest investor engagement initiative on climate change) released its “Net Zero Standard for Diversified Miners” (Standard). The Standard sets out diversified mining sector-specific metrics against which mining companies that engage with Climate Action 100+ will be assessed. It also sets out the scoring methodology that will be used. The Standard is to be read in conjunction with the “Climate Action 100+ Net Zero Company Benchmark” and will help investors assess how diversified mining companies are navigating the transition to net zero.
Passage of the Financial Accountability Regime and the importance of ethics at an all-time high
On 5 September 2023, the long-awaited Financial Accountability Regime Act 2023 (Cth) and Financial Accountability Regime (Consequential Amendments) Act 2023 (Cth) passed both Houses of Parliament. Together, the Acts establish the Financial Accountability Regime (FAR).
As a quick reminder, the Australian Government committed to extending the Banking Executive Accountability Regime (BEAR) to a larger group of APRA-regulated entities (and to the directors and senior executives of those entities) following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Broadly, FAR sets out obligations for ‘accountable persons’ to take reasonable steps in conducting their responsibilities to ensure the ‘accountable entity’ complies with / remains accountable to a number of financial services-related laws. FAR will be jointly administered by APRA and ASIC, who may give a direction where there is an actual or likely contravention of the FAR by an accountable entity, significant related entity or accountable person.
FAR came into force on 15 September 2023, and will apply to the banking sector from March 2024, and the insurance and superannuation sectors from March 2025. Read more about HSF’s submission on the regime and proposed Regulator Rules and Key Functions:
On the topic of accountability, the Governance Institute’s recent annual Ethics Index found that Australians are placing a higher value on ethics than ever. The study found that the importance placed on ethics had risen to 84, up from 79 last year – with the corporate and financial services sectors ranking in the bottom three sectors in terms of perceived ethical behaviour. Ranking at the top of the list of ethical challenges facing Australia is the rising cost of living pressures and impacts of inflation. Acting on climate change also ranks in the top five ethical challenges.
Broader rights for employees, gig economy workers and others
The Federal Government has continued its overhaul of legislation relating to the terms and conditions of employees, independent contractors, gig economy workers and others types of workers, with the introduction of the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (Closing the Loopholes Bill). Whilst this Bill will not pass Parliament any earlier than February 2024, it heralds the next tranche of major legislative change in Australian workplace laws and demonstrates the Federal Government’s continued commitment to broadening the rights of workers, and scrutiny of what has been described as insecure forms of work, as well as increasing other terms and conditions.
The proposed amendments work together to achieve a strengthening of workers’ rights to seek to increase their terms and conditions of work, and more changes are anticipated over the next 12 months. This follows other recent changes, including the introduction of multi-employer bargaining, intended to strengthen the ability of employees to increase their terms and conditions through bargaining. The changes result in increased complexity and greater access to the Fair Work Commission. Australian businesses should consider their working arrangements to ensure compliance and their workforce strategy going forward given the potential labour cost increases. To better understand the most recent tranche of proposed amendments see our detailed summary of the Closing the Loophole Bill:
Litigious and regulatory updates in the climate change space
We have been following a number of developments in the climate change space and have set out a few of the key updates domestically and internationally.
In California:
California passes climate disclosure legislation
Following the trend of domestic implementation of climate and / or sustainability reporting standards, in September 2023, the California State Legislature passed the Climate Corporate Data Accountability Act (SB-253) and Greenhouse gases: climate-related financial risk (SB-261). The laws (which are yet to be formally passed into law) would require reporting entities that carry on business in California with total annual revenues of:
- over US$1 billion – to undertake Scope 1, Scope 2 and Scope 3 reporting (under SB-253); and
- over US$500 million – to undertake TCFD-aligned reporting (under SB-261).
These laws are broader than the US Securities and Exchange Commission’s (SEC) proposed rules, which require Scope 3 disclosures only if targets are in place or Scope 3 emissions are material. It also applies to non-listed companies.
State of California new climate action against major oil companies
The State of California (the State) has also commenced proceedings against major oil companies, accusing the companies of misleading the public for decades on the dangers of fossil fuels, and seeking the creation of a fund to pay for the State's recovery from future extreme weather events.
The State makes various allegations, including that the defendants are substantially responsible for causing and accelerating climate change and encouraged continued use of fossil fuels and discouraged concerted action on greenhouse gas emissions by concealing and misrepresenting the dangers of fossil fuel products. A copy of the claim is available here.
The case follows numerous other similar cases brought by US cities, counties and states against fossil fuel companies in relation to their contribution to climate change.
In Australia:
Introduction of the Climate Change Amendment (Duty of Care and Intergenerational Climate Equity) Bill 2023 (Cth)
The Climate Change Amendment (Duty of Care and Intergenerational Climate Equity) Bill 2023 (Cth) (the Bill) was introduced into the Senate by Senator Pocock and received a second reading on 3 August 2023 (here). The Bill seeks to introduce amendments into the Climate Change Act 2022 (Cth) to mandate certain statutory decision makers who make significant decisions likely to contribute to climate change to consider the health and wellbeing of current and future Australian children. The Bill is intended to overcome the decision of the Full Federal Court in Minister for the Environment v Sharma, which held that no duty of care was imposed upon a Minister to not cause harm to children through taking actions that materially contribute to climate change.
The proposed amendments apply to ‘significant decisions’ made under a number of Environmental Acts. The Bill would require persons making a significant decision to have as their paramount consideration the likely impact of the emissions on the health and wellbeing (defined to include emotional, cultural, and spiritual health and wellbeing) of current and future Australian children. In considering this, the decision maker would be obliged to consider the extent to which the greenhouse gases likely to be emitted as a result of the decision would prejudice Australia meeting its greenhouse gas emissions reduction targets, as well as considering IPCC and scientific knowledge regarding the impact of climate change on children. Additionally, if the significant decision concerns activities involving the exploitation or extraction of coal, oil, or natural gas, and the likely emission of greenhouse gases from this significant decision poses a material risk of harm to the health and wellbeing of current or future children, then the decision must not be made.
O’Donnell v Commonwealth
Further to our update in the August edition of our ESG bulletin, the Notice of Proposed Settlement (Notice) in the O’Donnell v Commonwealth class action proceedings against the Australian Government has been made publicly available (here).
The Notice has been distributed to retail bondholders who acquired Government bonds during the period from 7 July 2020 to 20 December 2022, and it gives some clearer details on the settlement terms.
Under the terms of settlement, the parties will each publish an agreed public statement to their websites, Ms O’Donnell will apply to discontinue the proceedings and neither party will pay costs of the proceeding.
Judicial review proceedings against regulators regarding consultation on offshore energy activities
There have been ongoing judicial review proceedings relating to the consultation requirements under the Offshore Petroleum and Greenhouse Gas Storage Act 2006, including most recently against the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA). On 28 September, the Federal Court found that the offshore energy regulator had not adequately consulted with Traditional Owners before approving an environmental plan (EP), in circumstances where NOPSEMA had approved an EP subject to conditions of further consultation.
The decision further emphasises the importance the Court will place on prior consultation with First Nations groups, and the broad range of cultural impacts that might fall to be considered there.
ESG thought leadership
To read more of our ESG thought leadership, please see:
- The Third Wheel Podcast Series: ESG in Australia
- ESG Notes and Climate Change Notes,
- ESG, Sustainability and Responsible Business offering
- Unlocking ESG Investment in Australia
| Written with assistance of Paige Mortimer (Environment, Planning & Communities), Zulema Townsend and Michael Tran (Head Office Advisory Team), Darcy Moffatt (Employment, Industrial Relations & Safety) and Georgia Gee (Disputes). |
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.