Welcome to the October 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 Australian Accounting Standards Board’s draft sustainability reporting standards.
Key highlights
- In the spotlight: Australia progresses towards mandatory climate-related financial reporting with the release of the AASB ASRS
- Hydrogen Headstart program opens for expressions of interest
- Sexual Harassment: A director’s guide to the Positive Duty arrives
- Ethical AI and Global Governance
- Energy transition: NSW to legislate a net zero target for 2050 and Queensland introduces new Renewable Energy Legislation to Parliament
- Reforms of the Safeguard Mechanism and carbon credit unit regimes progress
- Climate change litigation developments, including approval of O’Donnell v Commonwealth settlement
In the spotlight: Australia progresses towards mandatory climate-related financial reporting with the release of the AASB’s draft Australian Sustainability Reporting Standards
On 23 October 2023, the Australian Accounting Standards Board (AASB) released its Exposure Draft of the Australian Sustainability Reporting Standards (ASRS) that are intended to apply to reporting entities under the upcoming climate-related financial disclosure regime. It is proposed that the ASRS will establish the goalposts for climate reporting in Australia, as it adopts the International Sustainability Standards Board’s (ISSB’s) global standards to suit our domestic landscape.
The Exposure Draft proposes three standards which remain closely aligned with the ISSB’s IFRS S1 and IFRS S2, and build on Treasury’s second consultation paper released in June 2023 (read our overview and listen to our Reporting for Duties podcast for more bite-sized insights). However, we note that there are some notable differences, including relation to industry based metrics, Scope 2 and 3 emissions reporting, not-for-profits and a company’s assessment of climate resilience. We dive into the detail in our article below, which includes a downloadable snapshot of the draft ASRS and how they compare to the ISSB equivalents.
Consultation is open until 1 March 2024. Given the lengthy consultation process and the intention for the Australian regime to commence from 1 July 2024, it is unlikely that ‘Group 1’ reporting entities will have a significant window for preparation between the finalised Australian regime and the start of the reporting window. With this in mind, we are helping clients to assess the extent of uplift required ahead of time and prepare a roadmap for compliance with FY25 and beyond.
Hydrogen Headstart Program opens
On 10 October 2023, the Australian Renewable Energy Agency (ARENA) opened expressions of interest for the $2 billion Hydrogen Headstart Program. This program was announced in the May 2023 Federal Budget and seeks to:
- fund large-scale hydrogen production projects to accelerate development of Australia’s hydrogen industry;
- catalyse clean energy industries; and
- help Australia connect to new global hydrogen supply chains to take advantage of hydrogen’s immense jobs and investment potential.
ARENA will use a competitive process and applications will close on 10 November 2023. Funding will be provided in the form of a grant or other finance assistance. The amount of the grant is paid out per unit of eligible hydrogen or hydrogen derivative production and is in the form of a production credit.
As part of this competitive process, applicants are assessed against the eligibility and merit criteria. Core factors for assessment include overall value for money and risk, the extent to which the project contributes to the program’s objectives, and the capability and capacity of the applicant to deliver the project.
Sexual Harassment: A director’s guide to the Positive Duty arrives
On 24 October 2023, the Australian Institute of Company Directors (AICD) published a director’s guide which provides directors and boards with practical considerations to have and questions to pose in order to satisfy the Positive Duty to take reasonable and proportionate measures to prevent sexual harassment in the workplace (AICD Guidance). The AICD’s guide follows the recent publication of the Australian Human Rights Commission’s Guidelines for Complying with the Positive Duty (2023) (AHRC Guidance), the release of which was spotlighted in our August 2023 edition. The AICD Guidance makes it clear that compliance with the Positive Duty is a board-level issue, with recognition that a key risk factor for workplace sexual harassment is organisational leaders having a ‘poor understanding of sexual harassment’.
The AICD’s Guidance includes example questions, which align with the 7 standards identified in the AHRC Guidance, which directors should consider asking in order to comply with the Positive Duty. Examples of these questions are:
- Leadership: ‘Is there a process for board members to actively shape and assess sexual harassment measures as part of the governance calendar?’
- Culture: ‘Is the board confident that the culture is one of respect and safety to speak up?’
- Knowledge: ‘Do you have a meaningful policy or strategy on preventing and responding to workplace sexual harassment?’
- Risk management: ‘Does the board, or relevant board committee, consider workplace sexual harassment risks as part of work health and safety risk management and governance?’
Together, the AICD and AHRC Guidance will be key resources in assisting boards and directors to be satisfied that they and their organisations are taking the steps that are required in order to comply with the Positive Duty.
Ethical AI and Global Governance
While artificial intelligence (AI) offers numerous advantages and opportunities, it also presents challenges and risks that extend beyond technology, encompassing ethical and governance aspects. In its submission to the UN Office of the Secretary-General’s Envoy on Technology’s Call for Papers on Global AI Governance, the Australian Humans Rights Commission (AHRC) submitted that while AI has the potential to “improve our lives in meaningful ways”, it can also “threaten human rights” if it is not developed and deployed safely. With that, the AHRC proposed three recommendations to the UN Advisory Body on AI:
- the consideration of global governance of AI should be “anchored” in human rights principles, having regard to the risks of AI relating to privacy, AI interoperability, automation bias and algorithmic bias;
- that regulation of AI should occur at a national level instead of relying on self-regulation; and
- the Advisory Body develop guidance and non-regulatory support for the governance of AI that complement binding forms of AI governance.
While the AHRC’s submission is primarily about global AI governance, it serves as a reminder for local companies to understand the legal and ethical risks arising from AI and to adopt an ethical human rights-centred approach that respects privacy, fairness and inclusivity within their AI systems. Boards could consider establishing a responsible AI governance framework, which if adopted properly, can significantly promote consumer/stakeholder trust in the company. Find out more about responsible AI governance and other related AI challenges and trends on our Techquake AI series.
Energy transition: NSW to legislate a net zero target for 2050 and Queensland introduces new Renewable Energy Legislation to Parliament
The NSW Government has introduced a bill to Parliament to legislate the State’s previously announced GHG emission reduction targets of 50% by 2030 and to achieve net zero GHG emissions by 2050. In practice, legislating emission reduction targets sends a strong policy signal to businesses and the community. Building on this, the Bill establishes an independent Commission to monitor, review and provide advice on progress towards the targets and NSW’s adaption to the impacts of climate change. Read more in our recent blog below.
Further north, the Queensland Government has introduced the Energy (Renewable Transformation and Jobs) Bill 2023. If passed, the bill will
- establish a framework for Renewable Energy Zones (or REZs);
- legislate renewable energy targets of 50% in 2030, 70% by 2032, and 80% by 2035; and
- mandate a public ownership strategy targeting 100% ownership of distribution, transmission, and prescribed deep storage assets, and equal to or more than 54% ownership of generation assets by 2035. Read more in our recent blog below.
Reforms of the Safeguard Mechanism regime and carbon credit unit scheme progress
On the topic of climate change, the Australian Government has been progressing reforms to two of its key tools for reducing GHG emissions – the Safeguard Mechanism and the Australian carbon credit unit (ACCU) scheme. Of note in October 2023:
- The Clean Energy Regulator released guidelines to assist responsible emitters and auditors making applications for an emissions-intensity determination. For existing Safeguard Mechanism facilities, this determination will be an important factor in how a facility’s unique baseline will be calculated under the reformed Safeguard Mechanism scheme.
- As part of the next tranche of Safeguard Mechanism reforms, Government is considering “carbon leakage” and addressing potential competitive disadvantage faced by Safeguard Mechanism facilities. The Government announced the Jotzo Review, which will consider additional policy options that could address “carbon leakage” arising from differing emission reduction policies, including potentially introducing a carbon border adjustment mechanism (or CBAM).
- The Government has consulted on its discussion paper containing its proposed next steps to implement the recommendations of the Chubb Review, an independent review of the ACCU scheme. At the same time, the Government’s independent Climate Change Authority is undertaking its periodic review of the ACCU scheme. A clear theme for reform remains achieving improved integrity of the scheme, including increased transparency, ensuring ACCUs deliver additionality and more conservativeness in assessing methods and project eligibility.
Read more in our recent blog below.
Climate change litigation developments
O’Donnell v Commonwealth class action settlement approved
Further to our update in our September edition, the settlement terms were approved by the Court on 11 October 2023. A copy of the judgement is available here. The Commonwealth’s public statement regarding the systemic risk climate change poses to Australia’s financial and economic position made as part of the settlement, is available here.
One of Murphy J’s reasons for approving the settlement was that in his view, the applicants faced a real risk that the case will not succeed on liability, finding at [45] that:
“Of course, in a wealthy country like Australia, which has never defaulted on its sovereign debt obligations, it is likely to be complex and difficult for the applicant to establish that catastrophes of the nature described are likely to be such a drain on the public purse that there is a material risk that the Commonwealth may, in the future, be unable to perform its obligations with respect to exchange traded government bonds..”
Murphy J’s comments echo similar comments made by Australian and international courts in other climate litigation, about some of the difficulties of establishing causation in climate change matters.
Beyond implications for those dealing in government bonds, the acknowledgment by the Commonwealth of the potential economic and systemic impacts of climate change in a public and centralised way might feed into how the Commonwealth informs the suite of sustainable finance reforms it is currently developing. The reforms include a sovereign green bonds program as well as regulatory reforms targeted at increasing the transparency and credibility of Australia’s sustainable finance market.
Federal Court dismisses judicial review proceedings on EPBC Act reconsideration decisions
On 11 October 2023, the Federal Court dismissed two judicial review proceedings brought by the Environmental Council of Central Queensland (Environment Council) against the Minister for the Environment and Water, in relation to the Minister’s decision to reconsider and confirm determinations made by the Minister’s delegate in relation to the Mount Pleasant and Narrabri expansion proposals under the Environment Protection and Biodiversity Conservation Act 1999 (Cth). A copy of the judgment is available here.
The Environment Council asked the Court to determine that the Minster’s refusal to accept new information it provided in relation to the scientific evidence of climate risk as relevant when assessing the proposal was illogical, irrational and unlawful.
Justice McElwaine ultimately found that none of the review grounds were made out and dismissed the proceedings. On 25 October 2023, the Environment Council filed a Notice of Appeal in respect of the decision.
Pabai Pabai trial continues next month
The hearing for the landmark class action commenced by a group of Torres Strait Islanders against the Commonwealth Government continues in November. The hearing of lay evidence commenced on 5 June 2023 in the Boigu and Saibai Islands. The remaining lay evidence, together with the expert evidence will be heard at a hearing commencing on 6 November.
Further greenwashing guidance from ASIC
ASIC Deputy Chair, Sarah Court, has published an article on how to avoid greenwashing (available here). Ms Court said that while the greenwashing matters ASIC is currently progressing all broadly allege misleading and deceptive conduct, future cases may also include “license obligations, D&O duties and a range of other obligations”. The following future areas of interest were also flagged:
- net zero statements and targets;
- use of terms such as “carbon neutral”, “clean” or “green”; and
- the scope and application of investment exclusions and screens.
In relation to net zero commitments, Ms Court said that ASIC distinguishes between public statements which:
- “assert aspirational environmental positions with a sound basis and supported by business plans and investments to substantiate these goals”; and
- “are made in marketing campaigns designed to encourage investment or promote products to consumers, with little of substance to back up those assertions or to substantiate how the transition will be achieved”,
noting that ASIC is unlikely to have concerns in relation to (1), but is likely to have further questions (including requests for information and substantiation) in relation to (2).
For clients with a presence in the United Kingdom, South African Development Community or Asia, we also publish trackers of ESG publications and developments for these regions at ESG Notes.
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
- Toolkit: why think about biodiversity in the corporate context?
- The biodiversity questionnaire – are you ready?
| Written with assistance of Paige Mortimer (Environment, Planning & Communities), Zulema Townsend, Suzannah Hewson and Samuel Goodear (Head Office Advisory Team), Georgia Gee (Disputes), Darcy Moffat and Rae Huang (Employment, Industrial Relations & Safety), Sandra Nguyen and David Lim (Project Finance) |
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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.