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 work health and safety developments in the ESG space, and the release of our new report Stuck in the Middle? Unlocking ESG Investment in Australia 2024.
Key highlights
- ESG evolves as ‘S’ closes in on ‘E’ according to new report from Herbert Smith Freehills
- Spotlight: There’s nothing static about the ‘S’ in ESG
- Updates on Australia’s Climate Reporting Regime
- Australia’s ‘Sustainable Finance Roadmap’ to Net Zero
- Australia’s first Anti-Slavery Commissioner
- Parliamentary Joint Committee on Human Rights recommends an Australian Human Rights Act New resources for directors on responsible AI governance
- New resources for directors on responsible AI governance
- Litigation update
ESG evolves as ‘S’ closes in on ‘E’ according to new report from Herbert Smith Freehills
In early 2024, we conducted our second major survey of senior executives to gauge how Australian businesses are grappling with the rapidly changing ESG landscape.
Our survey this year coincided with a period of substantial ESG-related regulatory shifts in Australia. Climate-related concerns still top the issues that companies identify as being the subject of ESG reviews by a significant margin, however it is notable that 'S' issues have gained prominence, with human rights and modern slavery the most heavily weighted consideration.
The survey results confirm that there continues to be a clear focus on integrating ESG factors into investment decision making processes. However, there are barriers to deploying capital to ESG-aligned activities, such as lack of clear financial return, proven technologies and access to capital. This presents challenges in terms of the operationalisation of ESG targets, goals and strategies in a context where the market in Australia is interested in moving from promises and platitudes to real results.
To read more, see our Stuck in the Middle? Unlocking ESG Investment in Australia 2024 including downloads of the executive summary and key statistics.
There’s nothing static about the ‘S’ in ESG
There have been significant developments in the ESG space in the past month, particularly from a work health and safety (WHS) perspective. See below for our overview of the key changes.
Psychological safety frameworks
As anticipated, psychosocial hazards continue to be an area of focus for WHS regulators. Psychological hazards, include low job demand, high job control, sexual and other harassment, bullying and others. Figures released by the New South Wales State Insurance Regulatory Authority (SIRA) indicate a 30% increase over the past 4 years in claims for psychological injury at work. This increase was more than double that for physical injury claims, which rose by 11% across the same timeframe. In addition to impacting the health of workers, the financial impact of psychosocial hazards on business is only increasing, with SIRA also reporting that the average cost and time off work for psychological injury claims is three time more than the same costs for physical injuries.
In June, SafeWork NSW also released their Psychological Health and Safety Strategy 2024-2026. The Strategy provides insight as to the areas of focus for the next few years. Specifically, SafeWork NSW has set out four strategic goals, being that workplaces:
- know what is expected of them to comply with the law;
- are equipped to achieve compliance;
- meet compliance standards for psychological health and safety; and
- are taking effective action to become mentally healthy.
The regulator’s focus areas will be high-risk industries, support for at-risk workers, and supporting small and medium businesses. Further, their intended actions include raising awareness, building capacity and strengthened compliance and enforcement activity in high-risk workplaces. The release of the Strategy is a timely reminder for organisations who have not yet undertaken the risk assessment process in respect of psychosocial hazards – the time to do that work is now.
Industrial manslaughter
Various states are toughening their stance on industrial manslaughter as they seek to ensure that businesses and individuals are held to the highest account for any work-related deaths.
- In late May, the Queensland Government introduced legislation to expand the scope of its industrial manslaughter laws. This followed a review, conducted by the WHS Prosecutor, into the scope and application of the Work Health and Safety Act 2011 (Qld). The key changes are to (1) include bystanders killed as the result of negligent conduct in the scope of the laws; (2) clarify that multiple parties can be charged with the industrial manslaughter offence; and (3) introduce cascading penalties. To read more, see our note.
- In NSW, industrial manslaughter legislation passed Parliament, with the offence carrying maximum penalties of 25 years’ jail for individuals and a $20 million fine for bodies corporate. Specifically, a person conducting a business or undertaking will be guilty of the industrial manslaughter offence, if it (amongst other elements) is proven (or it pleads guilty) to having engaged in ‘conduct with gross negligence.’ This includes the failure to ‘provide adequate systems for conveying relevant information to relevant persons in the body corporate.’ Unlike other WHS offences, there will be no statutory limitation period for this offence.
- In Tasmania, an opposition party bill containing a proposed industrial manslaughter offence has been introduced into Parliament. The introduction of such an offence has not been supported by the Tasmanian Liberal Government. However Labour and the Greens have a majority in the upper house, which suggests that there is a real possibility of the proposed legislation passing there.
WHS obligations in offshore wind projects
The Commonwealth Government has announced key new proposed regulations which clarify and expand upon existing WHS requirements and changes with respect to offshore electricity infrastructure (OEI) projects.
In their current proposed form, the Offshore Electricity Infrastructure Act 2021 (Cth) and associated regulations propose to apply the Work Health and Safety Act 2021 (Cth) to these offshore projects, with some modifications to ensure the OEI framework is fit for purpose for hazardous and high risk remote offshore worksites.
It is clear that WHS matters are an important component of the OEI framework, and current and future licence holders should ensure that it has an appropriate WHS Management Plan and consultation process for OEI projects. To read more, see our note.
What does this mean for businesses?
As the headline suggests – there is nothing static about the ‘S’ in ESG. In light of increasing regulatory attention and stakeholder expectations in the ESG space, now more than ever businesses should ensure they have a strong WHS framework to ensure the safety of their workers, and to minimise legal risk and reputational exposure.
The increased regulation and introduction of new offences (including substantial penalties) sends a clear signal that businesses should take WHS obligations seriously, and that there are increasingly harsh consequences for failing to provide a safe workplace. Finally, and especially pertinent, businesses should review their psychosocial safety frameworks and make changes if necessary to ensure compliance with these developing laws and obligations.
Hot off the press: Updates on Australia’s Climate Reporting Regime
Australia’s new climate reporting regime is speeding ahead. There have been two key developments in the past month. First, on 6 June 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) which proposes to introduce Australia’s mandatory climate-related financial disclosures regime, was passed by the House of Representatives without amendment, and on 24 June 2024, was introduced in the Senate. Based on indications so far, we expect the ‘hot topics’ up for debate in the Senate will be the application and scope of the modified liability regime, and whether scenario analysis against both a higher and lower temperature scenario should be mandated (more on this below).
Second, the Australian Accounting Standards Board (AASB) has made decisions in relation to the Australian Sustainability Reporting Standards (ASRS) at June Board meetings which limit Australia-specific modifications to the International Sustainability Standards Board (ISSB) standards. In this respect, the AASB’s decisions include to:
- Structure: split the ASRS into a non-mandatory sustainability standard (ASRS 1) and a mandatory climate standard (ASRS 2);
- Scope 3 emissions: require disclosure of Scope 3 emissions using the categories in the GHG Protocol, and to remove the flexibility to rely on Scope 3 emissions data from the immediately preceding reporting period if reasonable and supportable data related to the current reporting period is unavailable;
- Financed emissions: require banks, insurers and asset managers to make additional and specific financed-emission disclosures, instead of requiring them to consider the applicability of those disclosures; and
- Scenario analysis: remove the requirement for an entity to assess climate resilience against at least two relevant possible future states, including a 1.5°C scenario. However, scenario analysis has emerged as a topic of debate as the Bill has proceeded through the legislative process, and its removal from the ASRS may indicate that the scenario analysis requirements (however ultimately formulated) may instead be embedded in the legislation.
Listen to our The Third Wheel podcast series and our limited Reporting for Duties podcast series below for more details around the mandatory climate-reporting regime and how companies are preparing to report.
Australia’s first Anti-Slavery Commissioner
The Australian Government has established the role of Australia’s first federal Anti-Slavery Commissioner. The Modern Slavery Amendment (Australian Anti-Slavery Commissioner) Bill 2023 (Cth) passed both Houses of Parliament on 28 May 2024. The Commissioner will work to support compliance with the Modern Slavery Act 2018 (Cth) and, among other things, support victims and survivors, raise community awareness, and help businesses address the risk of modern slavery practices in their operations and supply chains. While the Commissioner will not have investigatory or enforcement powers, they will however have an important role in leading consultation on planned future modern slavery reforms, including those arising from the 2023 statutory review of the Act.
Australia’s Sustainable Finance Roadmap to Net Zero
The Australian Government unveiled the Sustainable Finance Roadmap on 19 June 2024, delineating its strategic plan for the implementation of key sustainable finance reforms. Its aim is to mobilise private investment to drive Australia’s transition to net zero. The Roadmap outlines a set of sustainable finance priorities, which are split into three pillars:
- The first pillar aims to improve transparency on climate and sustainability through the enforcement of mandatory climate-related disclosures, the creation of a Sustainable Finance Taxonomy, support for credible net zero transition planning, and the development of sustainable investment product labels.
- The second pillar aims to enhance financial system capabilities by strengthening market supervision and addressing climate-related risks and challenges.
- The third pillar will see the Australian Government taking a stronger leadership role, primarily through issuing green bonds and stronger international engagement on sustainable finance.
To read more, see our overview of the Roadmap below.
Parliamentary Joint Committee on Human Rights recommends an Australian Human Rights Act
The Parliamentary Joint Committee on Human Rights’ report from its inquiry into Australia’s human rights framework has recommended introducing federal legislation that would incorporate, and effectively protect, the human rights set out in core international treaties to which Australia is a party. The Committee recommends a new act should (among other things) make public authorities subject to:
- a positive duty to act in a way that is compatible with human rights and to give proper consideration to those rights in decision-making;
- a positive duty to realise access to justice principles (e.g. legal assistance, interpreters, disability support); and
- procedural duties to engage in participation processes where a decision disproportionately affects the rights of Aboriginal or Torres Strait Islander Peoples, people with disability or children.
The Committee envisages the Act would also apply to private organisations that perform public functions. Enforcement would be by way of making complaints to the Australian Human Rights Commission for conciliation, actions brought in the federal courts, and a potential intermediate adjudicative process in between the two. The Australian Government has not yet issued a formal response.
New resources for directors on responsible AI governance
On 11 June 2024, the Australian Institute of Company Directors, in partnership with the Human Technology Institute at the University of Technology Sydney released a suite of resources to help Boards navigate the use of AI in a rapidly evolving regulatory landscape. Familiar legal obligations will be relevant considerations in the application of AI, such as privacy, intellectual property, cyber security, anti-discrimination and work, health and safety.
The guide emphasises the role of directors in creating appropriate guardrails for AI, as part of the Board’s responsibilities around strategy and risk management. It recommends a robust governance framework that is centered around eight elements of “safe and responsible AI governance” and that can adapt to the unique characteristics of AI systems.
Litigation Update
ASIC succeeds in third greenwashing proceeding
ASIC has succeeded in another greenwashing enforcement proceeding against a superannuation trustee. The Federal Court of Australia has ruled that the trustee engaged in misleading and deceptive conduct, violating the ASIC Act 2001 (Cth). The trustee had made public representations that it would not make or hold investments in the fund in companies deriving revenue from (put simply) gambling, tobacco, oil tar sands or coal mining, that it would divest in Russian investments, and make or hold no further investments in Russian companies.
The Court held that the alleged statements were misleading and deceptive, except for the specific representations about Russia and oil tar sands in the superannuation trustee’s Sustainable and Responsible Investment Policy, and the representations about tobacco.
The Court also rejected the argument that consumers would differentiate between direct investments and investments made through another fund. The Court found that when a fund states it excludes certain investments, without additional context, it will likely be understood as covering both direct investments made by the fund and investments made indirectly through investments in other funds.
Shareholder discovery applications against financial institutions
In June 2024, a shareholder filed an action in the Federal Court against a major financial institution, seeking access to the institution's internal documents under section 247A of the Corporations Act. The shareholder has reportedly expressed concerns including that the institution’s financing of new thermal coal and oil and gas projects is allegedly inconsistent with the bank’s climate change and human rights commitments. The proceeding is listed for a case management hearing in August.
This is the third ESG-themed shareholder discovery action initiated against a major financial institution in Australia seeking access to internal company documents related to the financing of coal and oil & gas projects, as well as ESG and human rights due diligence processes.
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:
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The Third Wheel Podcast Series: ESG in Australia
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Stuck in the Middle? Unlocking ESG Investment in Australia 2024 report
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Written with assistance of Irene Park (Environment, Planning & Communities), Emily Tang, Sarah MacDonald and Cecile Lu (Head Office Advisory Team), Mika Koulibaly, Mackenzie De Bortoli and Fiana Ly (Project Finance), Rose Kethel and Kate Dobson (Disputes), and Darcy Moffatt and Rae Huang (Employment, Industrial Relations and Safety |
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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.