Keeping Up with ESG in Australia – July 2024

Our monthly ESG bulletin provides a targeted snapshot of key developments we see as reflecting the “must know” trends in the Australian market.

Key highlights

1. Spotlight: Collaborating for sustainability: ACCC releases its draft guidance
2. Parliamentary Committee recommends that the Sharma climate duty of care bill not pass
3. What will the right to disconnect look like?
4. Queensland Government introduces legislation to strengthen its anti-discrimination laws
5. International reporting update: The TNFD releases new sector guidance and the IASB seeks feedback on illustrative examples to improve the reporting of climate factors in financial statements
6. All eyes on ‘green’ financing: First Green Treasury Bond issued and APLMA publishes Model Provisions for green loans
7. Following the money trail with AUSTRAC’s new national risk assessments on money laundering and terrorism financing
8. ESG litigation update

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Collaborating for sustainability: ACCC releases its draft guidance

On 8 July 2024, the ACCC released draft guidance on the application of Australia’s competition laws to sustainability collaborations which aim to prevent, reduce or mitigate environmental impacts. While the draft guidance is specifically focused on collaborations with environmental objectives, the principles discussed in the draft guidance are also applicable to collaborations focused on other sustainability objectives, such as modern slavery and broader human rights risks.

The draft guidance sets out the ACCC’s views on when sustainability collaborations are more likely to raise competition law risks and when the risk is likely to be lower. The draft guidance indicates that, at a high level, a collaboration is more likely to breach competition law where it prevents businesses from competing effectively, raises barriers to entry and expansion, or involves the sharing of competitively sensitive information. On the other hand, collaborations which do not impact the structural conditions of competition and allow businesses to innovate and make decisions independently will carry less risk. As an illustrative example, industry-wide commitments to meet certain sustainability targets or goals (which are becoming increasingly more common) should not raise competition law concerns, so long as such commitments are voluntary, participants can independently decide how to meet the target or goal and are not bound to use/not use certain suppliers. However, the dividing line is a fine one and the draft guidelines – which includes various other illustrative examples – provides greater clarity on when that threshold may be crossed.

The draft guidance also provides insights on how parties can obtain ‘authorisation’ from the ACCC for sustainability collaborations based on a public benefits test. The ACCC has recognised environmental benefits as being meaningful public benefits that can provide a basis for authorising collaborations or even mergers that might otherwise impact competition. Importantly, in order to obtain ACCC authorisation on sustainability grounds, businesses will need to substantiate the public benefits and demonstrate how those benefits will result from the collaboration, including why they will not exist at all or to the same extent without the collaboration. While the draft guidance is predominantly focused on the protection and regulatory certainty authorisation can provide, the draft guidance also acknowledges that there are a range of legal exceptions to some competition law prohibitions that may be available for sustainability collaborations, including the “joint venture” exception and collective acquisition exceptions.

The ACCC intends to publish a final version of the draft guidance later this year.

For further information on the draft guidance and our insights, see HSF’s article here.

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Parliamentary Committee recommends that the Sharma climate duty of care bill not pass

On 3 August 2023, Independent Senator, David Pocock introduced the Climate Change Amendment (Duty of Care and Intergenerational Climate Equity) Bill 2023 (Cth) to the Senate. The Bill seeks to introduce a requirement for decision makers to consider the wellbeing of current and future children in relation to climate change when making certain decisions (e.g., decisions that will increase scope 1, 2 or 3 emissions), following the historic 2020 proceeding Sharma and Ors v Minister for the Environment. On 26 June 2024, the Parliamentary Committee released its report on the Bill, ultimately recommending that the Bill not be passed.

While acknowledging majority support for the Bill in submissions received, the report highlights a range of concerns about key definitions, the operation of the proposed duties as well as the practical application of certain provisions of the Bill. The report made particular reference to Commonwealth legislative tools and policies in place to reduce emissions and manage climate risk, including the recently launched National Health and Climate Strategy and the declining baseline of the Safeguard Mechanism. The report ultimately concluded: “noting the important reforms the government has already implemented in this term, the committee does not consider the bill fit for purpose or that it would effectively achieve its stated aim.”

Meanwhile in Victoria, on 30 July 2024, the Greens introduced to the Parliament the Charter of Human Rights and Responsibilities Amendment (Right to a Safe Climate) Bill 2024 (Vic). The Bill is not yet publicly available, however according to the Victorian Greens it seeks to amend the Victorian Charter of Human Rights by legislating the human “right to a safe climate”, which purportedly would incorporate Sharma’s consideration of the risk of economic loss and property damage from climate change, as well as personal injury and death. As a private member’s bill, there is a low expectation that it would be passed.

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What will the right to disconnect look like?

There has been much commentary about the recently legislated right to disconnect (RtD), with the focus recently turning to what the RtD clause in modern awards will look like. This has arisen in the context of the Fair Work Commission’s (FWC) current process of reviewing and varying modern awards to include a RtD term. As set out in our March blog, the RtD provisions, which give employees a positive right to reasonably refuse to monitor, read or respond to work-related contact outside of their working hours, passed Parliament in February this year and is due to commence in late August.

The FWC had previously invited submissions on its review process, which focusses on a targeted selection of four award provisions: span of hours, employers’ needs to contact/provide notice to employees, employees’ requirements to be on call/recall to duty and employee responsibilities, including whether they have a managerial or supervisory role. This was followed by a period of consultation – which concluded on 21 June 2024 – during which the FWC President queried whether the inclusion of a RtD clause in awards that specifically provide for out of hours work and contact, may cause confusion amongst employers and employees. On 15 July 2024, the FWC published its draft RtD modern award terms. These terms provide for the exercise of an employee’s RtD and state that an employer must not directly or indirectly prevent an employee from exercising this right. There are exceptions proposed for employees who are being paid a stand-by allowance and where the employer’s contact is to notify the employee that they are required to attend or perform work, or in circumstances of an emergency roster change or a recall to work. The FWC is seeking submissions from interested parties on the draft terms by 1 August 2024.

For further information on the RtD, see HSF’s article here.

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Queensland Government introduces legislation to strengthen its anti-discrimination laws 

On 14 June 2024, the Queensland Government introduced the first tranche of legislation into the State’s Parliament to strengthen its anti-discrimination laws. The Respect at Work and Other Matters Amendment Bill 2024 responds to the recommendations of then Sex Discrimination Commissioner Kate Jenkins’ 2020 Respect@Work report and the Queensland Human Rights Commission’s Building Belonging report which reviewed Queensland’s Anti-Discrimination Act 1991 (Qld). Notably, the proposed legislation introduces stricter obligations than the Respect@Work model, which imposes a positive duty on employers to eliminate sex discrimination, sexual harassment or harassment on the grounds of sex (effective December 2022).

Queensland’s proposed legislation introduces these same obligations, with the addition of the responsibility to eliminate broader discrimination and ‘other objectionable conduct’ as far as possible. The legislation expands the list of protected attributes to include irrelevant criminal record, irrelevant medical record, physical appearance and potential pregnancy, as well as introduces a definition of the protected attribute ‘trade union activity.’ Duty holders must use ‘reasonable and proportionate’ measures to eliminate prohibited conduct, having regard to certain factors outlined in the legislation.  It also improves protections for workers assaulted on the job and enables registered unions to make representative complaints about alleged contraventions in workplace matters.

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International reporting update

The Taskforce on Nature-related Financial Disclosures (TNFD) has published a suite of new sector guidance materials to further support reporting against its framework. The guidance covers the following sectors:

• Aquaculture;
• Biotechnology and Pharmaceuticals;
• Chemicals;
• Electric Utilities and Power Generators;
• Food and Agriculture;
• Forestry and Paper;
• Metals and Mining; and
• Oil and Gas.

The guidance provides a detailed roadmap for applying the LEAP approach and global disclosure metrics for each sector. Alongside this, the TNFD has released additional guidance for financial institutions and on identifying and assessing nature-related dependencies, impacts, risks and opportunities in value chains. Various other sector guidance materials are currently under consultation.

The IASB consults on examples to illustrate how companies apply accounting standards when reporting on the effects of climate change in financial statements

On 31 July 2024, the International Accounting Standards Board (IASB) published a document for consultation, which sets out proposed examples to illustrate how to apply IFRS Accounting Standards when reporting on climate-related uncertainties in financial statements. The IFRS Accounting Standards are adopted into the Australian Accounting Standards. These examples were developed largely in response to concerns from investors that information about climate change uncertainties in financial statements was sometimes insufficient or inconsistent with narrative disclosures.

The focus areas of the examples are materiality judgements, disclosures about assumptions and estimation uncertainties, and disaggregation of information. The principles in the examples can apply beyond climate change to other types of uncertainties, including economic, regulatory, technological, societal and environmental uncertainties. The proposed examples are intended to accompany the IFRS Accounting Standards and will be non-mandatory.

The consultation period closes on 28 November 2024.

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All eyes on ‘green’ financing

Recent months have seen movements in ‘green’ financing in Australia and the broader Asia-Pacific region. These developments indicate that the interest in (and appetite for) this sort of financing is set to only grow from here, particularly as the national and global market for ‘green’ financing firms up and corporate buyers are increasingly looking to commit to stronger ESG principles and outcomes.

First Green Treasury Bond issued

On 23 July 2024, the Head of Sustainable Finance at the Australian Office of Financial Management discussed the success of the Australian Government's June 2024 issue of its first Green Treasury Bond under the Green Bond Framework. The A$7 billion bond attracted significant interest, with bids totaling over $22 billion from 105 investor institutions across Australia, Asia, Europe, and North America. This green bond program enables investors from around the world to support public projects in Australia aimed at achieving net zero emissions by 2050 and advancing environmental objectives, such as green hydrogen hubs and programs to conserve biodiversity.

“Green bonds are only one per cent of Australia’s government debt, but the volume will grow over time. Our new bond is already the biggest green bond in the Australian market... Australia’s first green bond is to be celebrated. It will support the massive amounts of private and public investment our net-zero transition requires.”

Further information on Green Treasury Bonds and what projects they will finance can be found here.

APLMA publishes Model Provisions for green loans

This follows developments in June 2024, when the Asia Pacific Loan Market Association (APLMA) published its Model Provisions for Green Loans.

As the market for green loans has developed in the Asia Pacific region, financial institutions have differed in their approach to categorising products as green loans and the terms applicable to those products. The Model Provisions are designed to reconcile these differences by providing a starting point for the negotiation of green loan terms. They are intended to be flexible enough to accommodate different green loan structures within the APAC loan markets and will be reviewed periodically by the APLMA working group as market practices evolve.

The Model Provisions provide two alternatives for defining an “Eligible Green Product” and include several key elements such as reporting requirements on green loans, mechanisms for declassifying green loans and the optional appointment of an external reviewer to assess annual green loan reports, among others.

Further information on APLMA’s Model Provisions can be found here

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Following the money trail with AUSTRAC’s new national risk assessments on money laundering and terrorism financing

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has released two national risk assessments in relation to the scale, sophistication and threat of money laundering and terrorism financing in Australia. The Money Laundering in Australia: National Risk Assessment revealed that traditional methods using cash, banks, luxury goods, real estate and casinos remain the preferred avenues of launderers, but the use of digital currencies is emerging. The Terrorism Financing in Australia: National Risk Assessment reported that retail banking, remittance and exchanging cash are still the favored methods to move funds, mainly to overseas terrorist organisations and affiliated groups. Social media and crowdfunding platforms have also become central in funding terrorist activities.

These new risk assessments will provide an evidence base to inform policy responses. They complement AUSTRAC’s existing suite of resources and guidance and are also designed to offer contextual support to businesses to improve their AML/CTF programs and reporting.

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ESG litigation update: 

NSW Land and Environment Court finds community groups are within rights to challenge EPA licences

On 18 July 2024, the NSW Land and Environment Court dismissed the Maules Creek Community Council’s challenge to  the NSW Environment Protection Authority’s decision on periodic review of the environmental licence of a NSW coal mine. We understand the proceeding to be the first time a NSW court has been asked to determine the NSW EPA’s responsibilities with respect to regulating GHG emissions such as methane, from coal mining licensees. The decision follows the 2021 Bushfire Survivors for Climate Action Incorporated v EPA [2021] NSWLEC 92 decision in which the Court found the EPA was obliged to develop environmental quality objectives, guidelines and policies to ensure environment protection from climate change.

The Maules Creek Community Council argued that the EPA’s decision was invalid because the EPA allegedly failed to comply with the licence review requirements under the legislation, by failing to consider the pollution caused by the licensed activities and their environmental impacts. The applicant was particularly concerned with GHG emissions (notably methane and carbon dioxide) and fine particles, noting the licence as amended did not contain any conditions placing limits on emission of GHG emissions or fine particles. The Court found that the applicant had not established that the EPA had failed to take the relevant considerations into account, noting that the development consent for the mine did include air emission limits.

The GHG emissions assessment requirements differ between assessment as part of periodic review of NSW EPA licensees and that for the development consent of proposed or modified large emitting projects in NSW. The NSW EPA and Queensland’s Department of Environment, Science and Innovation have taken recent steps to introduce guidelines to assess the greenhouse gas emissions from proposed or modified large emitting projects. Further information can be found in our HSF article here.

Mercer ordered to pay $11.3 million in penalties in ASIC’s first greenwashing case in the Federal Court

On 2 August 2024, the Federal Court found that Mercer Superannuation (Australia) Limited (Mercer) engaged in conduct “that was liable to mislead the public as to the nature and characteristics of financial services that it provided” through various “Sustainable Plus” investment options offered in the Mercer Super Trust. In particular, Justice Horan found that although Mercer represented that it excluded “investments in companies involved in … the production or sale of alcohol, gambling and the extraction or sale of carbon intensive fossil fuels”, its “Sustainable Plus” options contained investments which were contrary to its exclusionary screens.

Justice Horan ordered Mercer to pay a penalty of $11.3 million on the basis that Mercer’s contraventions were “serious” and arose from “failures … to implement adequate systems” to ensure the accuracy of its claims. His honour noted that although the penalty was below the statutory maximum, it was nevertheless appropriate relative to Mercer’s net assets and profits in the relevant period, and Mercer’s cooperation in seeking to resolve the proceeding. The parties also agreed to an adverse publicity order which requires Mercer to display a notice which includes an overview of the proceeding on the sustainable investments part of its website for six months.

Greenwashing remains a key ASIC enforcement priority

At the General Counsel Summit on 7 August 2023, ASIC Deputy Chair Sarah Court highlighted the important role general counsel play in engaging with regulators and noted that “the approach … of the general counsel can be pivotal to whether a significant matter is able to be effectively resolved with a regulator, or not.”

The Deputy Chair also emphasised greenwashing as a strategic priority for ASIC, and detailed its recent enforcement activity, including providing guidance to industry, issuing infringement notices and filing civil penalty proceedings. Greenwashing remains an ASIC enforcement priority in 2024.

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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

• Stuck in the Middle? Unlocking ESG Investment in Australia 2024 report

• ESG Notes and Climate Change Notes, 

• ESG, Sustainability and Responsible Business offering

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Written with assistance of Irene Park (Environment, Planning & Communities), Emily Tang, Shiwa Waladan and Cecile Lu (Head Office Advisory Team), Rose Kethel (Disputes), and Courtney Van Vorsselen and Rae Huang (Employment, Industrial Relations and Safety)