In our bumper first edition for 2025, we scan the horizon for key ESG regulatory trends impacting the Australian market. Climate disclosure readiness and broader ESG-related reporting developments will be key themes this year. Employment-related matters such as diversity, equity and inclusion are also expected to remain hot topics this year, as is sustainable finance and the development of Australia’s sustainable finance infrastructure. An air of uncertainty lingers for environmental-related reforms given the federal election, with the Nature Repair Market, environmental approvals processes, and the development of a more circular economy, all sure to be hot button issues in 2025.
In this edition, we also cover recent developments in sustainability collaborations, greenwashing litigation, the Nature Repair Market, ACCU scheme reform, and the Senate inquiry into Artificial Intelligence.
Key highlights
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ESG outlook: Expected themes in the Australian market for 2025
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ACCC v Clorox: ACCC and Clorox reach agreement for $8.25 million penalty in greenwashing case
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Nature Repair Rules 2024 provide further guidance to the Nature Repair Market Scheme
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Transparency measures in Australian Carbon Credit Unit Scheme
ESG outlook: Expected themes in the Australian market for 2025
Developments in ESG disclosure
Australia’s climate reporting regime has now commenced, with some Group 1 companies already in their first reporting year. However, in parallel with corporate Australia’s preparations to make climate-related disclosures, there have been developments in Australia and overseas which indicate that the reporting landscape will evolve rapidly over the next year (and that is even without the uncertainty posed by the upcoming Federal election). In Australia, modern slavery and nature-related disclosures are expected to see shifts this year and overseas, interested parties are closely observing how the EU’s Omnibus regulation, which will streamline various EU legislation including the Corporate Sustainability Reporting Directive, unfolds. As Australian businesses prepare for mandatory sustainability reports, they are seeking to ensure that their uplifts to systems and processes are ‘future-proofed’ as much as possible, to be able to flexibly adapt to the ever-evolving regulatory landscape.
Climate reporting: The rubber hits the road
1 January marked the start of the first reporting year for some Group 1 entities under the climate reporting regime, with the rest of the Group 1 entities preparing for the start of their first reporting years later in 2025 (reporting obligations will be phased in later for Group 2 and 3 entities). Climate reporting readiness will be a significant area of focus in 2025, with many entities designing and implementing new or enhanced systems and processes, including in relation to data collection, verification, emissions measurement, governance and Board information flows, and risk and opportunity identification and assessment. Some companies are also doing climate reporting ‘dry runs’, or at least disclosing against some climate reporting requirements, in their 2024 annual reporting suites. In short: 2025 is the year where the rubber hits the road for Australia’s largest companies.
In late January, the Auditing and Assurance Standards Board (AUASB) approved two new standards:
- one which specifies the minimum level of assurance that must be obtained over various aspects of climate-related disclosures until mid-2030 (after which the enduring audit provisions in the Corporations Act 2001 (Cth) apply) (ASSA 5010 Timelines for Audits and reviews of Information in Sustainability Reports under the Corporations Act 2001); and
- a second which is the Australian equivalent of the International Auditing and Assurance Standards Board’s standard on assurance of sustainability disclosures (ASSA 5000 General requirements for Sustainability Assurance Engagements).
A further suite of guidance on the implementation of climate reporting requirements is expected soon, including the finalisation of ASIC’s guide on sustainability reporting and new consultation on best practice transition plan disclosures. This sits alongside the educational materials published by the International Financial Reporting Standards Foundation (which houses the International Sustainability Standards Board, which produced IFRS S1 and IFRS S2, upon which Australia’s sustainability reporting standards are based).
It is worth noting that comments have been made by the Federal Opposition indicating their intention to wind back climate reporting laws, should they be elected. The response from industry was to continue on the basis that the current regime will remain in place, and note that the regime was intended to address and strengthen market disclosure following the previous voluntary approach. For further information on Australia’s mandatory climate reporting regime and our insights, see our September 2024 blog.
Herbert Smith Freehills has prepared a comprehensive manual for structuring your sustainability report under the requirements of the Australian climate-related reporting regime. To learn more, including advice on best practice and market insights, contact your usual Herbert Smith Freehills contact, or the key ESG contacts below.
Modern slavery: Reforms expected
Change is in the air for Australia’s Modern Slavery Act 2018 (Cth) (Act), but not before the Australian Government undertakes further consultations on significant potential reforms.
On 2 December 2024, the Australian Government released its response to the report following the statutory review of the Modern Slavery Act 2018 (Cth) (the Act). Out of the 30 total recommendations, the Government agreed with – at least in principle – 25 of them. The remaining 5 were noted. Key takeaways are that the Government:
- agreed with the recommendation to provide clearer guidance to reporting entities;
- agreed in principle with the recommendation to add additional reporting criteria, such as incident reporting;
- agreed in principle with the recommendation to introduce penalties for non-compliance; and
- noted (i.e. did not support at this stage) the recommendation to introduce obligations for a due diligence system.
The Government committed to undertake consultations on the introduction of civil penalties, amendments to the reporting criteria, and how the Act could be amended to enhance due diligence requirements, including how those requirements would align with broader global developments towards human rights due diligence.
We are seeing a trend towards mandatory human rights due diligence globally, particularly in the European Union but also in other jurisdictions like the United Kingdom and Canada, where due diligence requirements are being considered for domestic implementation. While the EU’s Corporate Sustainability Due Diligence Directive is being considered as part of the EU’s Omnibus proposal, the core due diligence requirements are not expected to materially change at this stage.
Even without changes to domestic legislation, many Australian companies will find themselves impacted by legislation overseas, either directly or indirectly as a result of increased (and increasingly granular) requests for data from other, in-scope, companies in their value chain.
For more information, see our article.
Nature-related financial disclosures: Expectations increasing
Nature and biodiversity-related financial disclosures are not (yet) mandatory in Australia, however the legislative infrastructure implementing the mandatory climate-related reporting regime has been designed to flexibly incorporate mandatory reporting requirements in relation to additional sustainability topics in the future.
As Australia’s climate reporting regime mirrors (to a large extent) the IFRS S2 climate-related disclosure standard developed by the International Sustainability Standards Board, developments at ISSB level are anticipated to flow through to Australia. One development to watch is the ISSB’s research project on nature-related financial disclosures, which is expected to inform the next topic-specific sustainability reporting standard from the ISSB. That research found that:
- most investors surveyed were interested in incorporating biodiversity-related risks and opportunities into their investment decisions; and
- that interest is driven by risk management, enhanced returns, asset owner mandates to their investment managers, and regulation.
In the meantime, Australia has also introduced a voluntary general sustainability-related disclosure standard, AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information, which provides a framework for entities to voluntarily report on material sustainability matters beyond climate, such as nature and biodiversity.
In any event, while still nascent in Australia, we are anticipating that expectations regarding nature and biodiversity-related disclosure and transparency will increase over the next few years, even without domestic changes to reporting requirements. We think this will be driven by a few factors, including various jurisdictions globally mandating disclosure of material sustainability topics in line with the ISSB’s IFRS S1 reporting standard and the increasing investor interest in nature-related disclosure in order to manage risk, align with investment mandates and meet nature-related goals and targets.
Another driver will be the continued uptake of reporting in line with the recommendations of the TNFD. Latest figures show over 500 organisations internationally, including at least 23 Australian-headquartered organisations, have signalled their intention to adopt the TNFD recommendations as part of their annual sustainability reporting activities for FY2024-25 or FY2025-26.
To assist businesses to make disclosures under the TNFD recommendations, the TNFD is iteratively releasing sector guidance. On 23 January 2025, the TNFD released guidance for construction materials; apparel, textiles & footwear; beverages; and engineering, construction and real estate sectors. It also released draft guidance for consultation until April 2025 in relation to the fishing; marine transportation and cruise lines; and water utilities & services industries.
Environmental approvals: The balancing act continues
We anticipate that this year there will continue to be regulatory movement as governments seek to balance the objectives of the energy transition, and the need to meet legislated GHG reduction and renewable energy targets, with the objectives of fulsome environmental impact assessment particularly for cumulative impacts, and community consultation.
The challenges and approach differs between the major NEM states. For example:
- NSW and QLD have progressed changes surrounding regulations in the renewable energy sector in contrasting ways. NSW Renewal Energy Planning Framework seeks to expedite the assessment and approval timeline for renewable energy projects. The framework cuts down demands for information and refining scoping report prerequisites to skirt significant assessment delays. QLD has appeared to undergo a more thorough impact assessments and public consultations path for such approvals. The updated wind farm code, with the passing of Planning (Wind Farms) Amendment Regulations 2025 (Qld), introduces stronger community engagement obligations, more comprehensive technical assessments, greater appeal rights for submitters, agricultural land protections, and new infrastructure and decommissioning provisions.
- VIC is currently consulting on a draft handbook for addressing potential impacts to biodiversity from the development of renewable energy projects. Among other things, it seeks to specify an approach to site selection and expected buffering for certain bird and bat species, although implementation in practice will depend on a range of factors as it will not form part of the formal planning requirements.
The biggest potential shift in the way environmental approvals are managed could depend on movements in relation to the Commonwealth’s Nature Positive Reform package for the Environment Protection and Biodiversity Conservation Act 1999. As at date of publication, it appears unlikely the Stage 2 reforms will progress prior to the election. If the reforms do proceed, whether before or after the election, it would be expected to bring notable changes to approval processes, with potential increased emphasis on biodiversity protection, cumulative impacts assessment, and a shift towards strategic regional planning.
Circular economy gaining momentum
In December 2024, the Australian Government released its first circular economy framework. Economic circularity is where products are designed to be reused, repaired, and recycled to minimise waste and maximise resource efficiency. The Government aims to double the circularity of the economy by 2035. The goal is underpinned by three targets:
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Target 1: Reducing material footprint by 10% |
Target 2: Lifting material productivity by 30% |
Target 3: Safely recovering 80% of our resources |
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The priority areas of the economy to achieve these targets will be industry, where the key focus will be on circular packaging. To support implementation, the Government is consulting until 27 February on proposed reforms to the Recycling and Waste Reductions Act 2020.
States too are making strides on circular economy commitments. A recent example includes the Victorian EPA who released a consultation paper ‘Statement of Regulatory Intent on Climate Change 2025 to 2027’. The paper notes the circular economy to be one of three focus areas for the authority, capturing permission applicants that manage waste and businesses that manage or have control of priority waste. They will collaborate with co-regulators and industry to promote circular economy practices.
It can be expected that in the years ahead, due to the focus at both federal and state levels, there may be increased corporate commitments to circularity, expanded manufacturer responsibility regulations, and incentives for innovation in product design and supply chains.
Employment, Industrial Relations and Safety reforms remain in the spotlight
In 2025, businesses should be aware of the following key ESG trends in the employment space.
Working flexibly and the right to disconnect
One of the most significant trends is the continued focus on workers’ right to disconnect (which was introduced in August last year as part of the second tranche of the ‘Closing Loopholes’ reforms) and flexible working arrangements. While some employers are pursuing attendance policies, including linked to performance bonuses, the issue of working from home is looking to shape up as a potential further area of reform in the lead up to the next election which is being pushed by employees and their representatives. Employers should ensure policies and guidelines in the workplace address the new requirements in relation to out of hours contact, and that employees and managers are across their obligations under this new right.
Workplace conduct and psychosocial hazards
Regulators and lawmakers continue to target workplace conduct and psychosocial safety matters. The interplay between safety and employment laws is becoming increasingly complex and demanding for employers to navigate. Ensuring a safe and respectful workplace is paramount, and businesses are expected to implement robust policies and training to address these issues. This is increasingly important in light of a number of class actions launched late last year in relation to sexual harassment.
Employers must also beware to ensure that any misconduct investigations and disciplinary procedures comply with any contractual requirements (including any policies incorporated into the contract) following a significant High Court ruling awarding $1.5million in damages for a psychosocial injury arising out of a disciplinary process that breached the contract. Employers are likely to see an increase in these types of claims, and should review employment contracts, policies and processes. See our related article.
Wage theft, bargaining and equal pay
From 1 January 2025, a new criminal offence for certain types of underpayments commenced and the regulator continues to be active with investigations and enforcement action, with its priority areas including large corporates and universities, as well as certain sectors. Businesses will need to take proactive steps to ensure compliance with payment obligations to avoid facing significant penalties.
This increased compliance risk is coupled with the increased complexity of the industrial relations system following the significant suite of reforms in relation to bargaining, same job same pay and minimum standards (parental leave, fixed term contracts, independent contractors and gig workers) last year. We are seeing an increase in bargaining activity across most sectors, and a steady flow of same job same pay applications, brought not only by unions, but also individual employees. We expect to continue to see this increased activity and focus on workplace conditions in 2025.
At the same time, reforms on mandatory gender pay gap and related reporting under Australian law as well as some of the reporting and gender target initiatives in the draft 5th edition of the ASX Corporate Governance Principles and Recommendations stand in contrast to President Trump’s vow to dismantle diversity, equity and inclusion programs in the U.S. 2025 will likely see an increased tension between the push for transparency by investors, some groups of employees and their representatives, and pushback or resistance to diversity and inclusion initiatives in other parts of the workforce or the public. Employers will need to carefully navigate compliance, investor and public scrutiny, and varying employee expectations.
Sustainable Finance: The architecture develops
We are expecting the release of the Australian Sustainable Finance Action Plan 2025-27 sometime in the next month, which should outline key actions to support the growth of sustainable finance in Australia, as set out under the Australian Government’s Sustainable Finance Roadmap (the Roadmap).
This includes the expected release of an initial Australian taxonomy for climate mitigation in the middle of the year. This initiative has been led by the Australia Sustainable Finance Institute, and the second and final round of public consultation has just closed. While initially voluntary, the Government has indicated that, this year, it will explore initial use cases for the taxonomy to be incorporated into financial and regulation frameworks.
In parallel, we are also expecting in the coming months the Government to consult on sustainable investment product labels and best practice transition plan disclosures. With the continued implementation of the Roadmap, this year we should see more of the pieces of the sustainable finance architecture fall into place.
ACCC releases sustainability collaborations guide
On 18 December 2024, the ACCC published its guide on sustainability collaborations. While sustainability collaborations are usually aimed at achieving altruistic outcomes, they can also raise competition law risks where they involve businesses that are competitors. The ACCC’s guide considers the circumstances in which those competition law risks will be higher and how such risks can be managed by businesses, in particular where there are material public benefits arising from a proposed collaboration.
The guide indicates that a sustainability 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. By contrast, a sustainability collaboration will carry less competition law risk where it does not impact the structural conditions of competition and allows businesses to innovate and make decisions independently.
The guide discusses a number of ways that businesses can manage competition law risks that arise from a sustainability collaboration, including:
- exemptions under the Competition and Consumer Act 2010 (Cth);
- authorisation from the ACCC – which the ACCC can grant if it is satisfied that the collaboration will result in a net public benefit (e.g., environmental benefits, human rights improvements, transaction cost savings and economic efficiencies); and
- notification processes – here, the guide focuses on ‘collective bargaining’ and ‘collective boycott’ notifications, which are most relevant to sustainability collaborations.
The ACCC acknowledges that sustainability collaborations are an evolving area for businesses and has indicated future review of its guidance may be required to ensure that it is fit-for-purpose.
ACCC v Clorox: ACCC and Clorox reach agreement for $8.25 million penalty in greenwashing case
In Federal Court proceedings brought by the ACCC, consumer goods company Clorox has agreed to a $8.25 million penalty for making misleading representations on packaging for its GLAD ‘Kitchen Tidy’ bags, which labelled the products as ‘made using 50% Ocean Plastic’. The magnitude of the agreed penalty (which is yet to be approved by the Court) underscores the risks surrounding these kind of environmental and sustainability representations, and highlights the importance of headline messaging including the need for clear and prominent qualifications.
In its claim, the ACCC argued that Clorox’s use of the phrase ‘Ocean Plastic’ misled consumers into believing that the garbage bags were manufactured from plastic retrieved directly from the ocean, when instead they were made from recycled plastic that was collected within 50km of coastlines in communities with no formal waste management systems.
The ACCC alleged that the conduct affected up to 2.2 million customers between June 2021 and July 2023. While the ACCC accepted that the conduct was not part of a deliberate strategy to mislead customers, senior management of Clorox were aware of the potential issue.
Key takeaways from this case include:
- Be upfront about qualifications. Where a headline message requires qualification, companies should ensure that such qualification is clear and prominent. In this case, Clorox’s packaging included a qualification that the plastic was ‘ocean bound’ rather than ‘ocean-found’, however Clorox conceded that this was not prominent enough to overcome the headline message to consumers.
- Considering the overall impression created by packaging is key, including through the use of certain colours and images. In this case, the ACCC considered that the use of wave imagery and blue coloured bags contributed to the overall impression that the products were made from plastic that was collected directly from the ocean.
- Companies should consider how everyday consumers might understand the language/phrases used on packaging. In this case, the ACCC argued that Clorox did not sufficiently consider how ordinary and reasonable consumers would understand the phrase ‘Ocean Plastic’.
- Greenwashing continues to be an area of focus for the ACCC, and companies should take care to ensure any environmental and sustainability-related claims are accurate and clearly qualified where appropriate.
Consumer and product safety in relation to environmental and sustainability claims remains an enforcement and compliance priority for the ACCC. Companies should consider the guidance released by the ACCC in December 2023 which outlined its expectations for good practice when businesses are making environmental claims.
Nature Repair Rules 2024 provide further guidance to the Nature Repair Market Scheme
On 20 December, the Minister for the Environment made the Nature Repair Rules 2024 (Rules), the latest legislative step in creating the Nature Repair Market (NRM). The NRM is a market-based mechanism to incentivise investment in biodiversity restoration and conservation projects, through the issuance of tradeable biodiversity certificates.
The Rules serve as the operational and administrative backbone to the NRM, established under the Nature Repair Act 2023, and prescribe how biodiversity projects are designed, implemented, and monitored.
A biodiversity project is an initiative aimed at enhancing or preserving natural ecosystems following strict guidelines under the NRM. Key aspects include a Permanence Period of at least 25 years, the necessity for consent and approvals from stakeholders and regulatory authorities, adherence to approved project methodologies, and compliance with Biodiversity Assessment Instruments (BAIs) set by the Minister. The Nature Repair Committee overseas the schemes, evaluating project applications and approving new methodologies ensuring the integrity and effectiveness of the NRM.
Transparency measures in Australian Carbon Credit Unit Scheme
The Carbon Credits (Carbon Farming Initiative) Amendment (2024 Measures No. 2) Rules 2024 came into effect on 21 December 2024, amending the Carbon Credits (Carbon Farming Initiative) Rule 2015. The amendments aim to enhance transparency within the Australian Carbon Credit Unit (ACCU) Scheme by requiring the publication of additional ACCU project data. For example, the amendments require the provision of additional project data in relation to project activities and estimation approaches for carbon abatement, crediting and permanence.
Increasing transparency of the scheme and public trust in it were key recommendation of the 2022 Chubb Review. To support implementation, the Clean Energy Regulator has a six-month transitional period to publish the additional data, until 20 June 2025. The CER has shared that it will work with participants to confirm the information to be published.
Senate inquiry: Impose positive AI duties on employers
A Senate inquiry into AI has recommended updating workplace occupational health and safety frameworks to impose a positive duty on employers to minimise the risk of AI. In particular, recommendations 5, 6 and 7 of the Senate Select Committee’s report on Adopting Artificial Intelligence (Report) were highlighted in Parliament. These recommendations call for the use of AI in the workplace to be categorised as high-risk and for Australia’s existing work health and safety laws to be extended to apply to the workplace risks created by AI. It also recommends that employers consult with workers about how AI is introduced in workplaces.
The Report highlighted that, whilst many stakeholders acknowledged the benefits of AI, they expressed ‘serious concerns’ of the possible negative effects on workplaces and workers’ rights and conditions. The Report further recommended that the Government should introduce policies and implement a consultation process for workers prior to any redundancies or restructures and to provide them training and reskilling opportunities where their jobs may be replaced by AI. These latest developments highlight the ever-evolving regulation of AI. Businesses should be aware of the major risks of the misuse of AI in the workplace, including ensuring it is not undermining wages or working conditions, particularly in light of the new criminal wage theft offence and significant increase in penalties
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 Elise Plunket and Sarah MacDonald (Head Office Advisory Team), James Moloney and Shuja Jamal (Environment, Planning & Communities), Rae Huang and Courtney Van Vorsselen (Employment, Industrial Relations and Safety), Elizabeth Sharp, James Ward and Sarah Leong (Competition, Regulation & Trade). |
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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.