Keeping Up with ESG in Australia – December 2024

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 latest climate reporting and greenwashing updates from ASIC and APRA. 

Key highlights

1. In the spotlight: Mandatory climate reporting and greenwashing updates from ASIC and APRA
2. ASIC warns governance gap could emerge in first report on AI adoption by licensees
3. Modern slavery reforms on the horizon
4. Carbon Leakage Review: Second Consultation
5. Nature Positive reforms shelved
6. Gender equality and sexual harassment updates

---

 

In the spotlight: Mandatory climate reporting and greenwashing updates from ASIC and APRA

In the wake of Australia’s mandatory climate-reporting regime becoming law – as highlighted in our September blog – all cylinders are firing for regulators (and companies) preparing for the new regime, with further developments likely to come in the New Year. The climate reporting regime commences on 1 January 2025, with the first wave of sustainability reports containing climate-related financial disclosures due in early 2026.   

Although the proposed regulatory guidance and focus areas provide a useful clarification of certain requirements and expectations, we expect that as some areas are ironed out, other practical questions will arise. Given the breadth of the new requirements and additional workload involved in the annual reporting suite, companies should ensure they are thinking ahead to the new sustainability report and the uplift required for the new disclosures in order to best triage resources within the business.  

ASIC consults on proposed guidance for sustainability reporting regime

The Australian Securities and Investments Commission (ASIC) has released draft Regulatory Guide 000 Sustainability reporting for consultation with stakeholders. Consultation closes 19 December 2024. The draft regulatory guide sets out ASIC’s guidance on the regime, and how it will interact with existing legal obligations. It also details how ASIC interprets the legislation, and the approach ASIC intends to take to the administration of the sustainability reporting requirements - including requirements for retention of sustainability records, the granting of relief and use of its power to make new directions.

In terms of relief, the draft guide clarifies ASIC’s expectation that in the early years of the reporting regime, it is more likely to grant individual relief on a short term basis, and that ASIC will consider giving no-action letters where appropriate.

APRA publishes findings of its second self-assessment survey of regulated entities’ climate risk

The Australian Prudential Regulation Authority (APRA) has published the findings of its second climate risk self-assessment survey. The survey was designed to give APRA insight into how regulated entities identify, manage and disclose the financial risks of climate change, and align their practices with the Prudential Practice Guide CPG 229 Climate Change Financial Risks. Key findings were that:

• The self-assessed results were broadly aligned with APRA’s expectations.
• A majority of large entities have enhanced their climate risk maturity since 2022. However, approximately 25% have experienced a decline in their climate risk maturity score.
• Large banks have been more successful in improving their climate maturity since 2022, compared to large insurers and superannuation trustees who have remained broadly unchanged.
• The areas of strength were 'governance and strategy' and 'risk management', while 'disclosure' and 'metrics and targets' were identified as weaker areas.
• Where climate risk has been integrated into risk management, the governance structure is more mature.
• Entities are beginning to consider nature risk and transition plans.

In light of these findings, APRA Executive Board Member Suzanne Smith encouraged all regulated entities to "reflect on their own preparedness and implement leading practice for managing climate risk". This encouragement is particularly relevant given the increasing stakeholder expectations and APRA's commitment to ensuring regulated entities adopt a strategic, risk-based, and proportionate approach to managing climate-related risks.

ASIC’s 2025 enforcement priorities

On 14 November, ASIC announced its 12 enforcement priorities for 2025, indicating where it will direct resources and expertise in the coming year. ASIC's enforcement priorities reflect emerging issues and risks. In respect of ESG matters, the enforcement priorities include ‘greenwashing and misleading conduct involving ESG claims’ and ‘licensee failures to have adequate cyber-security protections’. ASIC noted that in the past year, ASIC increased its new investigations by 25% and increased civil proceedings by 23%, and took important enforcement action across areas including greenwashing.

These developments from ASIC and APRA indicate regulators are continuing to focus on ensuring that large businesses and financial institutions are appropriately identifying, managing, and disclosing their climate-related risks. This regulatory focus shows no signs of slowing down, and will continue to evolve, particularly in light of the increased volume and granularity of climate-related information disclosed under the climate reporting regime. Reporting entities should actively monitor regulator activity in this area in order to keep up with these changing expectations and approaches to supervision and enforcement.

---

 

ASIC warns governance gap could emerge in its first report on AI adoption by licensees 

The governance of artificial intelligence (AI) continues to be a growing interest area for regulators, particularly as AI usage becomes more integrated into business processes and practices. In particular, ASIC has urged financial services and credit licensees to ensure their governance practices keep pace with their accelerating adoption of artificial intelligence. ASIC’s first report of the use and adoption of AI by 23 licensees found there was the potential for governance to lag AI adoption, despite current AI use being relatively cautious. ASIC’s findings revealed nearly half of reviewed licensees did not have policies in place that considered consumer fairness or bias, and even fewer had policies governing the disclosure of AI use to consumers.

Understanding and responding to the use of AI by financial firms is a key focus for ASIC (as emphasised in its latest Corporate Plan). Companies should ensure they are monitoring the current or developing use-cases of AI (and attendant risks and opportunities) and that adequate governance practices and policies are established. 

---

 

Modern slavery reforms on the horizon

In line with its 2022 election commitments around modern slavery reforms, the Australian Government has now established an office of the Anti-Slavery Commissioner and has committed to consulting with stakeholders on the introduction of penalties for non-compliance with reporting requirements under the Modern Slavery Act 2018 (Cth) (the Act).

Chris Evans appointed as Australia’s first federal Anti-Slavery Commissioner

Former Labor senator, Chris Evans, will commence a five-year term as Australia’s inaugural federal Anti-Slavery Commissioner in December 2024. Mr Evans has previously served as Minister for Immigration and Citizenship and CEO of the Global Freedom Network of Walk Free.  The establishment of an Anti-Slavery Commissioner in Australia was first recommended in the 2017 Joint Standing Committee on Foreign Affairs report, Hidden in Plain Sight. The role gained further support in the statutory review of the Act, which emphasised the importance of a ‘high-profile, specialist and committed office’ for raising awareness of modern slavery risks and ensuring those risks are addressed. In addition to these functions, the Anti-Slavery Commissioner will lead the implementation of proposed reforms relating to modern slavery, including those arising from the statutory review of the Act.

Government’s response to the Modern Slavery Act review recommendations

On 2 December 2024, the Australian Government released its response to the 2023 statutory review of the Act. The Government assessed the review’s 30 recommendations, agreeing – at least in principle – with 25 of them, while noting the other five recommendations. The responses are grouped into four focus areas:

• creating an effective compliance and enforcement framework;
• increasing clarity and simplicity;
• enhancing support and guidance; and
• continuous improvement.

Items ‘noted’ by the Government (rather than agreed) included the recommendation to impose obligations on reporting entities to establish due diligence systems – and penalties for failing to do so – as well as the proposal to lower the annual consolidated revenue threshold from AU$100 million to AU$50 million.

Of particular importance in the items ‘agreed’ was the Government’s position on the introduction of civil penalties for non-compliance with the Act. Specifically, the Attorney-General's Department will consult on penalties regarding the failure to submit a modern slavery statement, providing false information in a modern slavery statement and failing to comply with a request for specified remedial action. While the consultation has been identified as a priority, details around the process have not yet been published.

Continuing the iterative approach of improving the Act, the Government has agreed in principle to a further statutory review following the implementation and operation of future reforms. In this further review, the Government will likely reconsider recommendations that it noted in its recent response, including in relation to due diligence systems and revenue thresholds.

---

 

Carbon Leakage Review: Second consultation

The Carbon Leakage Review undertook further consultation in November – December 2024, building on the discussions and findings of the 2023 consultation. The Consultation Paper detailed some key preliminary findings:

• Leakage by Commodity: The Review identifies clinker, cement, lime, ammonia and derivatives, steel, and glass as commodities at potentially material risk of carbon leakage. Clinker, cement, and lime, which are at particularly high risk, may require earlier introduction of additional measures.
• Effectiveness of Existing Policies: Current settings under the Safeguard Mechanism reforms are effective at mitigating carbon leakage risk in the short to medium-term. However, additional measures may be needed over time to address leakage risks as baselines decline and compliance costs rise.
• Options Being Considered: Various options to address carbon leakage are being considered, including a border carbon adjustment (BCA), public investment (it cannot be relied upon as a standalone solution), and mandatory emissions product standards (ruled out as not likely effective for addressing carbon leakage risk due to their rigidity and potential supply chain issues).
• Border Carbon Adjustment (BCA): A BCA would need to mirror the key provisions of the Safeguard Mechanism, applying a border carbon liability to emissions, associated with imports, exceeding Safeguard Mechanism baselines if the effective carbon price paid in the originating country is lower than in Australia. This adjustment would eliminate the policy basis for TEBA (trade-exposed baseline-adjusted) provisions in the relevant sector. TEBA provisions reduce baseline decline rates under the Safeguard Mechanism where there is a significant impact on revenue. This would not be required, as a BCA would ensure that imports would receive equivalent policy treatment as domestic production. A BCA for exports is considered inconsistent with Australia’s emissions reduction targets and would raise potential international trade law concerns.
• Sectoral Application of BCA: Should a BCA be pursued, it would be implemented based on explicit emissions prices only and would necessitate the removal of TEBA provisions for the relevant sector, aligning with the Safeguard Mechanism.

The feedback gathered from this latest consultation will inform the final report which will be delivered to the Government by the end of 2024.  

---

 

Nature Positive reforms reportedly shelved until after next election 

The cornerstone ‘nature positive’ environmental law reforms that the Australian Government aimed to implement in this term have been reported as no longer pursued until after the 2025 election. Differing views between Labor, the Coalition and the Greens on critical objectives of the reforms, pressure from State Governments and industry concerns reportedly contributed to the complexity of finalising the reform package. This delay may pose ongoing regulatory uncertainty for businesses. However, the demands of navigating sustainability objectives through operational and investment strategies largely remain.

---

 

Gender equality and sexual harassment updates 

The Federal Government and Australian states continue their focus on gender equality and sexual harassment in the workplace.

Federal Bill will require large employers to set and meet gender equality targets

The Albanese Government has introduced into Parliament the Workplace Gender Equality Amendment (Setting Gender Equality Targets) Bill 2024 (Cth) which will require large employers with 500 or more workers to set gender equality targets. Designated Relevant Employers will be required to select and work towards three specific targets from a provided list, which includes areas such as the gender composition of boards, flexible working arrangements, and efforts to prevent sexual harassment. Progress and compliance with these targets must be provided by employers in their annual reporting directly to the Workplace Gender Equality Agency (WGEA) and their boards, and this information will be published on the WGEA’s data explorer.

Compliance will be necessary for eligibility for government contracts, and employers who fail to comply will be publicly listed on the WGEA’s online ‘non-compliant organisations’ list.

Workplace sexual harassment still prevalent in Australian businesses and WA introduces new ban on sexual harassment “in connection with work”

The Western Australian Parliament has passed the Industrial Relations Legislation Amendment Bill 2024 (Cth) which includes a new ban on sexual harassment “in connection with work”. These changes will make employers vicariously liable for any sexually harassing acts of their employees or agents unless they can prove they took all reasonable steps to prevent such acts. A person who alleges sexual harassment in connection with work will be eligible to refer their complaint to the Industrial Relations Commission (IRC) for a stop-sexual-harassment order or to have the matter dealt with through its conciliation and arbitration powers. Further, the IRC is able to issue an order requiring the payment of compensation to the aggrieved person for loss or injury suffered because of the harassment, with the aggrieved person also being able to take action in the Industrial Magistrates Court. 

Separately, new findings from WGEA reveal both significant strides and ongoing challenges in addressing workplace sexual harassment. While 99% of reporting employers have formal policies in place, results show that only 28% actively monitor the prevalence of harassment Further, despite 98% of employers having disclosure processes in place, only 68% offer anonymous reporting options. The WGEA results indicate that more work is required to ensure proactive leadership engagement, improve anonymous reporting mechanisms, and ensure better data collection on harassment incidents.

In light of these various legislative reforms across Australia (as noted in our September blog) that aim to address sexual harassment in the workplace, it is more important than ever that entities proactively seek to prevent sexual harassment in the workplace, including by introducing and implementing appropriate policies.

---

 

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

---

 

Written with assistance of Emily Tang, Elise Plunket, Kate Dobson, and Joseph Negrine (Head Office Advisory Team), James Moloney (Environment, Planning & Communities), Thea Penney (Disputes), Rae Huang Courtney Van Vorsselen and Tahj Mande (Employment, Industrial Relations and Safety).