Legal groups and environmental law firms have opposed a federal government proposal that would protect corporations from private litigation over misleading climate claims for three years.
Key points:
- Large Australian companies will need to make mandatory climate disclosures from next year
- Treasury is proposing a freeze on some greenwashing litigation for three years by third parties
- Legal groups are railing against the proposed moratorium
The New South Wales Bar Association is concerned such a temporary ban would restrict access to justice and undermine Australia's goal to reduce emissions to 43 per cent of 2005 levels by 2030.
And the Environmental Defenders Office (EDO) has warned the freeze could prevent similar cases to its ongoing action against Santos for alleged greenwashing.
The moratorium, put forward by Treasury, is all part of a monumental shift in corporate reporting planned to take place from the middle of next year.
From July 2024 it will become mandatory for large Australian companies to outline climate-related risks in their financial disclosures, with smaller businesses to follow in later years.
Implementation plan for Australian companies to make climate disclosures | ||
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Group 1 — 2024-25
| Group 2 — 2026-27
| Group 3 — 2027-28)
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Australia is one of several jurisdictions adopting a new international set of sustainability standards for large listed and unlisted companies to provide greater transparency and accountability on climate change impacts.
Companies would need to say whether or not they had a climate transition plan — making it public if they did — while also providing details on their scope 1, 2 and 3 greenhouse gas emissions.
The businesses will also have to detail their resilience to a climate scenario where the world is 1.5 degrees Celsius warmer than the pre-industrial era and at least one other higher emissions scenario.
Treasury has been working on legislation to help bring in the standards which are expected to impact about 20,000 businesses.
Some of these businesses are concerned, however, about being opened up to legal action when making disclosures on things like scope 3 emissions, which may make up the majority of many companies' emissions totals.
Scope 3 emissions are generated outside the control of a business. These can include things like gas produced by an energy company which is then burned by a customer.
The legal concerns come as climate-related litigations have grown in the past three years in Australia, particularly in the area of corporate accountability.
And greenwashing, where a company misleads by overstating its environmental credentials, is increasingly targeted by both regulators and third parties.
Treasury is concerned that companies could be overly cautious in making climate disclosures if they are worried about being litigated while the new standards are implemented.
So it has proposed a three-year period from July next year where only regulators, like ASIC, could take action over misleading conduct related to scope 3 disclosures and forward-looking statements.
Greenwashing concerns
NSW Bar Association president Gabrielle Bashir SC said a moratorium on litigation would restrict access to justice for people who feel they've been misled by a company's climate claims.
"As the regulator, ASIC is permitted to enforce such breaches but it has resourcing constraints," she said.
"Private actions are not funded by the taxpayer.
"Any moratorium – even if limited to three years – undermines Australia's ability to achieve its 2030 emissions reduction target."
At the world's current rate of emissions there is about only six years left in the carbon budget to keep warming at 1.5C higher than pre-industrial levels.
The EDO, a not-for-profit legal organisation which has brought forward several high profile climate cases, is also concerned by the potential impact to Australia's climate targets.
EDO safe climate managing lawyer Kirsty Ruddock said investors needed reliable information to make sound decisions about the companies they invested in.
"At the very least, the public should be entitled to seek justice by applying for an injunction or a declaration to put a stop to greenwashing," she said.
"This would take away the risk for companies having to pay damages but still leave the public with the ability to take action to prevent the impacts of greenwashing."
The EDO is currently running a case against major gas producer Santos and its claims it will have net zero emissions by 2040.
Ms Ruddock said the moratorium could prevent similar cases until mid-2028.
But, University of Melbourne Sustainable Finance Hub research fellow Rebekkah Markey-Towler — who tracks climate litigation in Australia — has a different view.
She's less concerned about how many cases were being filed, compared to what contribution the new disclosure framework may achieve in terms of climate action.
"It's certainly a really important step, disclosure frameworks, [but] it's one tool in the toolkit," Ms Markey-Towler said.
And, she points out, there are other mechanisms also being put into place.
"There are many other tools that are important being put in place at the moment … the sustainable finance taxonomy and strategy, the safeguard mechanism, all the other regulator work," Ms Markey-Towler said.
"I'm heartened by how quickly things have changed and I think there is a momentum now, but it's about making sure that momentum leads to good outcomes overall."
Industry seeks longer legal freeze
A three-year moratorium on third-party litigation is not seen as enough time to adapt in several industries.
The Association of Superannuation Funds wants at least four years.
The peak body for super funds estimates its members will not be able to access the scope 3 emissions of the companies they invest in until 2028.
Major oil and gas company Woodside made a submission to the Treasury also calling for more than three years for a moratorium.
"We believe the requirements around forward-looking settlements will remain very challenging, in particular those concerning scope 3 emissions," the submission said.
This is because scope 3 emissions occur outside the control of a company once they have onsold a product.
As of 2019 only 11 per cent of ASX-300 companies were reporting their scope 3 emissions and about half of them included the assurance level, a type of validation, by auditors.
The Treasury has acknowledged it will be difficult for many companies to obtain scope 3 data and that most disclosures would be an estimate.
A massive undertaking
There are other concerns for companies under the new standards when it comes to meeting all the proposed requirements for disclosure in the new Australian climate standards, which includes 11 categories for mandatory reporting.
Curtin University accounting senior lecturer Lien Duong said that with less than a year until implementation the government was ambitious in its aims.
"The thing about carbon footprints and carbon accounting is it's a very new concept for some accounting firms," she said.
Dr Duong said it could be appropriate to raise the minimum assets value on the first group of companies moving to the new standards from $1 billion to $1.6 billion, aligning with the current lowest market capitalisation of the ASX-200.
This is so smaller companies with less experience in climate disclosures had more time to prepare.
Financial sector capacity questioned
Even if smaller corporates have more time to prepare, there are signs of an impending skills gap for climate-literate financial workers.
A 2022 University of Technology Sydney survey of 71 sustainable finance professionals found 67 per cent thought there was less supply than demand for climate skills in the sector.
UTS Sustainable Futures research director Alison Atherton said addressing the skills shortage was critical to the energy transition and the success of climate disclosures.
"It takes time to develop those skills, for training providers to develop courses, and for people to go through the qualifications," she said.
"At the level of disclosure it could mean it's difficult for organisations to meet their disclosure requirements."
Ms Atherton said the gaps were in not just the companies making disclosures themselves but the auditing firms which will be called upon to provide assurance validation.
Without these skills, companies may not accurately represent their climate achievements.
"The biggest systemic risk from financing in particular, is if investors don't understand the requirements for investment in low carbon opportunities and decarbonisation," Ms Atherton said.
"It could hold back the transition."
Consultation on Australia's new climate financial disclosure standards is open until March 1.
The federal government is still finalising its policy positions and is expected to release draft legislation before the end of the year.
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