Legal groups and environmental law firms have opposed for three years a federal government proposal that would protect companies from private litigation over misleading climate claims.
- Large Australian companies will have to make mandatory climate disclosures from next year
- The Treasury proposes to freeze certain greenwashing disputes brought by third parties for three years
- Legal groups denounce proposed moratorium
The New South Wales Bar Association is concerned such a temporary ban could restrict access to justice and undermine Australia’s goal of reducing emissions to 43% of 2005 levels by 2030.
And the Environmental Defenders Office (EDO) warned that the freeze could prevent cases similar to its ongoing action against Santos for alleged greenwashing.
The moratorium, proposed by the Treasury, is part of a monumental change in corporate reporting that is expected to take place from the middle of next year.
From July 2024, it will become mandatory for large Australian companies to describe climate-related risks in their financial disclosures, with smaller companies expected to follow in coming years.
Implementation plan for Australian companies to publish climate information
Group 1 — 2024-25
Group 2 — 2026-27
Group 3 — 2027-28)
Australia is one of several jurisdictions to adopt a new international set of sustainability standards for large listed and unlisted companies to ensure greater transparency and accountability on the impacts of climate change.
Companies should disclose whether or not they have a climate transition plan – make it public if they have one – while providing details of their scope 1, 2 and 3 greenhouse gas emissions.
Companies will also need to detail their resilience to a climate scenario in which the planet is 1.5 degrees Celsius warmer than the pre-industrial era and to at least one other higher emissions scenario.
The Treasury is working on legislation to introduce standards which are expected to impact around 20,000 businesses.
Some of these companies, however, are concerned about exposing themselves to legal action when disclosing things like Scope 3 emissions, which can account for the majority of many companies’ total emissions.
Type 3 emissions are generated outside of a company’s control. This could, for example, be gas produced by an energy company which is then burned by a customer.
The legitimate These concerns come as climate-related litigation has increased over the past three years in Australia, particularly in the area of corporate liability.
And greenwashing, in which a company misleads by exaggerating its environmental credentials, is increasingly targeted by regulators and third parties.
The Treasury is concerned that companies may be too cautious in their climate disclosures if they fear being sued while the new standards are implemented.
He therefore proposed a three-year period from July next year during which only regulators, such as ASIC, could take action on misleading conduct relating to scope 3 information and forward-looking statements.
NSW Bar Association president Gabrielle Bashir SC said a moratorium on litigation would restrict access to justice for people who believe they have been misled by a company’s climate claims.
“As a regulator, ASIC is authorized to enforce such breaches, but it faces resource constraints,” she said.
“Private actions are not funded by the taxpayer.
“Any moratorium – even if limited to three years – undermines Australia’s ability to meet its 2030 emissions reduction target.”
At the current rate of global emissions, there are only about Six years left on the carbon budget to keep warming at 1.5°C above pre-industrial levels.
The EDO, a not-for-profit legal organization that has brought several high-profile climate cases, is also concerned about the potential impact on Australia’s climate goals.
Kirsty Ruddock, safe climate lawyer at EDO, said investors needed reliable information to make sound decisions about the companies they invested in.
“At the very least, the public should have the right to seek justice by seeking an injunction or declaration to stop greenwashing,” she said.
“This would eliminate the risk of companies having to pay damages, while still giving the public the opportunity to take action to prevent the impacts of greenwashing.”
The EDO is currently taking action against major gas producer Santos and claims it will have net zero emissions by 2040.
Ms Ruddock said the moratorium could prevent similar cases until mid-2028.
But Rebekkah Markey-Towler, a researcher at the University of Melbourne’s Sustainable Finance Hub – which tracks climate litigation in Australia – has a different view.
She is less concerned about the number of cases filed than about the contribution the new disclosure framework could make in terms of climate action.
“It’s certainly a very important step, the disclosure frameworks, (but) it’s a tool in the toolbox,” Ms. Markey-Towler said.
And, she emphasizes, other mechanisms are also put in place.
“There are many other important tools being put in place now… the sustainable finance taxonomy and strategy, the safeguards mechanism, all the other regulatory work,” Ms Markey-Towler said.
“I’m encouraged by how quickly things have changed and I think there’s momentum now, but it’s about making sure that momentum leads to good results overall.”
Industry calls for longer legal freeze
A three-year moratorium on third-party litigation is not considered sufficient time to adapt in many sectors.
The Association of Pension Funds wants at least four years.
The benchmark body for super funds estimates that its members will not be able to access scope 3 emissions from the companies in which they invest before 2028.
Oil and gas major Woodside has also filed an application with the Treasury calling for a moratorium of more than three years.
“We believe that the requirements for forward-looking agreements will remain very challenging, particularly those regarding scope 3 emissions,” the document said.
Indeed, scope 3 emissions occur outside of a company’s control once it has resold a product.
In 2019, only 11% of ASX-300 companies reported their scope 3 emissions and around half of these included assurance level, a type of validation, by auditors.
The Treasury acknowledged that it will be difficult for many companies to obtain Scope 3 data and that most disclosures would be estimates.
A colossal project
The new standards raise further concerns when it comes to meeting all the disclosure requirements proposed in the new Australian Climate Standards, which include 11 mandatory reporting categories.
Lien Duong, lecturer in accounting at Curtin University, said that with less than a year to go before implementation, the government was ambitious in its objectives.
“The problem with carbon footprinting and carbon accounting is that it is a very new concept for some accounting firms,” she said.
Dr Duong said it might be appropriate to increase the minimum asset value of the first group of companies. to relocate the new standards from $1 billion to $1.6 billion, which is the current lowest market capitalization on the ASX-200.
This allows smaller companies with less experience with climate disclosure to have more time to prepare.
Financial sector capacity called into question
Even though small businesses have more time to prepare, there are signs that there is a looming skills gap among climate-aware financial workers.
A 2022 A University of Technology Sydney survey of 71 sustainable finance professionals found 67% believed 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 successful climate disclosures.
“It takes time to develop these skills, for training providers to develop courses and for people to obtain the qualifications,” she said.
“At a disclosure level, this could mean that it is difficult for organizations to meet their disclosure requirements.”
Ms Atherton said the gaps were not just for companies self-disclosing, but also for audit firms who will be called upon to provide assurance validation.
Without these skills, companies risk failing to accurately represent their climate achievements.
“The biggest systemic risk to financing in particular is if investors do not understand the requirements for investing in low-carbon opportunities and decarbonization,” Ms Atherton said.
“This could slow down the transition.”
Consultation on new Australian climate-related financial disclosure standards underway open until March 1st.
The federal government is still finalizing its policy positions and is expected to release a draft bill before the end of the year.
Get all the latest science news from the ABC.