By Clare Saunders

More and more businesses are making climate pledges in response to the growing demand for strong climate action from government and industry. In fact, almost 80% of the top 200 listed companies on the Australian share market now have some form of net-zero claim. 

With this comes a corresponding boom in companies greenwashing their climate credentials – in other words, using deceptive and misleading marketing tactics to improve their image and cover up continuing pollution and poor practices. 

The right of third parties to hold companies to account for making such misleading statements is crucial to the proper functioning of markets. Investors require accurate information about how the ongoing energy transition will impact companies’ future financial prospects so they can make informed investment decisions.  

Greenwashing distorts that information, preventing investors from properly assessing the extent of their exposure to financial risk.  

On 27 March 2024, the Government introduced into the House of Representatives the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. If enacted, Schedule 4 to the bill will establish a framework for a mandatory climate disclosure reporting regime in Australia.  

The EDO supports a robust climate-related reporting regime to ensure that disclosures are accurate, transparent and consistent across all companies that are required to report. This will provide investors with information they require to assess how climate-related risks and opportunities impact companies and has the potential to curb greenwashing at a time when it is prolific. 

However, the EDO notes that the bill differs from the Exposure Draft on climate-related financial disclosure in a number of ways, including by broadening the scope of the modified liability regime to include immunity from legal action by third parties, including investors, in relation to an entity’s transition plan. 

With confirmation that 2023 was the warmest year on record, the EDO is deeply concerned that the bill significantly strengthens entities’ protection from liability for greenwashing at a time when urgent climate action is critical.

Increased protection from liability in new version of the bill 

The previous exposure draft effectively provided companies with immunity from third-party action relating to misleading or deceptive statements made on scope 3 emissions and scenario analysis during the first three years of the disclosure regime.   

The exposure draft did not prevent third parties from taking action in relation to a company’s transition plan, meaning it would have been open to third parties, including investors, to take action against a company for making misleading statements in relation to its climate transition plan. 

Following a period of public consultation on the exposure draft, the Federal Government made two amendments which significantly broaden the scope of the immunity provisions: the inclusion of transition plans and any forward-looking statement made in a sustainability report during the first year of the regime. In doing so, the government has strengthened entities’ protection against liability for greenwashing. 

A transition plan is defined in the Australian Accounting Standards Board Exposure Draft ED SR1 Australian Sustainability Reporting Standards as an “entity’s targets, actions or resources for its transition towards a lower-carbon economy, including actions such as reducing its greenhouse gas emissions.” This includes statements about a company’s interim and long-term emissions reductions targets and a strategy on how it will meet those targets.  

The largest and highest-emitting companies are already disclosing climate transition plans. As at 31 March 2023, 78% of the ASX200’s collective market capitalisation had made a net zero commitment.1 These entities are already susceptible to action by third parties if their net zero commitments are not based on reasonable grounds, with ACCR’s greenwashing claim against Santos and Greenpeace’s claim against Woodside being Australian examples. In Europe, a group of NGOs have taken legal action against TotalEnergies alleging that it misled consumers because its claims to be aiming for net zero by 2050 are false. 

It is crucial that third parties retain the right to take legal action against entities for making misleading statements about their climate transition plans to ensure immediate accountability and  best-practice, science-based emissions reductions. 

The EDO’s submission to the Senate Economic Legislation Committee inquiry into the provisions of the Bill can be found here:  https://www.edo.org.au/publication/submission-to-the-senate-economic-legislation-committee-inquiry-into-the-provisions-of-the-treasury-laws-amendment-financial-market-infrastructure-and-other-measures-bill-2024/  

1 ACSI, ‘Promises, Pathways & Performance’: Climate Change Disclosure in the ASX200’ (August 2023), p8.