Greens Senators' Additional Comments

1.1While the Australian Greens acknowledge that corporate climate reporting is long overdue, there are aspects of the regime that must be adjusted in order to ensure an enduring long-term framework is in place and that greenwashing is not legally encouraged.

1.2There are two accepted types of climate risks for companies. Transition risk, where companies are too slow to respond to the transition, with quickly changing markets and government policy leaving a company’s assets or business model stranded or severely impaired.

1.3The second is physical risk, which is the physical damage inflicted by natural disasters turbocharged by coal, oil and gas heating up our planet, so that a company’s assets or critical public infrastructure they use to get their goods or services to market is destroyed or rendered inoperable.

1.4Only one of these two risks is being guarded against and isn’t secured in primary legislation.

1.5The government’s policy statement says “entities should use at least two possible future scenarios and one of these scenarios must align with the most ambitious global temperature goal in the Climate Change Act 2022 (Cth) (i.e. limiting global warming to 1.5 degrees).”[1]

1.6This requirement forces the issue of transition risk to be considered by companies, but leaves confronting the physical impacts of climate damage on a company as a mere option.

1.7While limiting global warming to 1.5 degrees is the goal of existing legislation, the actions of this government having so far approved five new or expanded coal mines[2] and eight gas projects,[3] while also releasing 46 758 square kilometres of ocean for new oil and gas fields[4] means that physical risks are more likely to impact companies’ future profitability than transition risks.

1.8As the Investor Group on Climate Change’s submission stated:

Assessing the largest systemic risks from climate change should not be optional. The latest scenarios by a group of 127 central banks and financial supervisors estimate that even if warming is limited to 1.5°C, the costs of physical climate impacts to the global economy are (conservatively) five times higher than the cost of reducing emissions and around double the cost of other global events like COVID-19. Under current policies, economic costs of climate change are more than 10 times the cost of achieving 1.5°C emissions pathway

1.9Under the government’s proposal, entities will already be required to use at least two scenarios, so mandating higher warming scenarios in addition to the 1.5 degree scenario will not add any more regulatory burden than what the government has already proposed. However, this change will ensure that both transition and physical risks are being internalised by decision-makers in companies.

1.10This high and low scenario structure would align with the Aotearoa New Zealand Climate Standard 1 requirements, however they also require a discretionary third scenario.[5]

1.11This mandatory required warming scenario should still contain flexibility for the AASB to adapt the reporting framework as the severity in warming becomes more or less likely. A certain level of flexibility should also be available for entities to elect one of three scenario options for physical risk:

(1)The most current UNEP’s latest Emissions Gap report (which calculates where current global targets and policies have the world heading towards, currently a terrifying 2.5 -2.9 degrees this century); or

(2)The most current IPCC report on the physical risks to Australia for current policy or high warming scenarios; or

(3)Scenarios of 3 degrees or more of warming

1.12Finally, the requirements for scenario planning should be set in legislation and not just implemented through a government instruction for the Australian Accounting Standards Board. Reversing these instructions that created these warming scenario requirements will be the obvious first act of a hostile future Liberal Government in pursuit of ‘cutting red tape’.

1.13The obligations of scenario analysis should be stipulated in legislation and should require companies to use at least two possible future scenarios and two of those scenarios must be set against a low (1.5 degree) and a high (>2.5 degree) warming scenario.

1.14The Bill is providing entities with a three year immunity from civil actions over matters that relate to a company’s scope 3 emissions reporting, future scenario planning or transition plans.

1.15Only ASIC will be able to institute proceedings, during this period, so shareholders or members of the public with legal standing are only able to plead with ASIC to commence proceedings on their behalf when companies make misleading public statements relating to scope 3 profiles or scenario and transition planning.

1.16While these three areas are novel for companies to report on, and by their nature, inherently involve some uncertainty when first commencing, the modified liability is an overreach in both scope and duration in order to achieve the policy objectives of transitional arrangements.

1.17KPMG’s submission to the government consultation noted that 90% of ASX100 companies recognise climate as a financial risk while 74% are already reporting against the Task Force on Climate-Related Financial Disclosures (TCFD) framework.[6]

1.18Group 1 entities are already the best prepared to comply with this new framework, most are already doing it and yet they will receive the longest time period of immunity from their concerned investors. Conversely, Group 3 entities are the least equipped and get the shortest time period for immunity.

1.19The public interest in preventing greenwashing is greatest when it involves companies with the highest capitalisation, the largest market power, and the greatest advertising reach into Australian society.

1.20The current structure of the immunity benefits the largest companies (those in Group 1) will enjoy three and a half years of modified liabilities while the smallest companies in Group 3, with relatively less capacity will only receive one year.

1.21The modified liability should be spread out amongst the three groups to run for one, or at most two years from entry of that group so as not disproportionately benefit the biggest companies at the expense of smaller ones. ASIC should be given additional resources to prepare any necessary legal proceedings during this modified liability period.

1.22Similarly, the restrictions on the types of actions that can be instituted is disproportionate to the public policy objective of transitioning these reporting obligations in, which could encourage intentionally misleading greenwashing statements until 2029.

1.23As Equity Generation Lawyers submitted:

Extending the immunity to more serious misconduct such as negligent misstatement, breach of statutory duty, and breach of fiduciary duties provides an unreasonable safe harbour from private litigation that does not fulfil the goals of promoting investor confidence or improving Australia’s reputation. Similarly, immunity for alleged breaches of directors’ duties is not appropriate. Private parties - in this case shareholders - are required to seek leave from the Court under s 237 of the Corporations Act for private actions on directors’ duties. Significant thresholds must be overcome and private actions of this type are rare

1.24And as the Environment Defenders Office added:

The “reasonable grounds” requirements in the Corporations Act, the ACL and the ASIC Act are appropriate and sufficiently flexible to accommodate any uncertainties or assumptions that may be inherent in transition plans. Under those provisions, where a representation is made about a “future matter” – a disclosure about a net zero plan being an example – it is taken to be misleading unless the person making it had “reasonable grounds” for doing so.

Where an entity has disclosed any assumptions, methodologies or uncertainties, the assessment of whether the disclosure was made on “reasonable grounds” will take those into account. Crucially, a forward-looking statement is not misleading merely because it later turns out to be wrong. As long as entities are adequately disclosing the assumptions, methodologies and uncertainties that underpin their disclosures, and had a reasonable basis for making those assumptions, the risk of being found liable for forward-looking statements should be minimal.

1.25The compromise proposal in the submission of Equity Generation Lawyers to restrict the proposed immunity to misleading and deceptive conduct that results in loss and damage is a sensible one. This cause of action seeking damages as this is one of the easier causes to instigate and carries the largest financial consequences for affected companies.

1.26The modified liability provisions be reduced so that they only cover misleading and deceptive conduct seeking loss or damage.

1.27Finally, while the Australian Greens support the proposed framework for the crisis management regime in schedules 1-3 of the Bill, the proposal to weaken Ministerial approval powers over ownership of ASX Limited is not sufficiently justified.

1.28The ASX is public infrastructure that - like much of Australian public infrastructure and institutions - should never have been privatised.

1.29There was no compelling public policy rationale provided by the Government as to why the threshold for Ministerial approval should be lifted from 15% to 20% ownership in section 850B of the Corporations Act 2001. In the absence of any clear argument for further weakening of government oversight, the existing regime should remain in place.

1.30In the absence of any compelling justification from the Government, Part 4 of Schedule 2 that lifts the ownership threshold from 15% to 20% voting power in ASX Limited in order to require Ministerial approval should be removed from the Bill.

Senator Nick McKim

Greens Senator for Tasmania

Footnotes

[1]https://treasury.gov.au/sites/default/files/2024-01/c2024-466491-policy-state.pdf.

[2]Lake Vermont, Isaac River, Star Coal Mine, Ensham Coal Mine and Gregory Crinum.

[3]Spartan Gas Project, Wheatstone and Lago gas field, Beach Energy’s Otway gas, Towrie Arcadia CSG project, Dorado, Scarborough, Crux and Barossa Pipeline.

[4]www.minister.industry.gov.au/ministers/king/speeches/speech-nt-resources-week-conference.

[5]Clause 13 www.xrb.govt.nz/dmsdocument/4770.

[6]Page 4 https://treasury.gov.au/sites/default/files/2023-04/c2022-314397-kpmg.pdf