With a regulatory focus on applying existing laws to unsubstantiated ‘green’ quality claims, and proposed legislation to introduce mandatory reporting requirements in respect of climate related risks and opportunities, now is the time to review the evidence in place to support quality claims, and the systems and procedures which will be required to make a compliant report.

By: Monique Carroll and Jazmine Rosart of Cite Legal and Gabrielle Guthrie of Guthrie Legal


ESG (environmental, social and governance) regulation has been steadily growing in recent years.  In 2023, we saw a marked shift in sustainability-related regulatory enforcement by Australian Federal regulators including the Australian Securities & Investments Commission (ASIC) and the Australian Competition & Consumer Commission (ACCC). In 2024, new legislation is proposed to commence. This legislation will require mandatory reporting of climate-related risks for corporations meeting particular thresholds.

The new and emerging body of ESG legal requirements and risks means that corporations of all sizes need to urgently revisit (or introduce as necessary) legal compliance and governance systems specific to ESG. This may mean building out or integrating ESG within your existing environmental management system (EMS) or supplementing your legal risk management systems and documentation such as legal obligations and corporate risk registers to ensure compliance with legal requirements.

Experience advising clients with other recent changes, such as the introduction of modern slavery compliance procedures and reporting, shows that implementation of new compliance risk management is a time-consuming and complex task, often benefiting from experienced input. There is a runway for compliance ahead. Clients should take action before 1 July 2024 when the new regulation is scheduled to take-off. 

Existing and emerging ESG compliance requirements and risks

Depending on size and sector, there are a raft of potentially applicable ESG requirements impacting Australian business. Many entities will be subject to environmental, workplace and health and safety obligations. Additionally, there are changing regulatory pressures together with emerging regulations. In particular:

  1. Making statements and market disclosures about products and services. For example, greenwashing is a ‘misrepresentation of the extent to which a product, service, investment or initiative is environmentally or climate friendly, sustainable or ethical’.1   Since 2023 the ACCC and ASIC have been focussing on enforcement of existing laws which prohibit greenwashing;  and
  2. Climate-related financial disclosures and their impacts on supply chain. On 12 January 2024 the Australian Government released exposure draft legislation for climate-related financial disclosure. The legislation proposes to amend parts of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and Corporations Act 2001 (Cth) (Corporations Act) to introduce mandatory disclosure requirements on climate-related risks and opportunities for entities who are required to lodge general purpose financial statements under Chapter 2M of the Corporations Act, and which meet certain size thresholds, as well as any ‘Controlling Corporations’ that report under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act).

This article provides an overview of these two areas as well as some tips for clients to consider in developing their legal compliance and governance strategy for managing ESG regulation and risk.

Statements and market disclosures – Greenwashing & misleading and deceptive conduct

A 2023 ACCC survey found that of 247 businesses or brands surveyed across eight sectors of the Australian economy, ‘57% had promoted “concerning claims about their environmental credentials”’.2  This, and the current ASIC and ACCC enforcement focus on sustainability claims should be of concern because it indicates that there is significant scope for enforcement of the existing prohibitions against misleading and deceptive statements and conduct in respect of ‘green’ or ESG quality claims. If the product is a financial product, product disclosure obligations would also be breached if the suitability of the product and its characteristics are mis-represented.

A non-exhaustive overview of the existing legal requirements follows.

  • Misleading and deceptive conduct: Sections 1041E, 1041G and 1041H of the Corporations Act and sections 12DA and 12DB of the ASIC Act prohibit conduct which is misleading or deceptive, in relation to a financial product or service. It may also constitute a contravention of the Australian Consumer Law (ACL) prohibitions against misleading and deceptive conduct (s18), false or misleading statements about goods or services (s29), or misleading conduct as to the nature of goods (s33) or services (s34).
  • Representations about future matters: for example achieving net zero carbon emissions by a certain date, may be found to be misleading under s796C of the Corporations Act and/or s12BB of the ASIC Act if there are not reasonable grounds for making the representation.  Reasonable grounds would include the implementation and oversight of a recognised system aimed at the entity achieving ‘net zero’ status, which fairly and accurately accounts for carbon off-sets or credits.3  Similarly, bare statements about the existence of a particular state of affairs (such as a product being ‘green’, ‘eco friendly’, or ‘sustainable’) will produce an implied representation that there is a reasonable basis for the belief that the product or service meets the quality description.
  • Product Disclosure Statements (PDS) must be provided when offering a financial product and must include particular information. For financial products with an investment component, the PDS must include information as to the extent to which labour standards or environmental, social or ethical considerations are taken into account in selecting, retaining or realising an investment.4 Any misleading or false statement made in the PDS could form the basis for a contravention of the existing laws.
  • Materiality of ESG matters in financial reporting: entities required to prepare financial reports under Chapter 2M of the Corporations Act must ensure that those statements give a true and fair view of the financial position and performance of the company. Directors are required to declare that the financial statements and reports comply with the accounting standards and are true and correct.
  • Financial reports must contain all material information. The Australian Accounting Standards Board (AASB) sets the Accounting Standards relevant for financial reporting. AASB 101 ‘Presentation of Financial Statements’ defines ‘material’ as, ‘Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity’. Increased demand for sustainability-related financial products in the  Australian market indicates that sustainability is a significant factor in many investment decisions. Any information on a product’s sustainability or ESG factors could materially contribute to an individual’s assessment of the suitability of the product for them. Therefore, any greenwashing of those factors, being a distortion of the relevant information about the qualities of the investment product upon which investors rely in choosing to invest, is likely to result in a material misstatement in the provider’s financial reports.
  • National Greenhouse and Energy: The National Greenhouse and Energy Reporting scheme, established by the NGER Act is a national framework for reporting and disseminating company information about greenhouse gas emissions. The data reported through the scheme is used to prepare Australia’s reports on greenhouse gas emissions as required by the UN Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement, and to inform policy development. Corporate groups which produce either 50kt or more of greenhouse gases or 200 TJ or more of energy, or consume 200 TJ or more of energy must register and report all greenhouse gas emissions, energy production and energy consumption of the registered controlling corporation or members of its group. Corporations who fail to register after meeting a threshold (s12), fail to provide a compliant report (ss 19, 21(4), 21A(2)), or fail to comply with record-keeping requirements (ss 22, 22H, 22XA) may be subject to civil penalties.
  • Environmental reporting – under State and Territory environmental laws, licensed entities are required to submit an Annual Return (or Permissions Information and Performance Statement (PIPS) in Victoria) attesting to various matters including compliance with emissions limits. There are also schemes for the reporting of pollution incidents and material contamination. At the Federal-level, there is a national pollution inventory reporting scheme, as well as notification requirements under Australia’s Industrial Chemicals Introduction Scheme. 

Given the raft of potentially applicable legislation, a failure to systematically verify market and regulatory disclosures with substantiating information (i.e. to exercise due diligence) or to align reporting requirements (often handled by different business divisions) presents a real legal risk of inaccurate or incomplete statements being made.

Since February 2023 ASIC has brought at least three separate actions against corporations accused of greenwashing. The proceedings allege that superannuation and investment funds have made false or misleading claims of environmental sustainability and other ESG matters.

Case examples - ASIC’s focus on greenwashing 

The first case, brought against Mercer Superannuation (Australia) Ltd (Mercer) was heard, by the Federal Court on 7 December 2023. ASIC alleged that from at least 23 January 2022 to at least 18 November 2022 Mercer contravened the ASIC Act by making false or misleading representations on its website that funds invested in Mercer’s ‘Sustainable Plus’ investment options were not invested in or deriving profit from, ‘the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels’, when they were so invested and deriving profit. ASIC sought pecuniary penalties from Mercer in respect of alleged misleading representations in contravention of s12DB(1)(a) and/or s12DF(1) of the ASIC Act.

ASIC has also initiated proceedings against Vanguard Investments Australia Ltd and LGSS Pty Ltd (Active Super) claiming that both entities engaged in misleading and deceptive conduct in relation to representations made about ESG matters. Declarations and pecuniary penalties are sought in both cases. In respect of Vanguard, ASIC alleges that despite statements made to the public that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were screened against certain ESG criteria, ESG research was not conducted over a significant proportion of issuers of bonds in the Index, and Vanguard exposed investors to investments with ties to fossil fuel and gas exploration activities. ASIC alleges that Vanguard made mis-representations by statements including that the fund, ‘will offer investors access to broadly diversified international equities and international fixed income exposures that exclude fossil fuel reserves, alcohol, tobacco, gambling, weapons, nuclear power and adult entertainment’, and that, ‘We understand that some investors want products that allow them to achieve their investment objectives while also investing in line with their values. We are pleased to be offering ESG equities and fixed income funds that meet this need while maintaining the hallmarks of Vanguard funds, low cost and broad diversification’.5

The case against Active Super focuses on representations on their website that they had eliminated investments which posed too great a risk to the environment and community, including tobacco manufacturing, oil tar sands and gambling. ASIC alleges that Active Super held 28 holdings which exposed members to securities in those restricted industries. Further, in February 2022 at the beginning of the Russian invasion into Ukraine, Active Super made representations that it would halt investments in Russian companies, but these investments remained at 30 June 2023.

Other sustainability litigation to watch

In an active case filed in the Federal Court in 2021, the Australian Centre for Corporate Responsibility (ACCR) alleges that Santos Ltd, Australia’s leading supplier of natural gas, has breached s1041 of the Corporations Act and sections 18 and 33 of the ACL. The ACCR alleges that by its Net Zero plan in its 2020 Annual Report, 2020 Investor Day Briefing, and 2021 Climate Change Report, Santos has made misleading representations to investors and the public about its plans to achieve net zero emissions by 2040 and to produce zero-emissions blue hydrogen.

Climate-related financial disclosures and their impacts on supply chain disclosures

Major changes are planned for 2024. These changes follow recommendations of a global taskforce on climate related financial disclosures.

Here is an overview of what has happened to date.

  • Since December 2021 ASIC has endorsed the recommendations made by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and has encouraged voluntary disclosure within that framework. The framework recommends that businesses who choose to make voluntary climate-related financial disclosures address: their governance around climate-related risks and opportunities, the actual and potential impacts of those risks on the organisation, including their strategy and financial planning, the process used to identify and assess those risks, and the metrics and targets used to assess and manage those risks and opportunities.
  • In June 2023, the International Sustainability Standards Board (ISSB) issued the first International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards which set out new requirements for sustainability-related (IFRS S1) and climate-related (IFRS S2) financial disclosure. They are based on the recommendations of the TCFD. The IFRS Sustainability Disclosure Standards are effective from 1 January 2024, though it will be up to local jurisdictions to enforce these or adopted versions of the standards on their own timeline. IFRS S1 requires that companies disclose any sustainability-related risks and opportunities which are material, in that they could reasonably be expected to influence decisions by investors. IFRS S2 requires that companies disclose information about climate-related risks and opportunities which may be material. Disclosure requirements include information on how the organisation has responded and plans to respond to climate risks, how it plans to achieve its climate targets, effects of climate-related risks and opportunities on financial performance and cash flow, measurements of greenhouse gas emissions, and any quantitative and qualitative data on climate targets.  The Commonwealth Government has endorsed the adoption of the ISSB standards with appropriate modifications for Australia.
  • On 23 October 2023 the AASB released ‘Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information’, which proposes climate-related financial disclosure requirements by substantially adopting the IFRS standards. The Draft (ED SR1) is open for comment until 1 March 2024. ED SR1 includes three draft Australian Sustainability Reporting Standards (ASRS Standards).
    1. ASRS 1 General Requirements for Disclosure of Climate-related Financial Information is based on IFRS S1 but limited to climate-related financial disclosure. It includes the ‘core pillar’ disclosure requirements of governance, strategy, and risk management in respect of climate related risks and opportunities6;
    2. ASRS 2 Climate-related Financial Disclosures is based on IFRS S2. It requires detailed disclosures relating to the core pillars above;
    3. ASRS 101 References in Australian Sustainability Reporting Standards was ‘developed as a service standard that would be updated periodically to list the relevant versions of any non-legislative documents published in Australia and foreign documents that are referenced in ASRS Standards’.7  ASRS 101 will act as an up-to-date formal list of all external documents referred to in the ASRS Standards. For each external reference in the ASRS Standards, ASRS 101 indicates which precise document is being referred to.

New regulation planned for July 2024

On 12 January 2024, the Australian Government released exposure draft legislation for climate-related financial disclosure. The draft legislation proposes amendments to the Corporations Act to introduce mandatory disclosure requirements so that ‘Reporting entities’ will be required to disclose all material climate-related financial information. In particular:

  1. Material climate related risks and opportunities faced by the entity as assessed in accordance with the legislated sustainability standards;
  2. Metrics and targets used to assess performance in relation to those risks as well as in achieving any set targets, including metrics and targets relating to scope 1, 2, and 3 emissions of greenhouse gas8  which include carbon off-sets or credits;
  3. Governance structures in place to monitor and manage climate-related financial risks and opportunities;
  4. The quantity of scope 3 emissions for the financial year or other specified period (does not apply to the first year an entity is required to report).

A reporting entity will be an entity which is required to lodge general purpose financial statements under Chapter 2M of the Corporations Act which meets any two of the following thresholds:

  1. The consolidated revenue for the financial year of the entity and the entities it controls is of an amount prescribed by regulation, or $50 million or more;
  2. The value of consolidated assets at the end of the financial year of the entity and the entities it controls is $25 million or more;
  3. The entity and the entities it controls have at the end of the financial year, the number of employees prescribed by legislation, or 100 employees.

Any ‘Controlling Corporations’ that report under NGER Act regardless of size will also be required to report.

The proposed disclosure requirements would take effect on entities required to produce financial statements under the Corporations Act, depending on their size, as follows10:

  1. if the entity meets any two of the following criteria: over 500 employees, consolidated gross assets of $1 billion or more, consolidated revenue of $500 million or more, it will be required to report for the financial year beginning 1 July 2024;
  2. if the entity meets any two of the following criteria: 250 employees, consolidated gross assets of $500 million, consolidated revenue of $200 million, it would begin reporting in respect of the financial year beginning 1 July 2026;
  3. if the entity meets any two of the following criteria: over 100 employees, consolidated gross assets of $25 million, consolidated revenue of $50 million, would begin reporting from the financial year beginning 1 July 2027.

Climate related financial disclosure will be part of a sustainability report. Sustainability standards, encapsulating the AASB Sustainability Standards, would be inserted into the ASIC Act. These standards will determine how climate risks and opportunities are to be identified, measured and reported, so as to comply with the reporting requirements in the Corporations Act.

Like other financial reports, if enacted, directors will be required to declare that the sustainability report statements are in accordance with the Corporations Act, and all records supporting the report must be kept for seven years. Sustainability records include documents and working papers required to explain the methods, assumptions and evidence used to produce climate statements, related notes, and any other required statements.11

Under the proposed new sections of the Corporations Act it would be an offence not to:

  • keep sustainability records (s286A);
  • provide sufficient information about where sustainability records are kept if they are kept outside Australia (s289A);
  • make the report publicly available if not otherwise required to provide the report to members (s316B);
  • comply with a direction from ASIC to confirm or explain a statement in a sustainability report which ASIC considers incorrect, incomplete, or misleading in any way (s1705C).

Climate disclosures will also be subject to the existing liability framework under the Corporations Act and ASIC Act including director’s duties, misleading and deceptive conduct provisions, and general disclosure obligations.12  Section 137 of the Criminal Code Act 1995 would also apply, which makes it a criminal offence, punishable by imprisonment, to knowingly give false or misleading information which is required to be given under a law of the Commonwealth.

Explanatory materials for the exposure draft provide that liability for misleading and deceptive conduct in relation to scope 3 emissions (being emissions which are indirectly produced in the supply chain of a company), and other climate-related forward looking statements will be limited for the first three reporting years. In that time, only ASIC will be able to take action for misleading and deceptive conduct in relation to these types of disclosures, and the remedies available to it will be limited to injunctions and declarations. The liability restriction is aimed at addressing concerns over the existing liability framework’s application to forward looking statements which have inherent uncertainty, and is intended to provide, in part, a safer lead-up time for entities and their directors, in the context of a significant change in reporting requirements.13

Your next steps – priority considerations

  1. The proposed mandatory reporting amendments would introduce new significant reporting requirements on climate risk and opportunities. Entities should consider making a submission as to the suitability of the AASB sustainability reporting standards.
  2. Directors should ensure they understand the proposed regime and the steps required to prepare the mandatory reports, including in respect of scope 3 emissions.
  3. All entities which expect to be required to report based on the end of financial year criteria should conduct an assessment of climate change risks and opportunities and the nature of the reporting which will be required in respect of both. This assessment should commence as soon as possible. Experience gained from the introduction of the modern slavery reporting requirement shows that there can be substantial lead time in entities establishing the procedures required to meet the new reporting requirements.
  4. Entities should also consider whether the mandatory reporting requirement is likely to raise concerns as to disclosure of commercially sensitive information regarding business strategies and ‘opportunities’ to the public. If so, seek advice as to how this type of disclosure can be managed.
  5. For entities who will not be required to report, the focus on greenwashing from ASIC and the ACCC and the rise of climate related litigation is an important reminder to ensure statements made about the qualities of a product or service accurately reflect those products, including the risk management and quality control systems and procedures in place. At a minimum, those offering sustainability or climate-related products should undertake a review to assess the extent to which the sustainability and climate-related terminology is clearly defined in any description or promotion of the material and ensure that any sustainability related claims are supported by documented evidence.  In addition, whilst you may not be in the first wave of corporations required to report (or indeed at all), it is highly likely that in coming months and years, other entities in your supply chains may require disclosures by you as part of ordinary commercial agreements (to enable those larger entities to themselves comply). Contracts are an important source of law and non-compliance can have a material impact on business. Being alert to ESG obligations in contract reviews and renewals will be important in 2024.
  6. With climate related litigation on the rise,14  entities should also be aware that a failure to comply with mandatory disclosure obligations, including identification of material information in financial statements or reports made to a regulator or investor can result in serious penalties and claims for damages.
  7. Ensure your whistleblower policies, procedures and training are updated to reflect the new offences under the Corporations Act which would be introduced by the new legislation.

How we can assist

Cite Legal offers market leading legal services in respect of compliance risk management, investigations and litigation. This includes preparing procedures and documentation required for compliance with modern slavery, whistleblowing, anti-bribery and corruption and other legal risk mitigation, as well as, investigating and advising in respect of any suspected non-compliance.

Guthrie Legal is a specialist environment and planning law practice which advises Australian corporate clients on legal compliance, governance and risk.

Together we offer unique expertise in respect of ESG and climate-related risk and dispute resolution.

Please contact Monique or Gabrielle if you would like to discuss our services with respect to:

  • the application of existing and proposed legal requirements to your entity;
  • strategic advice on developing legal compliance and governance systems to manage ESG risk and gap analysis of existing management systems;
  • making a submission on the draft sustainability standards;
  • the adequacy of evidence to support market statements and disclosures involving sustainability matters;
  • the systems, procedures and sustainability documentation required to support sustainability and other environmental reporting; 
  • training on legal obligations and risk; and
  • director, officer and corporate liability.

Monique Carroll
Director, Cite Legal
+ 61 9070 9836

Gabrielle Guthrie
Principal, Guthrie Legal
+61 450 266 779

Liability limited by a scheme approved under Professional Standards Legislation.


This article is aimed to be high-level, practical and thought-provoking. It is not a detailed description of environmental law in Australia. You should always seek independent legal or other professional advice on specific cases and before acting or relying on any of the content. All the information in this article and on this website and any downloads are intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice or establish a lawyer - client relationship. Whilst we have sought to ensure that the content is current, none of Gabrielle Guthrie, Guthrie Legal, Cite Legal or any of its representatives guarantee its currency. Copyright 2024

1  Senate Environment and Communications References Committee – Greenwashing paper p.6 
2  https://www.theguardian.com/australia-news/2023/mar/01/accc-to-crack-down-on-greenwashing-after-survey-reveals-spike-in-misleading-claims 
3  There is no current standardised form of this accounting and therefore it is of increased vulnerability to greenwashing.
4  Section s1013D(1)(l) of the Corporations Act.
5  Statement of Claim in at Schedule 3 p.35.
6  Appendix A Defined Terms for ASRS 1 - ‘Climate-related opportunities refers to the potential positive effects arising from climate change for an entity. Efforts to mitigate and adapt to climate change can produce climate-related opportunities for an entity’.
7  ‘Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information’ https://aasb.gov.au/news/exposure-draft-ed-sr1-australian-sustainability-reporting-standards-disclosure-of-climate-related-financial-information/ 
8 Section 3 of the exposure draft adopts the definition in the “Corporate Value Chain (Scope 3) Accounting and Reporting Standard, published by the World Business Council for Sustainable Development and the World Resources Institute, being ‘All indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions’. 
9  A controlling corporation is a ‘constitutional corporation that does not have a holding company incorporated in Australia’ (NGER Act s7); ‘It is generally the corporation at the top of the corporate hierarchy in Australia. It can be a ‘non-operational’ holding company. It may also be a foreign incorporated entity that operates directly in Australia (that is, does not operate through an Australian incorporated subsidiary. See Australian Government Clean Energy Regulator, ‘Registration as a controlling corporation for National Greenhouse and Energy Reporting’, p.4-5.
10  By comparison, entities required to report under the Modern Slavery Act 2018 (Cth) are those who carry on business in Australia and have an annual consolidated revenue of $100 million or over. Entities required to have a whistleblower policy compliant with the Corporations Act are: public companies, large proprietary companies and proprietary companies that are trustees of registrable superannuation entities. Large proprietary companies are companies who themselves or through any entities they control have at least two of the following: consolidated revenue of $50 million or more for the financial year, consolidated gross assets of $25 million or more, 100 or more employees.  
11   Exposure Draft, 'Treasury Laws Amendment Bill 2024: Climate-related financial disclosure’, p. 3, addition to section 9 Corporations Act 2001 (Cth), definition of ‘sustainability records’.
12  Policy statement, ‘Mandatory climate-related financial disclosures’, p.4.
13  Treasury Laws Amendment Bill 2024: Climate-related Financial Disclosure, [1.115]; Policy statement, ‘Mandatory climate-related financial disclosures’, p.4; Policy impact analysis, ‘Climate-related financial disclosures’ p.29. 
14  For example, in August 2023 the Australian government agreed to settle Kathleen O’Donnell v Commonwealth of Australia, a class action brought against it for misleading and deceptive conduct. It was alleged that by failing to disclosure climate-change related risks to investors in sovereign bonds, it failed to disclose a material factor which may have an impact on the value of the financial product. The settlement required the government to acknowledge that climate change is a systemic risk to the economy and may affect the value of its bonds. No damages were sought in the action.