After one year in circulation, the Climate Governance Initiative newsletter will be known as Climate in Focus going forward. This month we cover increasing allegations of ‘green hushing’ (as distinct to greenwashing), the recently passed reforms to the Safeguard Mechanism, and what the latest UN Intergovernmental Panel on Climate Change (IPCC) report means for board directors.
And please save the date of Friday 11 August for the 2023 Climate Governance Forum, hosted by the AICD. Following on from the success of the inaugural event in 2022, which saw around 1400 directors and senior leaders attend, this year’s event will be held at the Hilton Sydney and feature key director, regulator, and stakeholder voices. Program details to follow. Please register here to not miss out.
Upcoming webinar –
Tune in to Pollination’s Zoe Whitton, Managing Director, Head of Impact, and a panel of experienced directors, Michael Ullmer AO, Chair of Lendlease, and Geoff Summerhayes GAICD, Chair of Zurich Insurance, as they discuss practical steps, share real life experiences and address the complexities encountered by many organisations when adapting to climate change.
The webinar covers:
- Why addressing climate adaptation is vital for the board;
- How to integrate climate adaptation into strategy and build competitive advantage;
- Case studies from organisations.
Increasing allegations of “green hushing”
Consistent with a global trend, increasingly Australian organisations are being accused of going quiet on their public commitments to climate action, amidst increased regulatory scrutiny on alleged greenwashing by the Australian Securities & Investments Commission (ASIC) & the Australian Competition and Consumer Commission (ACCC). The concept of organisations limiting or withdrawing their climate disclosures due to regulatory or reputational risk is known as “green hushing”, and is the flip side of the greenwashing debate where organisations are accused of actively misleading or exaggerating their green credentials in public statements.
Climate activist group Market Forces has noted that Australian superannuation funds are removing climate action commitments in recent months. Additionally, the Senate agreed to establish an inquiry into greenwashing (Chaired by Greens Senator, Sarah Hanson-Young), particularly “claims made by companies, the impact of these claims on consumers, regulatory examples, advertising standards, and legislative options to protect consumers” with a report due by 5 December 2023.
On the international stage, the European Commission last month unveiled the proposed “Directive on Green Claims,” a new set of rules requiring companies to substantiate and verify their environmental claims and labels, aimed at protecting consumers from greenwashing. According to the Commission, at least 232 different green labels are currently in use, leading to consumer confusion and distrust.
In Australia, similar work is taking place at an industry level through the Australian Sustainable Finance Institute (ASFI) Taxonomy Project. ASFI is working closely with the Federal Government, to develop an Australian sustainable finance taxonomy that can provide clarity for financial institutions on the appropriate use of sustainability related terminology. This is widely seen as important to addressing greenwashing risks as the lack of a market agreed framework creates greater opportunities for investors and other stakeholders to be potentially misled.
Check out our recorded webinar (in collaboration with CGI Australia partner, MinterEllison) on greenwashing for practical steps for how boards can reduce legal and reputational exposures.
Safeguard Mechanism reforms legislated
On 30 March 2023, the Parliament passed the Federal Government’s reforms to the Safeguard Mechanism following a Labor-Greens deal. The Safeguard Mechanism requires facilities that produce over 100,000 tonnes of greenhouse gases annually (around 215 facilities, accounting for 28% of national emissions) to keep their net emissions below a baseline (or ceiling).
In a media release, the Minister for Climate Change and Energy, the Hon. Chris Bowen MP said, “these crucial reforms will reduce 205 million tonnes of greenhouse gas emissions to 2030 – equivalent of taking two-thirds of the nation’s cars off the road”. The Greens said they had negotiated the inclusion of “a hard cap on actual or absolute (gross) emissions which won’t be able to exceed current pollution levels (140 MT per annum), and there will be a decreasing cap over time”. The reforms include:
- A requirement for corporations to justify their use of offsets if they use them for more than 30% of their baseline – cost and availability of technology have been cited as justifications;
- A requirement for all new gas fields for LNG export to be net zero CO2 from day one;
- A pollution trigger that will require the Minister to test a new or expanded project’s impact on the hard cap and net carbon Budgets; and
- A review by the Climate Change Authority in 2026-27 to look at the use of offsets and implement measures to restrict its use if on-site abatement is not satisfactory.
Further details will emerge in the Safeguard Rules set to be finalised ahead of the scheme taking force from 1 July 2023.
Directors should be asking management to:
- Explore the impact of the Safeguard Mechanism reforms on existing facilities and project proposals;
- Consider opportunities to abate emissions to contribute towards safeguard compliance, noting the need to justify more than 30% of emissions reductions being achieved by carbon offsets; and
- Develop offset acquisition and/or generation strategies to underpin compliance when the ratchet down mechanism commences.
Other climate governance news
- “Final draft version of TNFD beta framework released before publication in September” (Clayton Utz) – The fourth and final version of the Taskforce on Nature-based Financial Disclosure (TNFD) beta framework has been released. It includes examples of sector guidance and details of how TNFD will align with Taskforce on Climate Related Financial Disclosure (TCFD) disclosures including reporting of nature related impacts (including financing) along the value chain. Consultation closes 1 June 2023. Final version to be released in September 2023. Look out for an in-depth analysis of the final TNFD beta framework from AICD in future Climate in Focus editions.
- “The business of nature: emerging expectations on directors to manage nature-related risk” (Chapman Tripp) – In New Zealand, a new legal opinion for The Aotearoa Circle advises that prudent directors and businesses should be starting on the path to identify, assess and manage nature-related risks, particularly if they depend on the environment for their business model.
- “Etihad accused of misleading customers with greenwashing in ‘net zero’ ads” (The Guardian) – Aviation emissions advocacy group Flight Free Australia claimed Etihad had no credible path to net zero emissions by 2050. It said it was not “technologically, practically, or economically feasible” to reach net zero via current aviation initiatives and that marketing services undermined market integrity and compromised efforts to limit global warming.
- “Santos warns Australia is ‘falling behind’ in drive to bury emissions” (SMH) – At the 2023 Santos AGM, CEO Kevin Gallagher said driving carbon capture and storage projects (e.g. to lower the carbon footprint of the Barossa offshore gas project) was more important than ever as major polluters prepare to face stricter emissions limits under the government’s Safeguard Mechanism reforms from July. Climate-activist group, Market Forces, said shareholders had delivered a “significant rebuke” at Santos’ meeting, with 10% of investors voting against all three directors standing for re-election. However, the Santos board also avoided a “second strike” with the support of the main four proxy advisers.
- “Traditional owners ask banks to reconsider Santos loan” (The New Daily) – Activist group, Equity Generation Lawyers announced that it had filed a 39-page complaint on behalf of seven Traditional Owners who have asked a dozen Australian and international banks to reconsider a $US1 billion loan to Santos for its Barossa offshore gas project and a Darwin LNG project.
- “Big polluters among group calling for more ambitious climate goal” (SMH) – The Australian Industry Energy Transitions Initiative, whose partners represent around a fifth of Australia’s industrial emissions and a third of the ASX100 market value, issued a statement saying “Urgent action is required to work towards reducing greenhouse gas emissions consistent with global efforts to limit warming to 1.5 degrees.” This coalition includes some of the nation’s largest mining and energy companies, peak bodies, and industry superannuation funds.
Catch up on CGI International resources
- What does the latest IPCC report mean for board directors? – CGI has released its analysis on the latest UN Intergovernmental Panel on Climate Change (IPCC) Synthesis Report of the Sixth Assessment Report (AR6) report and developed key recommendations for board directors leading their businesses through climate transition. The report recommends directors consider:
- Assessing and disclosing climate-related risks and opportunities;
- Embedding climate change into decision-making processes;
- Moving away from fossil fuel dependency;
- Collaborating with national and international climate actors;
- Capitalising on the low-carbon transition and support climate finance; and
- Supporting and advocating for effective climate policies.
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