Climate reporting regime regulations pass lower house

Amendments to phase in new reporting obligations for climate-related financial disclosures passed through the lower house on Thursday, with some members raising concerns about the modified liability provisions.

Independent member for Wentworth, Allegra Spender said while the new reporting requirements are a positive and long-overdue reform, she is concerned about unintended consequences with the modified liability provisions.

Under the legislation, entities must report on matters including their scope 3 emissions, scenario analysis on the impact of climate change on their business and their transition plans, noted Spender.

“These are incredibly important disclosures. They may be challenging to put together in the first instance, but they go to the heart of the kind of transparency and accountability that this bill seeks to mandate,” she said.

“However, the government has inserted modified liability provisions into this bill, which means that no legal action can be brought against entities in relation to these disclosures for the first three years of the new regime.

“ASIC will still be able to bring actions against businesses for claims that are misleading or deceptive, but the right of third parties, including investors, to do this has been removed.”

Spender said this could weaken the legal checks and balances of the reporting and may undermine the policy intent of the new regime.

Large ASX listed companies such as the group 1 entities captured by the bill already have the resources to comply with the new requirements as many have already been making similar disclosures for some time, she noted.

Spender said she did, however, have sympathy for the medium-sized businesses such as the group 3 entities covered by the bill.

“As a former small-business person, running a small business myself, I don't underestimate the challenge of meeting new reporting requirements. When you're cash-strapped and short-staffed it won't always be easy to get your sustainability disclosures right the first time,” she said.

“When it comes to the modified liability provisions in this bill, it's a mixed bag. I think it's appropriate that companies, particularly those in group 3, have some protection in the early years.

However, Spender said she was also concerned that the provisions may make it easier for large fossil fuel companies to greenwash for the next three years and to claim that they're committed to net zero whilst investing in new fossil fuel projects.

“I’m hesitant about removing these protections entirely, so I urge the government to look at whether they have achieved the right balance between these two competing priorities as this bill moves forward,” she said.

Member for Warringah, Zali Steggall raised similar concerns around the potential for the modified liability provision to encourage potential greenwashing.

“The purpose of this bill is for accurate, comparable climate related reporting. The concern about the modified liability is that it would cause the misallocation of investment capital and compromise Australia's ability to reach its emissions reduction goal under the Paris Agreement,” said Steggall.

“Section 1707D of this bill is a modified liability provision that prevents third parties from initiating civil action for false and misleading statements for three years to 2028, effectively meaning they cannot be held accountable for commitments made. This will apply also to the reporting of scope 3 emissions, scenario analysis and transition plans, and forward-looking statements for 12 months.”

The bill allows only ASIC to launch civil action against an entity for false or misleading sustainability statements in the first three years from the start of reporting, she noted.

“That realistically opens a window in which entities could make false and misleading statements without facing the threat of legal repercussions from investors or affected individuals, thus undermining the credibility of the climate related disclosures by corporate entities,” she said.

“Relying solely on ASIC to enforce civil action in these periods after the start date of reporting means that only the most egregious examples of false or misleading statements made in these reports are likely to be pursued, if any at all.”

Independent member for Indi Helen Haines said while she ultimately supported the new reporting regime, it was critical that the government acknowledges the impact of these measures on the agricultural and primary production sectors.

“Although some farming businesses won't meet the thresholds for mandatory climate risk reporting, it's important to acknowledge that they are part of the supply chain for larger businesses that will,” said Haines.

“Emissions from the supply chain are known as scope 3 emissions, and scope 3 emissions reporting will require farmers to report on the emissions from production, including diesel and farm machinery in transport, fertiliser and even methane emissions from cattle.”

Haines noted that farmers are increasingly required to provide the emission profiles for insurance and banking and to identify opportunities for emissions reductions on their own farms.

“This may be the case, but I do hear farmers' concerns about meeting emissions reporting requirements. Many farms struggle to calculate and disclose their farm emissions. It's a relatively new part of farming practice. It can be costly, confusing and time-consuming,” she said.

“Many farmers I speak to across my electorate of Indi also tell me that they want to do their fair share in reducing our national emissions but they must be mindful about the expense to their livelihoods. They talk to me about the challenge in balancing these factors.”

Haines said she is advocating for federally funded agricultural extension officers which would work with farmers one-on-one to adopt the technology, products and farming practices that would help them calculate and then lower their emissions to achieve net zero.

“These extension officers would translate the science into practice, delivering the research on how to accurately measure soil carbon or what nutritional additives could be used to reduce methane emissions in livestock, for example,” she said.

Graham Perrett of the Labor party said the development of standardised and internationally aligned requirements reporting for climate-related risks would have many benefits for investors.

“It will enhance our attractiveness when it comes to international capital investors who are keen to support Australia's energy transformation,” said Perrett.

“The reporting requirements will be both comprehensive and ambitious. This is a key part of sustaining and growing Australia's solid reputation as a destination for international investment—and we need international investment to support our transition to net zero.”