ESG is set to remain at the top of the corporate agenda 10 min read
ESG has become a significant focus for business — both as a key risk and/or opportunity to drive value and growth. With a new Labor Government, ESG is set to remain at the top of the corporate agenda, given a suite of proposed policies that would reframe how businesses grapple with ESG considerations.
In this Insight, we provide a snapshot of the Labor Government's roadmap on ESG, and actions businesses can take now to prepare.
The progressive Labor Government is armed with bold policies and legislative commitments directed at elevating each pillar of ESG, including proposed reforms on climate change, gender equality, Indigenous rights, modern slavery and eliminating corruption in government.
- (Environment) Climate change is on the agenda: as Australia prepares to transition from coal to renewable energy sources, the Government will be focussed on companies' emission targets (with plans to set stricter caps) and mandatory disclosure of climate change risks and opportunities.
- (Social) Gender equality and modern slavery are top of the list: reporting entities can expect changes to the modern slavery regime. There are also reforms proposed to increase remuneration transparency and promote diversity and inclusion.
- (Governance) A Federal anti-corruption commission with 'teeth' is coming: Labor has long argued for a federal anti-corruption commission, equipped with wide-ranging powers similar to a Royal Commission.
The Labor Government ran its 2022 election campaign on a stronger climate platform than its Coalition counterpart. Renewed climate action is expected under the Albanese Government not just because of Labor's own election promises, but also because of voter sentiment reflected in the 'teal' and 'green' waves. We set out below key policies that will impact business and outline some suggested preparatory measures.
Though not set out in their pre-election policy documents, Labor has indicated it plans to legislate emission reduction targets. The newly sworn in Climate Change and Energy Minister, the Hon. Chris Bowen, suggested that the Government plans to introduce a climate bill that would mandate emission reduction targets — specifically, reducing emissions to 43% by 2030 off 2005 levels. However, this is still below the reduction target of 46-50% proposed by the Business Council of Australia.
Stricter limits on carbon emissions from high-emitting facilities are expected under the Labor Government. A crucial element of the Government's climate change arsenal will be stricter emissions caps on large facilities covered by the Safeguard Mechanism1, which is a tool currently used by the Government to cap emissions on facilities with scope 1 emissions of more than 100,000 tonnes CO2 equivalent in line with historical baselines. If the facility exceeds its baseline, the operator of the facility must purchase and surrender an amount of Australian Carbon Credit Units equivalent to the excess. Labor's policy would — if implemented — progressively reduce facility baselines so that scope 1 greenhouse gas emissions from these facilities are reduced by five million tonnes per year, reaching net zero in 2050.2 Tailored treatment is expected for Emissions Intensive, Trade Exposed industries (EITEs). We expect that the Safeguard Mechanism rules will be amended to reduce the emissions baselines from 1 July 2023.3 Labor's policy would also involve the creation of a separate class of tradeable credits for companies that stay below their baselines, known as 'Safeguard Mechanism Credits'.
Incoming Treasurer Jim Chalmers signalled the need for regulators and the Government to provide clearer guidance to companies on how to report on climate change risks and opportunities, criticising the current reporting framework as 'insufficient, inconsistent and inadequate'. In Labor's Powering Australia plan, it stated it will improve the integrity in decision-making around climate change by restoring the role of the Climate Change Authority. Labor is intent on ensuring that large businesses are transparent and accountable when it comes to their climate-related plans, risks and opportunities, noting that Labor has expressed it will work with regulators to ensure there is a standardised reporting requirement that aligns with international standards. Labor wants companies to make disclosures regarding governance, strategy, risk management, targets and metrics including greenhouse gasses.
Against that backdrop, it is notable that the International Sustainability Standards Board (ISSB) has released its first set of draft standards for general sustainability-related disclosures and climate-related disclosures. The ISSB's draft standards seek to establish a global baseline for sustainability and climate disclosures to capital markets.4 In some instances, the ISSB draft standards go further than the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) recommendations. For example, the ISSB draft standards propose that companies disclose performance against previously disclosed sustainability targets and an analysis of trends or significant changes in performance, which are otherwise not mandated by the TCFD. Additionally, the ISSB draft standards also propose a requirement to disclose how the board's responsibilities for climate-related risks and opportunities are reflected in the entity’s terms of reference, board mandates and other related policies, whereas the TCFD recommendations are to only 'describe' the board’s oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities. The Australian Accounting Standards Board (AASB) has announced an invitation to consult on ISSB's draft standards to gather feedback as to the appropriateness of, and support for, its proposed approach to sustainability-related financial reporting in Australia.
The Labor Government is a staunch advocate for equality, diversity and human rights. It has its eyes set on shaking up the 'social' pillar of ESG with reforms aimed at increasing gender equality, promoting Indigenous rights and providing a constitutionally entrenched voice to Parliament, and beefing up Australia's modern slavery regime.
Labor has promised to appoint an independent Anti-Slavery Commissioner and establish an office within the Attorney-General’s Department to coordinate work across government and with industry to tackle modern slavery in Australia and global supply chains.
Labor announced it will consult with stakeholders (including business and advocacy groups) in amending the Modern Slavery Act 2018 (Cth) to introduce penalties and mandate reporting on exposure to specified issues of concern (including Uyghur forced labour).6
The Government has vowed to commit 'in full' to the Uluru Statement from the Heart, issued as an invitation from Indigenous Australians to the Australian people in May 2017. The Statement aims to achieve meaningful structural reforms based on justice and self-determination for Indigenous peoples. Labor supports all elements of the Uluru Statement, including a Voice to Parliament achieved through constitutional amendment, a Makarrata Commission for truth telling on the experiences of Indigenous peoples and agreement-making with government on issues affecting Indigenous peoples.7
The Greens are intent on pushing their 'United Nations Declaration on the Rights of Indigenous Peoples Bill 2022' (Bill). Given the determinative role the Greens will play in the Senate, we anticipate this will add pressure on Labor to achieve reforms to strengthen Indigenous peoples rights. The Bill, if passed, would require (amongst other things) the Government, in consultation and cooperation with Indigenous peoples, to take all measures necessary to ensure that federal laws are consistent with the rights enshrined in UNDRIP. These rights are broad ranging, including in relation to access to, and impacts on, land, territory, resources and cultural heritage.
Labor has committed to fully implement all 55 recommendations of the Sex Discrimination Commissioner’s Respect@Work Report to address sexual harassment at work. This includes legislating that employers have a positive duty to take reasonable and proportionate measures to eliminate sex discrimination, sexual harassment and victimisation at their workplaces.8 Labor has also outlined plans to amend the Fair Work Act 2009 (Cth) to explicitly prohibit sexual harassment and to amend the Sex Discrimination Act 1984 (Cth) to make substantive equality between women and men one of the Act's objects.
The Government is focussed on addressing Australia's gender pay inequity through bold legislative changes aimed at increasing pay transparency and to encourage action to close gender pay gaps in organisations. Labor has committed to:
- making gender pay equity an objective of the Fair Work Act 2009 (Cth);
- strengthening the Fair Work Commission’s powers to order pay rises for workers in low-paid industries dominated by women;
- requiring companies with more than 250 employees to report their gender pay gap publicly; and
- prohibiting pay secrecy clauses in employment contracts.9
One of the new Government's most prominent policies during the election campaign was to introduce an independent national anti-corruption commission. Labor has promised to legislate the commission by the end of 2022, with broad powers akin to a Royal Commission, including powers to investigate allegations of corrupt conduct pertaining to members of government (including politicians), make findings of fact and, where appropriate, refer matters to law enforcement.
Key features of the integrity commission are flagged to include:
- Public hearings: the integrity commission will hold public hearings where it is in the public interest to do so.
- Retrospective: conduct as far back as 15 years could be subject to investigation by the integrity commission.
- Referrals: members of the public and whistleblowers could refer matters for investigation. The integrity commission may also commence investigations of its own initiative.
In early 2021, Labor outlined some key priorities for corporations law reform, which included potential reforms to facilitate employee representation on company boards and to improve ordinary shareholder rights and enable greater worker and citizen shareholder participation in the governance of corporations.10
RepuTex Energy, The Economic Impact of the ALP's Powering Australia Plan (December 2021) RepuTex Energy, p 22 <REPUTEX_The-economic-impact-of-the-ALPs-Powering-Australia-Plan_Summary-Report-1221-2.pdf> (RepuTex Report).
Ibid, p 22.
IFRS Foundation, ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures (31 March 2022) <https://www.ifrs.org/news-and-events/news/2022/03/issb-delivers-proposals-that-create-comprehensive-global-baseline-of-sustainability-disclosures/>.
Australian Accounting Standards Board, AASB ED 321 Request for Comment on [Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and [Draft] IFRS S2 Climate-related Disclosures (14 April 2022) <https://aasb.gov.au/news/aasb-ed-321-request-for-comment-on-draft-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information-and-draft-ifrs-s2-climate-related-disclosures/>.
Australian Labor Party, 'ALP National Platform' (March 2021) pp 60 , 69  <https://www.alp.org.au/media/2010/reconciliation_action_plan.pdf>.
Australian Labor Party, 'ALP National Platform' (March 2021) p 5.
Ibid pp 6, 8.
Labor 2021 National Platform, paragraph 18.