Three global themes shaping the 'S' in ESG 12 min read
With significant ESG developments unfolding globally and the dust settling on our own federal election, now is the time to take stock of the ESG landscape in Australia, particularly in the 'S' domain. While trends in the United States in particular suggest a rollback of 'S' related commitments and associated regulatory frameworks, this has not been observed to the same degree in Australia, at least in the public sphere.
Looking ahead, we expect that recent policy and regulatory developments will continue while civil society groups and other private actors are likely to seek further accountability in a range of emerging human rights areas.
In this Insight, we explore three key global themes shaping the 'S' in ESG and outline practical steps you can take now to stay ahead.
Key takeaways
- In Australia, there's a growing interest in issues such as artificial intelligence and potential discrimination, privacy and worker exploitation concerns; First Nations' rights and matters of consent; and the human rights impacts of renewable energy projects and water access issues.
- In this context, we recommend that businesses continue to consider their responsibilities under international laws and soft law human rights standards such as the UN Guiding Principles on Business and Human Rights (UNGPs), which remain the high watermark for civil society groups in assessing corporate conduct.
- At all times, companies and directors should be mindful of their obligations at law, which for directors include duties to act in good faith and in the best interests of the company, and obligations to ensure that their decisions have a reasonable basis and are supported in evidence.
Who in your organisation needs to know about this?
Boards, in-house / general counsel, sustainability teams, cultural heritage and communities teams, external and regulatory affairs teams, risk and compliance teams and human rights teams.
Themes and actions
Theme 1: To regulate or deregulate, that is the question
In our ESG insight earlier this year, we canvassed a number of regulatory trends, including the Federal Government's response to the review of the Modern Slavery Act 2018 (Cth) (MSA), which set out its position on the 30 recommendations contained in the statutory review. The response included a commitment to consult with stakeholders on the issue of mandatory due diligence, which we expect will proceed in light of the Government's re-election.
In addition to the Australian Government's commitment, developments in other jurisdictions over the last year indicate that human rights due diligence (HRDD) and further regulation concerning forced labour is likely to continue as a focal point locally and overseas. For instance, the Canadian Government has signalled its intention to introduce new supply chain due diligence legislation sometime this year. Further, the UK Parliament's Joint Committee on Human Rights is conducting an inquiry into forced labour in supply chains, and will consider (among other things) what level of due diligence is reasonable to expect from companies in relation to forced labour risks in supply chains, as well as what changes could be made to enhance corporations' ability to identify such risks.
At the same time, the winding back or de-regulation conversation continues in some jurisdictions. In Europe, the EU Council has approved an omnibus package of legislation which will pare back and delay some of the requirements of key legislative instruments, including the Corporate Sustainability Reporting Directive (CSRD) and the landmark Corporate Sustainability Due Diligence Directive (CSDDD) which currently imposes obligations on companies to carry out human rights and environment related due diligence. Specifically, the legislation aims to reduce the compliance burden associated with the CSRD, the CSDDD and other recently adopted sustainability laws, including by removing around 80% of companies from the scope of the CSRD, limiting due diligence requirements under the CSDDD to only direct business partners (and not indirect business partners), and delaying the commencement of the CSRD by up to two years and the CSDDD by one year for certain in-scope companies.
In other jurisdictions, there are some efforts that are going beyond de-regulation. For instance, in the United States, proposed legislation seeks to prohibit American businesses that are 'integral to national interests' from complying with foreign environmental or social due diligence regulations, including the CSDDD. The proposed law focusses on companies in the extractive and manufacturing sectors, and would block the enforcement of any foreign judgment in relation to sustainability due diligence regulation against such companies in American courts. The proposed law also contains mechanisms for American businesses to seek relief and, in some cases, compensation in relation to the enforcement of foreign regulations.
With key pieces of human rights regulation now in a state of flux, we expect further movement in this space.
Horizon scanning:
| We expect that: | Actions you can take now |
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There may be further pressure to soften human rights related regulation, despite a particularly busy period of legislative development in 2024. This is likely to build on pressure already felt across some companies and industries in relation to certain diversity and inclusion commitments. While pressure appears to be concentrated in the United States for now, it is possible that this will spill over into other jurisdictions, with potential flow-on impacts for countries including Australia. |
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| Expected standards for HRDD will continue to evolve globally. With an uncertain regulatory environment, the expected standard is likely to be influenced by voluntary, industry-led frameworks. | |
| Consultation on the introduction of mandatory due diligence, penalties and other matters under the Australian MSA are likely to take place in light of the recent election, though, the timing on this process is unclear. | Continue to comply with MSA requirements, and look to the UNGPs as the high watermark when identifying and addressing the risks of modern slavery in your operations and supply chain. |
Theme 2: Ready or not – disputes to come
At the same time, calls for deregulation are unlikely to displace the evolving high watermark by which civil society seeks to hold companies accountable. As such, disputes in relation to matters concerning business' human rights obligations are likely to continue as activists seek to bring about behavioural change in courts as well as a range of non-judicial forums.
Disputes in this space may build upon trends we have seen emerge over the last year. One such trend across the globe has been the rise in bluewashing actions, both private and regulatory, with claimants using group or class actions as their vehicle of choice. In the United Kingdom, institutional investors filed a group litigation claim against a global fashion company in May 2024 for allegedly misleading disclosures regarding its ESG credentials and which are said to have resulted in financial losses for shareholders. There was also a key development in the Dyson Labour Abuse suit brought by multiple claimants in which the UK Court of Appeal overturned a decision of the High Court, holding that England (not Malaysia) is the appropriate forum to hear an action against Dyson concerning alleged forced labour conditions at a Malaysian factory (and, recently, the Supreme Court refused to grant Dyson permission to appeal the Court of Appeal's ruling). In the United States, class action lawsuits continue to be brought as a means of holding companies accountable for alleged human rights impacts, including a class action commenced against a multinational café chain in April this year for importing coffee claimed to have been produced with forced labour, as well as a class action against a multinational confectionery company in August 2024 alleging that it falsely markets products as 'ethically sourced' and 'sustainable' while using cocoa from farms where child labour and other forms of forced labour are used.
In Australia, regulatory actions are currently more dominant than private litigation in the bluewashing space. For instance, in August 2024, ASIC was successful in obtaining a $12.9 million penalty against Vanguard for making misleading claims about ESG exclusionary screens.
Last year also saw more development in the intersection between climate change and human rights. In Europe, there has been a growing body of case law alleging that States' responses to climate change and other environmental issues contravene human rights, including those recognised under the European Convention on Human Rights (see decisions regarding Switzerland and Italy). Japan saw its first youth climate lawsuit against certain thermal power companies, claiming the companies' carbon dioxide emissions breached their duty of care under Japan's Civil Code and infringed upon the plaintiffs' rights. Further, the Inter-American Court of Human Rights is expected this year to hand down an advisory opinion on the duties of States and non-State actors in relation to climate-related human rights breaches.
Beyond traditional forms of litigation, stakeholders continue to pursue human rights concerns in a range of non-judicial forums. One example is the process available through OECD National Contact Points, where complaints filed in 2024 included a notable focus on financial institutions' investments in companies alleged to have caused adverse human rights impacts, as well as a focus on adverse impacts within businesses' broader operations and supply chains. Another avenue of focus is direct engagement with companies, and we have seen this play out in a range of ways including shareholder proposals for companies to uplift their human rights due diligence and requests for further information regarding company's decision-making in relation to human rights matters. While these methods come with mixed success, they are nonetheless a point of pressure for organisations to manage.
Horizon scanning:
| We expect that: | Actions you can take now |
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| Australia will continue to be a high risk jurisdiction for regulatory action on bluewashing, with both ASIC and the ACCC already having signalled that ESG claims will form part of their enforcement priorities this year. With global class actions involving bluewashing claims on the rise, regulatory action in Australia will likely create increased class action risk for companies who could face follow-on private litigation, including shareholder class actions. |
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| Decisions expected to be delivered by the International Court of Justice and Australian courts may clarify legal obligations relating to climate change, potentially impacting future corporate liability for alleged climate change impacts and creating increased momentum in human rights based climate action. |
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| Non-judicial dispute resolution will continue to be used by claimants globally, with National Contact Point complaints under the OECD Guidelines likely to remain a preferred vehicle of choice. |
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Theme 3: Intersection into focus
To round out this Insight, we have unpacked some recent subject matter trends which we expect will continue to garner attention as part of the evolving intersection of human rights and other topics of interest.
Human rights and AI
One area of attention is AI, where the rapid adoption of AI related technologies presents a range of opportunities and risks for businesses, including in relation to human rights. As noted in our earlier Insight, the development and use of generative AI in business processes may give rise to a range of human rights related impacts, including in relation to worker exploitation, privacy and discrimination concerns. The Australian Government has published a proposal for introducing mandatory guardrails aimed at reducing the likelihood of harms resulting from the development and deployment of AI in high risk settings. In the meantime, businesses may wish to consider the Government's voluntary guardrails to manage such risks. Similarly, the UN Working Group on Business and Human Rights is preparing a report due to be released sometime in 2025 which will seek to clarify States' and corporations' duties and responsibilities regarding the use of AI in a manner consistent with the UNGPs.
Human rights and First Nations peoples
The rights of First Nations peoples remain a key topic for businesses operating in Australia. Soft law standards and frameworks continue to drive the conversation around rights-based engagement with First Nations peoples including in relation to Free, Prior, and Informed Consent (FPIC). This includes the International Council of Mining and Metals' updated 'Indigenous Peoples and Mining Position Statement' and the First Nations Clean Energy Network's Best Practices Principles. Overseas legal developments may also shape conversations around FPIC in Australia, including a recent Canadian decision which we have explored in this Insight. In addition, developments such as a new WIPO Treaty on Intellectual Property, Genetic Resources, and associated Traditional Knowledge, are contributing to an emerging focus on Indigenous Cultural and Intellectual Property. Ongoing parliamentary inquiries and law reform initiatives concerning the rights of First Nations peoples will also guide businesses' engagement on these matters going forward.
Human rights, renewable energy and water
The energy transition and development of renewable energy projects is expected to become a considerable focal point with continued and increasing engagement from domestic and overseas regulators. One particular focus is the intersection with human rights matters, and the UN Secretary General’s Panel on Critical Energy Transition Minerals has recently recognised that clean energy systems carry an increased risk of modern slavery, among other human rights issues. Similarly, in certain parts of the world there has been a rise in allegations of corruption, violence and other adverse human rights impacts in response to the increasing demand for transition minerals.
The intersection of environmental and human rights impacts is also coming to the fore through an emerging focus on the right to water. Specifically, there is a growing push from civil society groups to hold corporations accountable for the human rights impacts associated with environmental harms such as water pollution and water scarcity.
Horizon scanning:
| We expect that: | Actions you can take now |
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| AI-related human rights harms will continue to grow into a key governance consideration for business. |
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| First Nations' human rights issues will remain a key topic for Australian businesses. |
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| Topics of interest within the ESG domain will continue to evolve, including the intersection of environmental and human rights, with pressure points likely to shift as stakeholders apply varying standards when assessing corporate conduct. |
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