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Seven key themes set to shape regulatory enforcement risk

Environmental, social and governance (ESG)

Key regulatory and enforcement developments – 2022

Regulatory action against greenwashing increased significantly in 2022, with activity dominated by ASIC and the ACCC – each pursuing greenwashing as enforcement priorities.1

ASIC has fined companies engaging in misleading advertising regarding environmental claims, and continues to investigate green credential claims by Australian companies in a range of sectors and industries. In June 2022, ASIC issued guidance to issuers about how to avoid greenwashing when offering or promoting sustainability-related products.2

In October 2022, the ACCC began an online 'crackdown' on false environmental claims by conducting two internet sweeps to identify misleading environmental and sustainability marketing claims. This follows a review undertaken by the International Consumer Protection Enforcement Network which found that 40% of online green claims may be misleading. 

We expect to see the consequences of this 'sweep' materialise through enforcement actions in 2023.3 The ACCC Deputy Chair also commented that 'as we’re looking at greenwashing in terms of claims about products and services, we’re also looking at it in terms of corporate claims', indicating the regulator would be paying close attention to claims about net zero or carbon neutrality.4

APRA has also published the results of its latest climate risk self-assessment, which examines how APRA-regulated entities align with Prudential Practice Guide CPG 299 on Climate Change Financial Risks. APRA commented that climate risk 'remains an emerging discipline'.5

ASIC has made clear that greenwashing is not limited to environmental claims, but extends to ethical propositions, such as statements relating to a company's human rights performance and governance.6

Advocacy groups have capitalised on these trends. As an example, several different advocacy groups have engaged in letter writing campaigns. These organisations have written to ASIC, the ACCC and Ad Standards, urging them to investigate allegedly misleading statements about a company's carbon emissions and environmental records, including drawing links between environmental and social issues such as Indigenous rights. The ACCC Deputy Chair indicated that the competition regulator welcomed private action taken against companies under the Australian Consumer Law.7

Likely regulatory and enforcement developments – 2023

We expect that the focus on ESG issues will continue in 2023, and that there will be an increase in both the number and scope of ASIC and ACCC investigations and enforcement actions in this area. While enforcement activity is likely to continue to focus on greenwashing, we expect that there will be an increased focus on human rights disclosures.

In addition, in the 'E' space:

  • In December 2022, the Labor Government announced a package of forthcoming environmental law reforms to be tabled in 2023, including establishing a Federal Environmental Protection Agency that will be responsible for enforcing compliance with the EPBC Act.8 In addition, Labor has announced reforms to pollution caps under the safeguard mechanism, aimed at achieving emissions reductions targets through lowering industrial carbon emissions.9
  • With the release of the Taskforce on Nature-related Financial Disclosures' final framework in September 2023,10 we expect increased focus on how companies manage and disclose biodiversity-related risks.

In the 'S' space:

  • The Federal review of the Modern Slavery Act 2018 (Cth) is due to conclude in March 2023 and may direct attention to transparency in companies' labour practices and supply chains. A review of the modern slavery offences in the Commonwealth Criminal Code has also been announced.
  • Following the enactment of the Anti-Discrimination and Human Rights Legislation Amendment (Respect At Work) Act 2022 (Cth), from 13 December 2023 the Australian Human Rights Commission will be empowered to inquire into a person's compliance with the new workplace duty to eliminate sex discrimination. The new law implements seven of the 55 recommendations from the Australian Human Rights Commission's 2020 Respect@Work report.

We also expect to see businesses using regulatory processes to facilitate their sustainability initiatives. The ACCC can authorise conduct that would otherwise be anticompetitive where public benefits outweigh any anticompetitive detriments. The ACCC Chair recently recognised the role of the ACCC authorisation process in facilitating industry sustainability initiatives11 and we may start to see ACCC authorisation used by businesses wishing to collaborate with competitors to address sustainability goals, as well as for businesses seeking to place ESG restrictions on upstream or downstream suppliers - action that might otherwise contravene Australian competition law.

Key regulators and enforcement agencies in this area

The key regulators and enforcement agencies in the ESG area are:

  • enforcement and supervision agencies such as ASIC, APRA and the ACCC and state Environmental Protection Agencies;
  • employment regulators, including the Fair Work Ombudsman and state and territory workplace health and safety regulators;
  • the Attorney-General's Department, which is now responsible for the administration of the Modern Slavery Act 2018 (Cth); and
  • the Australian Human Rights Commission.

 

Key sectors of focus

The resources and energy sector continues to be the subject of regulatory attention, particularly in the 'E' space. Scrutiny has also turned towards lenders and investors, and in particular large financial institutions and superannuation funds. The insurance sector is likely to emerge as another sector of focus, given APRA's published guidance on managing climate risk.

Footnotes

  1. ACCC, https://www.accc.gov.au/system/files/ce-priority.pdf; ASIC, https://asic.gov.au/about-asic/asic-investigations-and-enforcement/asic-enforcement-priorities/.

  2. ASIC, 'How to avoid greenwashing when offering or promoting sustainability-related products' dated June 2022 (INFO 271) available at: https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/.

  3. ACCC Media Statement dated 4 October 2022, 'ACCC internet sweeps target 'greenwashing', fake online reviews', available at: https://www.accc.gov.au/media-release/accc-internet-sweeps-target-greenwashing-fake-online-reviews.

  4. https://www.afr.com/companies/financial-services/accc-says-it-s-ready-to-pursue-greenwashers-20220615-p5atv7.

  5. APRA, https://www.apra.gov.au/news-and-publications/apra-publishes-findings-of-latest-climate-risk-self-assessment-survey.

  6. ASIC, https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-336mr-asic-issues-infringement-notices-against-investment-manager-for-greenwashing/.

  7. https://www.afr.com/companies/financial-services/accc-says-it-s-ready-to-pursue-greenwashers-20220615-p5atv7.

  8. https://www.dcceew.gov.au/environment/epbc/epbc-act-reform#:~:text=The%20government%20has%20committed%20to,under%20the%20new%20EPBC%20Act.

  9. DCCEEW, https://www.dcceew.gov.au/climate-change/emissions-reporting/national-greenhouse-energy-reporting-scheme/safeguard-mechanism#:~:text=The%20Government%20is%20reforming%20the,reform%20the%20Safeguard%20Mechanism%3B%20and.

  10. TNFD, https://tnfd.global/news/tnfd-releases-third-beta-framework/.

  11. Gina Cass-Gottlieb, 'Law Council Competition and Consumer Law Workshop opening address' (9 September 2022) <https://www.accc.gov.au/speech/law-council-competition-and-consumer-law-workshop-opening-address>