Evolving litigation landscape: recent Australian ESG disputes trends

Climate change, biodiversity and First Nations rights in focus 10 min read

Australian businesses continue to face a rapidly evolving litigation landscape in relation to Environmental, Social and Governance (ESG) issues.

In this Insight, we spotlight emerging trends, reflect on potential implications for future ESG-related disputes and provide practical guidance on both managing stakeholder expectations and mitigating the risk of litigation.

ASIC's Report 791 on its recent greenwashing enforcement action and its updated Corporate Plan for 2024-25 indicate that regulatory intervention to address greenwashing and broader financial system ESG risk remains a strategic priority.
The ACCC has also entered the field with the commencement of its first greenwashing proceeding since publishing its environmental claims guidance in December 2023.
In line with global ESG litigation trends, the Australian financial services industry is experiencing continued pressure from shareholders and other stakeholders to exit or limit capital flows and investments to entities engaged in coal, oil and gas projects.
The protection of cultural heritage continues to be a consistent theme in litigation and law reform trends in relation to First Nations peoples' rights in Australia. This trend is unlikely to abate as stakeholders and communities continue to expect alignment with international human rights instruments and related norms, in particular the principle of 'free, prior and informed consent' (FPIC).

Who in your organisation needs to know about this?

Boards, in-house / general counsel, cultural heritage and communities teams, external affairs, regulatory affairs and sustainability team.

Continued regulatory focus on 'greenwashing' and 'bluewashing'

Regulatory enforcement priorities

Combating alleged 'greenwashing' and 'bluewashing' (ie claims in relation to environmental and social issues that are false, misleading or have no reasonable basis) remains an enforcement priority for Australia's corporate regulators.

ASIC

As reported in our Insight, ASIC's 2024 enforcement priorities announced in November 2023 have retained a focus on greenwashing. In its updated Corporate Plan for 2024-25 (ASIC Corporate Plan) released on 22 August 2024, ASIC reaffirmed this focus by announcing that addressing financial system climate change risk is one of five strategic priorities for 2024-28. This strategic priority involves supporting market integrity and protection of consumers and investors through a focus on:

supporting the introduction of the mandatory climate-related disclosures regime (read more in our Insight on the incoming disclosure regime);
deterring greenwashing and sustainable finance misconduct;
integrity and fairness in energy and carbon credit markets; and
insurer claims and complaints-handling following severe weather events.

On 23 August 2024, ASIC also released Report 791 on its interventions on greenwashing misconduct in 2023-24 (ASIC Report 791). The report spotlights ASIC's regulatory interventions between 1 April 2023 and 30 June 2024, comprising 37 corrective disclosure outcomes, eight infringement notices amounting to over $123,000, and three civil penalty proceedings. ASIC Report 791 also details ASIC's key findings, recommendations and good practice examples from its surveillance activities during this period.

ACCC

In its 2024-25 Compliance and Enforcement Policy and Priorities announced in March 2024, the ACCC identified consumer, product safety, fair trading and competition concerns in relation to environmental claims and sustainability as one of its 10 compliance and enforcement priorities for the next year. This announcement follows the publication of the ACCC's 'eight principles' to guide businesses in making environmental marketing and advertising claims in December 2023 (Eight Principles).

Recent enforcement developments

As ASIC acknowledges in ASIC Report 791, the landscape for sustainability-related disclosures is shifting due to the rollout of the Federal Government's Sustainable Finance Roadmap, including the incoming mandatory climate reporting regime and sustainable finance taxonomy. ASIC has made it clear that, while these measures are intended to function as the 'antidote' to greenwashing, it will maintain a vigilant approach to surveillance and take enforcement action against greenwashing.

ASIC foreshadows it is currently investigating suspected greenwashing cases, with future enforcement action anticipated. While the compulsory climate reporting regime provides a safe harbour from misleading or deceptive conduct claims by private litigants in respect of scope 3 emissions, scenario analysis and transition plans (for three years) and forward-looking statements (for one year) in sustainability and auditor's reports, this does not extend to enforcement action by ASIC.

The ACCC has also now entered the field with its first greenwashing proceeding since publishing its Eight Principles.

Examples of recent ASIC and ACCC actions

ACCC actions

ACCC v Clorox Australia Pty Limited

In April 2024, the ACCC commenced proceedings in the Federal Court against Clorox Australia Pty Limited (Clorox) for allegedly false or misleading representations that Clorox's GLAD kitchen and garbage bags were made of 50% recycled 'ocean plastic'. The ACCC alleges the kitchen and garbage bags were instead partly made from plastic collected up to 50km from the shoreline in Indonesia.

ASIC actions

Infringement notices issued to Fertoz Limited

In June 2024, Fertoz Limited paid $37,560 to comply with two infringement notices issued by ASIC for alleged false or misleading statements regarding a reforestation project in the Philippines. ASIC alleged that Fertoz, an ASX-listed entity specialising in fertiliser mining, manufacturing and supply, had made false or misleading statements to the ASX that the project would obtain an offtake partner or receive funding to begin planting the initial hectares by the end of 2023.

Successful Federal Court judgment for ASIC in investment screen proceeding

Also in June, the Federal Court of Australia handed down its judgment in enforcement proceedings against the trustee of a superannuation fund in relation to misleading representations concerning ESG-related investment exclusions and restrictions.

The latest judgment follows the court's earlier ruling in March 2024 in favour of ASIC in its enforcement proceedings against Vanguard Investments Australia for allegedly false or misleading representations regarding exclusionary screens applied to one of its ESG-related funds. We discuss ASIC's enforcement activity in relation to investment screens in our Insight.

ASIC v Mercer Superannuation (Australia) Limited

On 2 August 2024, the Federal Court approved the proposed settlement terms in ASIC's first 'greenwashing' civil penalty proceeding, against Mercer Superannuation (Australia) Limited. ASIC alleged that Mercer made misleading or deceptive statements and engaged in conduct that could mislead the public about the sustainable nature of certain of its superannuation investment options.

The court ordered Mercer to pay a pecuniary penalty of $11.3 million and to publish a notice to be displayed on the sustainable investments page of its website for a period of six months, which describes the misleading representations and conduct admitted by Mercer. ASIC commonly seeks such adverse publicity orders in its greenwashing proceedings.

Emerging issues in regulatory enforcement

ASIC has foreshadowed that Australian companies may face greater scrutiny over AI-related representations. While Australian regulators have not yet taken enforcement action on this issue, ASIC Chair Joe Longo commented in June 2024 that the corporate regulator is closely monitoring AI regulation overseas and is on the lookout for Australian companies engaging in 'AI washing' by overstating their AI capabilities. We consider this issue in our Insight on addressing ESG impacts in generative AI.

While the ASIC Corporate Plan reflects ASIC's ongoing focus on greenwashing and other sustainability-related conduct, the corporate regulator also now appears to be turning its attention to the impacts of climate change on consumers, most notably through a focus on insurer claims and complaints handling following severe weather events. It remains to be seen how this additional focus may flow through to other potential enforcement areas.

Stakeholder activism and litigation

Australian companies continue to face pressure from strategic litigants, public interest groups and other stakeholders over their management of climate change, biodiversity and other ESG risks. Another area of focus is performance on human rights issues, including First Nations rights, supply chain management and the interaction between environment and human rights.

Market Forces reports

The past quarter saw the release of two new reports by the Australian environmental advocacy organisation Market Forces. Both reports form part of its ongoing campaigns targeting the banking and superannuation sectors regarding entities' financing of, and investments in, high-emitting products and industries.

In May 2024, Market Forces released a report profiling investments by 30 Australian superannuation funds in 190 publicly listed, high-emitting companies based on their alleged connections to coal and oil and gas expansion activities (May Report).
In July 2024, Market Forces also released its updated report into the banking sector, focusing on lending by Australia's four largest banks to high-emitting industries, as well as financing of specific companies and projects (July Report).

Market Forces report

Target entities

Key themes

May Report

Superannuation funds

The May Report:

calls on funds to prioritise 'problem companies' for targeted engagement and to 'spare no effort' to end 'fossil fuel growth plans' of entities they are invested in, and 'loudly divest if they fail to step into line'.
warns of increasing regulatory scrutiny of funds without a 'reasonable basis' for making net zero claims or which lack effective climate-related active ownership strategies.
contrasts funds' growing investment in high-emitting companies (based on Market Forces' own data) with declining investment in clean energy (based on the Bloomberg Goldman Sachs Global Clean Energy Index).

July Report

Banks

The July Report indicates a renewed focus on:

banks' exposure to high-emitting industries through general corporate finance and bond markets, which the report labels as 'backdoor financing options'. This suggests stakeholder scrutiny of financial institutions' exposure to coal, oil and gas projects may no longer be so confined to direct project finance.
scrutinising banks' thermal coal lending beyond pure play coal miners to also include more diversified miners and financing of metallurgical coal.
expanded scrutiny of banks' disclosures regarding their assessment of clients' transition plans for alignment with 1.5^oC temperature targets to a whole-of-value chain approach encompassing downstream, midstream and upstream customers.
banks' financing of gas supply to Asia (including exposure to gas projects in the region, as well as export-oriented projects in Australia).

Targeting 'enablers' of high-emitting developments

As noted in the most recent report on global climate change litigation trends published by the Grantham Research Institute and the Sabin Center for Climate Change Law, professional and financial services companies are increasingly being targeted for their role in 'enabling' high-emitting developments and expansion projects.

In Australia, this global trend has manifested in private actions by shareholders against financial institutions, including both banks and superannuation funds.

Responding to increased scrutiny

The broadening scope of stakeholder scrutiny to cover both direct and indirect capital flows—including through general corporate financing and bond markets—to financed entities suggests that project proponents may face pressure on multiple fronts.

Human rights: protection of First Nations cultural heritage in the spotlight

Recent case law and law reform developments

The protection of cultural heritage sites also continues to be a consistent theme in recent ESG-related litigation and law reform trends in relation to First Nations peoples' rights in Australia:

In May 2024, it was reported that the Federal Director of National Parks (the Director)¹ would plead guilty in criminal penalty proceedings brought by the Aboriginal Areas Protection Authority (AAPA)² under section 34 of the Northern Territory Aboriginal Sacred Sites Act 1989 (NT) (Sacred Sites Act) in relation to damage to a sacred site in Kakadu National Park that allegedly occurred during construction work in 2019. The guilty plea follows on from a unanimous High Court decision earlier in May that the Director could not claim federal immunity for breaches of the Sacred Sites Act.
In June 2024, Federal Attorney-General Mark Dreyfus launched an inquiry into the operation of Australian native title laws by directing the Australian Law Reform Commission (ALRC) to undertake an inquiry into the future act regime of the Native Title Act 1993 (Cth) (Native Title Act), which governs how development projects can occur on land subject to native title. The ALRC inquiry forms part of the Government's response to the Federal Parliament Joint Standing Committee on Northern Australia's final report into the destruction of cultural heritage sites at Juukan Gorge. The ALRC will investigate any inequality, unfairness or weaknesses in the current regime. The ALRC is expected to submit its final report to the Attorney-General by 8 December 2025.
In August 2024, Federal Environment Minister, Tanya Plibersek, made a declaration under section 10 of the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) protecting an area in Kings Plains, NSW on the basis it is an area of particular significance to Aboriginal people. The declaration covers the footprint for Regis Resources' tailings storage facility for its McPhillamys Gold Project and effectively prevents construction of the tailings storage facility in that location.

International scrutiny of WA's cultural heritage legislative reversal

The protection of sacred sites and First Nations cultural heritage legislation in Australia has also been the subject of scrutiny by international organisations, following the reversal of WA's cultural heritage legislative reforms in 2023 (read more in our Insight on the repeal of the Aboriginal Cultural Heritage Act 2021 (WA) (ACH Act)).

In April 2024, the United Nations Committee on the Elimination of Racial Discrimination (CERD) expressed concerns that the repeal of the ACH Act—which occurred five weeks after its commencement—may have breached the International Convention on the Elimination of All Forms of Racial Discrimination (Convention). The ACH Act was replaced by an amended version of the Aboriginal Heritage Act 1972 (WA)—the very legislation it was intended to overhaul, and which had been criticised during the Juukan Gorge Parliamentary Inquiry.

Responding to stakeholder expectations

These recent developments underscore how protection of First Nations cultural heritage remains a live issue in ESG-related disputes in Australia. This trend is unlikely to abate any time soon as stakeholders and communities continue to expect alignment with international human rights instruments (including the Convention) and related norms, in particular the principle of FPIC.

Organisations should therefore continue to evaluate and ensure that robust consultation, human rights due diligence and related governance and risk management processes are in place and are aligned with international best practice (including in relation to FPIC), to address business human rights risks relating to First Nations people and cultural heritage.

For more information on how the above developments fit into broader global trends, refer to the latest Linklaters ESG Disputes Bulletin.

Footnotes

The Director is a federal statutory authority established to administer, manage and control federal reserves.
The AAPA is a statutory authority that oversees the protection of Aboriginal sacred sites across the Northern Territory.