Australian Update

Resistance to Australian Securities Exchange Corporate Governance Council’s Diversity Reforms Signals Decline in Environment, Social and Governance Commitment

The recent decision by the Australian Securities Exchange (ASX) Corporate Governance Council to close consultation and halt its proposed update to the fourth edition of the ASX Corporate Governance Principles and Recommendations has sparked significant debate within the investment community, particularly concerning environmental, social and governance (ESG) criteria. Institutional investors had supported the proposed changes, which aimed to enhance diversity and inclusion within corporate boards by requiring them to report their diversity characteristics beyond gender to include sexuality, age, Indigenous heritage and disability. However, resistance from major business groups led to the plan’s rejection, highlighting a divide between regulatory ambitions and industry readiness.

The proposed update included measures to improve document accessibility, strengthen shareholder relationships and promote diversity. Despite broad and extensive consultation since February 2024, the initiative was ultimately shelved due to concerns about increased regulatory burdens and the lack of a cost-benefit analysis, thwarting achieving consensus. This decision underscores the challenges ESG initiatives face, even as investors increasingly recognise the value of diversity in driving long-term value.

The debate reflects broader tensions in the ESG landscape, where efforts to integrate social and governance factors into investment strategies often encounter resistance. As the investment community continues to push for meaningful ESG integration, the need for clear, consistent and practical guidelines remains critical. The halted update serves as a reminder of the ongoing struggle to balance regulatory requirements with industry capabilities and appetites and the balance required to pursue sustainable, inclusive growth for all stakeholders.

Financial Bodies Endorse Australian Government’s Bipartisan Commitment to Paris Agreement Goals Towards Positive Investment Outcomes

Twelve peak financial bodies have issued a joint statement voicing their commitment to the climate goals of the Paris Agreement, noting that joint support and actions to limit climate change make “good financial sense”. The statement of commitment comes at a turbulent time for global ESG efforts, with the newly appointed Donald Trump administration withdrawing the United States from the Paris Agreement. This move has brought about further uncertainty with news of global businesses scaling back net-zero commitments and ESG-focused initiatives.

The bodies reiterate and remind the investment industry of the potential financial upside of a net-zero economy—citing mid-range estimates which indicate global gross domestic product (GDP) being 7% higher in 2050 if emissions fall steadily to net zero when compared to a scenario in which current climate policies remain unchanged, with other estimates suggesting a 50% global GDP benefit by 2090.

The world’s push towards a net-zero economy has created financial opportunity, with global investment in the net-zero transition reaching AU$3.3 trillion in the last year.

The bodies have called for all levels of Australian government to continue supporting Australia’s transition to a clean, competitive, resilient and prosperous net-zero economy and made it clear that doing so will allow Australia to reap the financial rewards.

AU$2 Billion Investment in Clean Energy Finance Corporation

The Future Made in Australia (Production Tax Credit and Other Measures) Act 2024 (Legislation) was passed into law on 14 February 2025.

The Legislation, reported on previously by K&L Gates here, establishes two tax incentives:

1. Hydrogen Production Tax Offset (HPTI): a refundable tax offset of AU$2 per kilogram of eligible hydrogen which is produced from eligible facilities; and
2. Critical Minerals Production Tax Incentive: a refundable tax offset of 10% for eligible expenditure, incurred in the processing and refining of designated critical minerals, such as lithium and nickel.

These can be claimed for up to 10 years, for eligible minerals produced between 1 July 2027 to 30 June 2040. In relation to the HPTI, there is no cap on the amount a company can receive, although it will only be available for the specified period.

The incentives are available to companies that satisfy the eligibility requirements, which broadly includes, among other things, being a constitutional corporation, satisfying the relevant residency requirements, and meeting the community benefit principles implementation requirements.

They form part of the Government’s Future Made in Australia Policy (Policy), which was allocated AU$22.7 billion as part of the 2024–25 Budget, and a further AU$3.2 billion in the 2025–26 Budget. The Policy is aimed at enabling Australia to meet its international commitment to emission reductions and supporting the growth of a competitive renewable hydrogen industry, and other clean energy assets in Australia.

Superannuation Trustee Ordered to Pay AU$10.5 Million Penalty for Greenwashing Misconduct

On 18 March 2025, the Federal Court of Australia (Federal Court) imposed a penalty of AU$10.5 million against a superannuation trustee (Trustee) for greenwashing misconduct following a court action brought by the Australian Securities and Investments Commission.

The Federal Court found that the Trustee contravened the law by investing in securities that had been marketed as eliminated or restricted by its ESG investment screens.

The Trustee claimed it had eliminated investments that posed too great a risk to the environment and community, including gambling, coal mining and oil tar sands. The Trustee also represented that it would no longer partake in Russian investments following the invasion of Ukraine.

However, the Trustee was found to have held direct and indirect investments in a Russian entity, as well as gambling, oil tar sands and coal mining companies.

His Honour, Justice O’Callaghan, found that the Trustee:

“benefitted from misleading conduct by misrepresenting the ethical nature of a significant part of its investments, which on any view enhanced its ability to attract investors and enhanced its reputation as a provider of investment funds with ESG characteristics”.

Aggravating factors included that the conduct occurred over a two-and-a-half-year time period, the investments were substantial, the misconduct was likely to lead to a loss of confidence from investors in ESG programs, and there was a failure to have properly functioning systems and processes in place to prevent false or misleading representations.

Australian Competition and Consumer Commission Agrees to AU$8.25 Million Penalty Against Cleaning Product Manufacturer for Alleged Greenwashing Conduct

On 7 February 2025, the Australian Competition and Consumer Commission (ACCC) and a large multinational manufacturer of cleaning products (Company) agreed to a penalty of AU$8.25 million for making misleading representations that certain kitchen and garbage bags were made with “50% Ocean Plastic” or “50% Ocean Bound Plastic”. The ACCC further contended that wave imagery and the use of blue-coloured bags supported this impression.

Instead, the bags were partly made from plastic bags collected from Indonesian communities up to 50 kilometres from a shoreline, and not from the ocean.

In April 2024, the ACCC commenced Federal Court proceedings against the Company for greenwashing.

ACCC Chair, Gina Cass-Gottlieb, said the alleged conduct

“deprived consumers of the opportunity to make informed purchasing decisions and may have put other businesses making genuine environmental claims at an unfair disadvantage.”

The ACCC alleged that the conduct affected approximately 2.2 million customers.

The ACCC accepted that the conduct was not part of a deliberate strategy; however, senior management of the Company was aware of the potential issue.

The imposition of the penalty is subject to Federal Court approval.

This case underscores the ACCC’s commitment to combatting greenwashing and highlights the need for entities to scrutinise the legitimacy of their green claims.

View From Abroad

European Commission Amends Rules on Sustainability

On 26 February 2025, the European Commission published its sustainability omnibus proposals to amend the following European Union rules:

• The Corporate Sustainability Reporting Directive (CSRD);
• Delegated acts published under the Taxonomy Regulation (Taxonomy Regulation); and
• The Corporate Sustainability Due Diligence Directive (CSDDD).

The European Commission believes the proposed changes will encourage a more favourable business environment by ensuring that companies “are not stifled by excessive regulatory burdens” and continue to have access to sustainable finance for their clean energy transition.

Notable changes include:

• Removing 80% of companies from the scope of CSRD where mandatory reporting obligations would only be applicable to large companies with more than 1,000 employees and companies with a turnover of above AU$50 million;
• Postponing by two years (until 2028), the reporting obligations of companies that fall within the new scope of CSRD;
• Revising and simplifying the sustainability reporting templates that must be used to report information under the CSRD;
• Introducing an option to report on activities that are aligned with the Taxonomy Regulation to emphasise finance transition;
• Simplifying due diligence obligations of companies that fall within the scope of CSDDD to avoid unnecessary complexities and costs;
• Postponing by one year (to 26 July 2028), the application of the sustainability due diligence requirements for in-scope companies; and
• Limiting the amount of information that may be requested by large companies in relation to their value chain mapping activities to reduce the trickle-down effect and to protect small-to mid-sized enterprises.

It is estimated that the adoption of the sustainability omnibus proposals will save a total of €6.3 billion in annual administrative costs. However, although the proposals can potentially save costs and unlock more investment opportunities in the future, there is a risk that fund management companies and other financial market participants will experience data challenges if the proposed changes in the CSRD and Taxonomy Regulation reporting requirements are implemented.

The proposed changes will now be submitted to the European Parliament and the Council of the European Union. The European Commission currently invites its co-legislators to prioritise the consideration and adoption of the sustainability omnibus proposals.

President Donald J. Trump Presents America-First Energy Policy Agenda to Congress

On 4 March, President Trump presented his “America First” energy policy agenda (Agenda) in an address to US Congress. President Trump asserted that the Agenda would have wide-ranging impacts on companies operating in energy, environmental and national resources sectors.

A key motivation of this Agenda is to rapidly reduce the cost of energy in an attempt to boost the economy and reduce inflation rates by extensive deregulation.

The Agenda follows the United States’ withdrawal from the Paris Agreement and plans to develop a natural gas pipeline in Alaska to support liquefied natural gas exports to Asia, as well as the numerous executive orders and memoranda signed by President Trump shortly following his inauguration and titled as follows:

• Unleashing American Energy;
• Declaring a National Energy Emergency;
• Ensuring Accountability for All Agencies;
• Temporary Withdrawal of All Areas of the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects;
• Unleashing Alaska’s Extraordinary Resource Potential;
• Unleashing Prosperity through Deregulation; and
• Establishing the National Energy Dominance Council.

For further information on the Agenda, please see the Policy and Regulatory Alert written by our colleagues in the United States here.

The authors would like to thank graduate Aibelle Espino for her contributions to this alert.

Additional Authors: Nathan Bodlovich, Cathy Ma, Daniel Nastasi, Katie Richards, Daniel Shlager, Bernard Sia, and Natalia Tan