Top 10 ESG Markers - March 2024

The month of March covers a HUGE number of pieces including a Bill to mandate climate disclosure in Australia, the introduction of the Net Zero Authority Bill in Australia US SEC mandating climate disclosure (paused soon after), the EU voting in a softened version of the Corporate Sustainability Due Diligence Directive and a ban on unverified green claims, Australia and Europe releasing reports on vulnerability to climate change, a report on the extent of land clearing in Queensland and a report highlighting underestimation of the cattle population in Australia, Canadian efforts to publish standards on climate disclosure, a report highlighting another mass bleaching event being experienced by the Great Barrier Reef, Australians’ scepticism relating to meat eating and its impact on climate change, a report highlighting legal implications of climate change’s impact on Australian sports, France, Sweden and Denmark propose ban on export of second hand clothing, KLM Airlines found guilty of greenwashing and finally a CSIRO report highlighting Australia’s circularity levels being well-behind where they should be.

Again, if I happen to miss some key markers in a particular month. Just drop me some comments, and I will pick them up next month!?

*‘ESG Markers’ – like biomarkers that tell us how healthy our body may be, ESG Markers showing us the big movements in the field of ESG in Oceania and globally.?

So, here are my Top 10 for March 2024, again in no particular order.

Australian Government introduces Bill to mandate climate disclosure & Net Zero Authority Bill

The Government introduced legislation this month aimed at enhancing Australia's financial system and promoting investment in cleaner, more affordable energy sources. The Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill proposes two key reforms: mandatory climate reporting for major corporations and a crisis management framework for financial market infrastructure.

Climate reporting measures seek to address previous delays and denial, fostering investment in cleaner energy and climate risk management. These regulations will enforce standardised climate-related financial disclosures, fostering transparency and credibility in Australia's investment landscape. Commencing from January 1, 2025, these requirements will initially apply to the largest listed and unlisted companies, with others phased in gradually, with mandatory assurance regime also being phased in.

The Government's economic reform agenda prioritises modernisation and investment certainty. By establishing robust climate disclosure frameworks and bolstering financial market regulations, this legislation aligns with broader efforts to modernise Australia's economy and attract international capital.

Furthermore, the Net Zero Authority Bill also hit the Parliament on the same day this month.? The object of this Act is to:

(a) promote orderly and positive economic transformation as the world decarbonises; and

(b) facilitate the achievement of Australia’s greenhouse gas emissions reduction targets; and

(c) ensure Australia’s regions and workers are supported in relation to, and benefit from, Australia’s transition to a net zero emissions economy.

Mandatory disclosure rules for US companies' climate impact released and then paused & Canadian Sustainability Standards Board releases exposure drafts

The Securities and Exchange Commission (SEC) voted 3-2 to enforce new regulations compelling corporations to disclose their contributions to climate change and the risks they face due to global warming. Despite strong opposition from businesses, the rule requires companies to divulge emissions and climate threats to their operations. While not as extensive as the initial plan, which included emissions from supply chains, the rule still marks significant progress in federal climate accountability efforts.

The decision, influenced by over 24,000 comments, reflects investors' demands for transparency on greenhouse gas emissions. The rule obliges firms to report losses from extreme weather events linked to climate change and expenses towards climate goals like carbon offsets. Notably, it excludes reporting emissions from customers and suppliers, known as "Scope 3" emissions, to strengthen its legal standing.

The SEC's decision aligns with global trends as other jurisdictions implement similar disclosure requirements. With mounting climate-related disasters, the urgency for transparent reporting grows, impacting not only US companies but also global corporations operating in regions with stringent sustainability regulations. Large corporations must comply by 2025, with smaller firms granted extended deadlines.

However, a US appeals court has temporarily suspended recent regulations mandated by the SEC.? This pause follows legal actions initiated by Liberty Energy and Nomad Proppant Services, as well as a lawsuit filed by the US Chamber of Commerce. The Chamber argues that the new regulations deviate significantly from established corporate governance norms spanning five decades, potentially impacting broader corporate practices. Additionally, the Sierra Club, a prominent environmental organisation has challenged the SEC's rules, contending that they inadequately safeguard investor interests. Particularly, the lawsuit critiques the exclusion of provisions mandating companies to disclose "Scope 3" emissions in the final iteration of the regulations.

And in Canada, the Canadian Sustainability Standards Board (CSSB) recently unveiled Exposure Drafts aimed at enhancing the implementation of sustainability disclosure standards in Canada, closely aligned with IFRS S1 and S2. Key takeaways from the drafts include:

·?????? Three proposed documents, including CSDS 1 and CSDS 2, outline general requirements for sustainability-related financial disclosures and climate-related disclosures

·?????? While voluntary at present, CSSB is collaborating with securities administrators to determine mandatory application rules for publicly listed entities

·?????? Comments on the drafts are invited until June 10, 2024, focusing on areas such as scope, reporting timing, climate resilience, and Scope 3 GHG emissions

·?????? Proposed Canadian-specific modifications pertain to effective dates and transition reliefs, with an expected adoption date of January 1, 2025

·?????? Final standards are anticipated to be issued by the fourth quarter of 2024, with a webinar scheduled for April 10, 2024, to discuss the Exposure Drafts.

These drafts signify progress towards mandatory climate disclosure in Canada, urging entities to enhance sustainability reporting capabilities early to meet future requirements effectively. Individualised approaches to maturity are crucial, necessitating early action to align with evolving disclosure standards and ensure readiness for potential assurance in subsequent reporting periods.

Queensland land clearing a significant threat to biodiversity, and a vast underestimation of Australia’s cattle population

Recent analysis reveals that over 2 million hectares of bushland in Queensland, including potential koala habitat, was cleared between 2016 and 2021. Commissioned by Greenpeace and conducted by University of Queensland academic Martin Taylor, the research highlights that almost all land clearing occurred in areas designated as probable habitats for threatened species. Notably, around 1.3 million hectares, including 500,000 hectares of koala habitat, were exempt from state vegetation laws. The majority of clearing took place in regrowth forests over 15 years old, crucial habitats for native wildlife. Gemma Plesman from Greenpeace Australia Pacific emphasises that deforestation, primarily driven by beef production, poses a severe threat to biodiversity. This issue is exacerbated by unclear laws regarding the reclassification of regrowth forests. The Wilderness Society Queensland echoes concerns, emphasising the impact on iconic species and ecosystems, including the Great Barrier Reef. While federal environmental law reforms are in progress, some organizations express skepticism, emphasising the urgent need for effective measures to address deforestation and protect Australia's natural heritage.

Separately, a University of Queensland study reveals discrepancies in Australia's official cattle estimates, suggesting an underestimation of approximately 10 million head. This miscalculation holds significant implications for tracking greenhouse gas emissions, particularly as cows' methane emissions contribute substantially to the red meat sector's emissions.

Official figures from the Australian Bureau of Statistics (ABS) state a national herd of 26 million cattle, but the University of Queensland's report suggests the number could be closer to 35 million, 56-75% higher than previously believed. This disparity challenges assumptions about emission reductions in the red meat industry, raising concerns about data reliability.

The report attributes the discrepancy to underreporting by farmers, influenced by various factors including privacy concerns and taxation implications. ABS acknowledges limitations in its survey methodology, particularly its exclusion of small-scale producers, which likely contributes to underestimations.

The underestimated cattle population has direct consequences for greenhouse gas emissions calculations. While official estimates attribute 57 million tonnes of CO2 equivalent annually to methane emissions from the beef sector, the report’s calculations suggest this figure could be as high as 90 million tonnes.

Great Barrier Reef experiences fifth mass bleaching event

The Great Barrier Reef is experiencing its fifth mass coral bleaching event in just eight years, as confirmed by the marine park authority. Aerial surveys conducted across 300 reefs, covering two-thirds of the reef, reveal widespread coral bleaching, particularly severe in the southern region where centuries-old corals are affected. Driven by global heating and an El Ni?o climate pattern, the bleaching poses significant risks to the reef's ecosystem. This event follows previous bleaching occurrences in 1998, 2002, 2016, 2017, 2020, and 2022, signaling the increasing impact of climate change on the world's largest coral system. Additionally, Lord Howe Island's southernmost coral reef is also experiencing major bleaching. With ocean temperatures reaching record highs globally, the threat of coral bleaching extends beyond the Great Barrier Reef, highlighting the urgent need for climate action. Conservationists including the Australian Conservation Foundation and the Worldwide Fund for Nature emphasise the necessity for immediate and ambitious greenhouse gas emission reductions to mitigate further damage to coral reefs and marine ecosystems.

Europe underprepared for escalating climate risks

The European Environment Agency (EEA) warns that Europe is inadequately equipped to address the rapidly growing climate risks it faces, as outlined in its inaugural risk assessment. The report identifies 36 significant climate risks, with half requiring immediate action and five demanding urgent attention. Highlighted risks include heat stress, flash floods, river floods, coastal and marine ecosystem health, and the need for disaster recovery funds. Southern Europe, characterised as a "hotspot" region, faces additional threats to crop safety and wildfire protection. The report underscores the insufficiency of current adaptation efforts, citing a lack of speed and inadequate coverage for vulnerable populations. It also highlights the potential compounding effect of climate risks, stressing the importance of comprehensive policy responses. Europe's rapid warming, attributed to heightened carbon dioxide levels, necessitates decisive action to mitigate escalating risks. The report urges governments to prioritize climate resilience measures to avert future crises. Failure to act promptly could lead to critical or catastrophic climate risks by the century's end, underscoring the urgent need for proactive intervention.

Australia’s First Climate Risk Assessment: Climate risks threaten key sectors

Australia's first climate risk assessment report highlights the potential impacts of rising temperatures and extreme weather events on various sectors, including national security, infrastructure, healthcare, and finance. The report predicts stretched defence and emergency services, challenges for hospitals due to new communicable diseases, threats to critical infrastructure and food supplies, and economic disruptions. The Investor Group on Climate Change warns of potential risks to retirement savings due to climate-induced economic volatility. The report underscores the need for governments to support communities and businesses in building long-term resilience. Urban planning strategies, such as incorporating green spaces to mitigate heat impacts, are highlighted as proactive measures. The report's findings will inform the development of a national adaptation plan, with public submissions solicited for further input.

Australians prefer meat despite environmental concerns

A recent La Trobe University study revealed Australians' reluctance to give up meat despite acknowledging its environmental impact. Over 700 participants, aged 18 to 84, expressed scepticism about the effectiveness of reducing or eliminating meat consumption to combat climate change. Despite heightened awareness of meat's environmental footprint, respondents showed little willingness to change their diets. The study cited limited vegetarian options when dining out as a significant barrier to adopting a meat-free diet, despite the increased availability of such choices. The sentiment of 'liking meat' was a prevailing barrier, reflecting Australians' status as among the world's highest per capita consumers of meat. Comparisons with a 2003 study showed a notable increase in perceived barriers to adopting vegetarianism. Interestingly, participants showed greater enthusiasm for other environmentally friendly actions, such as renewable energy use and recycling, over reducing meat consumption. Researchers hope these insights will inform efforts to promote more sustainable dietary habits and environmental awareness.

EU Parliament approves a softened version of the Corporate Sustainability Due Diligence Directive and approves a ban on unverified green product claims & KLM Airlines found guilty of greenwashing

After prolonged delays, the European Council has finally approved the Corporate Sustainability Due Diligence Directive (CSDDD), imposing legal liability on companies for environmental and human rights violations in their supply chains. However, the approved directive is significantly diluted from its initial proposal, frustrating sustainability advocates. The CSDDD mandates corporate due diligence on sustainability issues, focusing on environmental concerns, climate change, and human rights, applicable not only to companies but also to their subsidiaries and supply chains. Originally intended to impact companies with 500 employees and €150 million turnover, the approved version raises these thresholds to 1,000 employees and €450 million turnover, drastically reducing the number of affected businesses to about 30% of the original scope. The directive will be phased in over several years, with larger companies affected sooner. Despite these compromises, the CSDDD now moves to the European Parliament for approval, where uncertainties remain amid the volatile political landscape.

Lawmakers in the European Parliament overwhelmingly voted in favour (467-65) of implementing regulations to combat greenwashing, the deceptive environmental claims made by companies. The regulations, part of the proposed "Directive on Green Claims" by the European Commission, aim to safeguard consumers by requiring companies to substantiate claims such as "biodegradable" or "less polluting" before using them in marketing.

The decision follows concerns raised by a study revealing that over half of environmental claims in the EU were vague or misleading, with 40% lacking any substantiation. The proposed directive mandates businesses to validate their green claims with independent verification and scientific evidence, discouraging the proliferation of unreliable private environmental labels. Additionally, it forms part of a broader EU Commission initiative addressing consumer-oriented environmental issues, including ecodesign regulations and updates to unfair commercial practices directives.

Key provisions of the directive include a 30-day assessment period for green claims, differentiated verification processes for simpler claims, and a ban on claims solely relying on carbon offsetting. However, companies can mention offsetting and carbon removal schemes if emissions have been minimized and certified carbon credits are used.

Small and medium-sized businesses would have an additional year to comply, with micro-enterprises exempted. Penalties for rule violations include fines up to 4% of annual revenue and exclusions from public procurements.

Separately, a recent ruling by a Dutch court has found KLM guilty of misleading consumers through its advertising campaigns aimed at enhancing the company's environmental image, a practice commonly referred to as "greenwashing". The court's decision, which coincides with increased regulatory scrutiny over environmental claims, sets a precedent for airlines regarding the transparency of their efforts to mitigate greenhouse gas emissions.

The court concluded that several past advertisements by KLM were deceptive and in violation of the law, citing vague sustainability claims and an overly optimistic portrayal of measures to reduce emissions, such as the use of biofuel and tree planting. While KLM welcomed the decision as providing clarity without imposing penalties, environmental groups hailed it as a significant milestone.

Legal experts note that such claims are widespread in the aviation industry, with BEUC, Europe's main consumer group, lodging a complaint against 17 European airlines with the European Commission over similar assertions. Air France-KLM defended the company's actions, asserting concrete steps taken to reduce emissions through fleet upgrades and increased biofuel usage.

However, activists argue that KLM's "Fly Responsibly" campaign misleads consumers, given the substantial greenhouse gas emissions associated with air travel. The court's ruling mandates KLM to adopt a more transparent approach in future advertising, emphasising honesty and specificity regarding environmental claims. Despite calls for a blanket ban on advertising, KLM retains the right to continue its marketing efforts, provided they adhere to the court's directives.

Australian sport faces financial and legal risks from climate inaction

A report highlights Australian sport's vulnerability to climate change, posing significant financial and legal liabilities. Despite evident impacts like extreme heat, bushfire smoke, and flooding, sporting organizations have been slow to respond. Less than 1% of top sporting bodies mention climate change in annual reports, with minimal references in strategic plans or websites. Rugby league particularly lacks climate initiatives, contrasting global perspectives on climate action.

The report outlines potential liabilities including personal injury, contractual implications, financial disclosures, and reputational damage. It urges proactive measures like comprehensive heat policies and contractual adjustments to mitigate risks. Recommendations include elevating climate change discussion at board levels and integrating it into risk management strategies.

While sports' emissions are relatively small globally, their influence in promoting climate solutions is significant. Advocates stress the need for leadership from sporting bodies to foster a culture accepting climate action. The report underscores Australian sport's lag in addressing climate concerns, urging urgent action to safeguard beloved games for future generations.

Australia's material use and circularity examined by CSIRO, while France, Sweden and Denmark propose ban on export of second hand clothing

CSIRO's latest report delves into Australia's material consumption, shedding light on opportunities for a more circular and sustainable economy. Despite progress in reducing material footprint and increasing circularity, Australia's circularity rate remains at 4%, half the global average. Housing and transport contribute over half of the country's material footprint, with food adding another 22%.

The report notes Australia's excessive material use compared to global averages. While efforts have curbed emissions, significant potential for circular economy transitions remains. It emphasises the need to double circularity rates, particularly through improved recycling and product longevity.

Material usage significantly impacts emissions, with over 50% contributing to global warming. Embracing circular economy principles promises cleaner environments and economic benefits, including job creation and supply chain resilience. The report is part of CSIRO's Circular Economy for Missions initiative, aiming to address Australia's challenges by fostering circular practices, supported by government funding under the National Environmental Science Program.

While the proposal to ban EU second-hand clothing exports aims to mitigate environmental damage and bolster circular fashion practices. France, Sweden, and Denmark are spearheading the initiative to halt the 1.4 million metric tons of used textiles exported annually from the EU, predominantly to African countries. Studies reveal that 20 to 40 percent of these clothes arrive as waste, burdening local waste management systems and polluting the environment.

The proposal, slated for discussion at the Environment Council meeting, seeks to address the adverse effects of fast fashion. Brands like H&M and Zara contribute to overproduction and over-consumption, perpetuating the cycle of textile waste.

However, the ban raises concerns for millions in Africa who rely on the $10 billion second-hand clothing trade. Critics attribute blame to key industry players, including charities and exporters, who exploit the goodwill of clothing donations for profit. While acknowledging the disruption, advocates argue for systemic change, advocating for Extended Producer Responsibility regulations to track textiles and mitigate their environmental impact globally.

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The views expressed in this article are the views of the author, not Ernst & Young (EY). This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.