Navigating the perfect storm: disclosure obligations rise despite greenwashing scrutiny

May 2, 2023
8 min read
Louise Horrocks

ASIC’s greenwashing crackdown 

Mercer Super is the latest Australian company to be sued over alleged greenwashing by making misleading statements regarding the sustainability nature and characteristics of seven of its superannuation investment options. Specifically, ASIC identified that those products invested in 49 companies across carbon intensive fossil fuels, the production of alcohol, and gambling, including AGL Energy, BHP, Glencore, Crown Resorts, and Budweiser. ASIC is concerned that the increasing demand for sustainability-related financial products comes with growing risk of misleading marketing and greenwashing. Greenwashing action is one of ASIC’s enforcement priorities for 2023 and so ASIC is seeking not only declarations and pecuniary penalties from the Court but the injunctions preventing Mercer from continuing to make any of the alleged misleading statements.  

Mercer is certainly not the first company to be pursued. ASIC’s activity in this area has been building over the last two years with:

  1. fines of over $140,000 issued to several Australian companies in 2022. Tlou Energy Limited (Tlou), one of the fined companies, was required to pay a total of $53,280 to comply with four infringement notices to three entities in the reporting period for misleading sustainability-related statements. ASIC’s concerns were that Tlou either did not have a reasonable basis to make the representations, or that the representations were factually incorrect; and 
  2. before that, warnings issued to five fossil fuel firms in 2021. The firms were advised that they risked breaking the law due to non-disclosure of climate change risks.  

ASIC is also understood to be closely watching the 2021 ACCR filed claim against Santos in relation to its alleged misrepresentations that it produces clean energy and has a pathway to reach net zero emissions. 

While ASIC continues its monitoring, Australian companies are facing a wave of incoming changes designed to draw out material sustainability disclosure, specifically: the anticipated mandating of the ISSB reporting standards, the development of a national financial taxonomy, and the EU’s sustainability disclosure requirements. 


The International Sustainability Standards Board Standards (ISSB Standards) is a global sustainability reporting framework for broad reaching sustainability-related disclosures on sustainability-related risks and opportunities. The ISSB Standards are expected to become mandatory in Australia, requiring disclosure of material sustainability-related risks and opportunities (amongst other matters). Australian regulators have indicated that large listed companies and large financial institutions should adopt the ISSB Standards as a reporting framework while the Federal Government is also considering whether it should apply to large unlisted entities. The ISSB’s general reporting and climate reporting standards are due to be issued at the end of Q2 2023 and take effect 1 January 2024.

Australian Financial Taxonomy 

Greenwashing practices will also be challenged by the Australian Sustainable Finance Institute’s (ASFI) development of a mandatory taxonomy for sustainable investment in Australia, as announced in December 2022. This taxonomy will be used as a tool comprising a set of criteria for classifying financial activities as having certain sustainability attributes and supporting consistency of terminology used.  

Australia’s movement towards a taxonomy for sustainable investment follows similar moves by other international jurisdictions like the EU, which has designed its taxonomy as a classification system establishing a list of environmentally sustainable economic activities to achieve the EU’s climate targets and address greenwashing. It provides companies, investors, and policymakers with appropriate definitions of environmentally sustainable economic activities that is based on two criteria, requiring: 

  • a contribution towards at least one of six identified environmental objectives; and
  • no significant harm caused to any of the other identified objectives, while respecting basic human rights and labour standards.

Consistency has long been desired globally with respect to reporting and ESG terminology, and definitions of these terms will in turn allow organisations to align their ESG strategies and communication to stakeholders to a standardised classification system. 

EU Corporate Sustainability Reporting Directive (CSRD) 

While these developments are unfolding in Australia, internationally the EU is finalising a Corporate Sustainability Reporting Directive (CSRD) proposal which will impose mandatory sustainability disclosure requirements on large companies registered in, or with significant operations in, the EU. This directive will significantly expand the current reporting framework and relevant businesses will be expected to undertake substantial environmental and human rights due diligence in addition to mandatory disclosure obligations around ESG strategy, policies, and targets. If the directive is passed, member states will be required to incorporate requirements into national law. 

The directive will also impose requirements on corporates outside of the EU who satisfy operating criteria. This is expected to apply to at least 10,000 international companies, including approximately 600 Australian companies. Reporting standards are expected to be published in June, with the directive expected to come into force from 2025. 

Alongside these corporate reforms, there are a number of other major reforms also underway which will prompt further sustainability reporting 

Safeguard Mechanism Reforms to progress with a hard cap on emissions  

The federal government has secured Parliamentary support from the Greens to implement the Safeguard Mechanism reforms. The Green’s support for the policy required the inclusion of a hard cap on emissions which was not initially part of the proposed bill. This will impact new or expanding high-pollution projects, including the 116 new projects that are currently in the pipeline. The Safeguard Mechanism reforms will amend the existing Safeguard Mechanism Bill by imposing emissions limits on the 215 largest-polluting facilities in the country, requiring them to reduce their emissions by 4.9% per year to 2030. The reforms are anticipated come into effect on 1 July 2023.  

Review of the Modern Slavery Act to increase due diligence requirements  

Modern slavery reporting in Australia is likely to be impacted out of the first review of the Modern Slavery Act 2018 (Cth) (MSA). The review is expected to strengthen regulations, requiring companies to demonstrate continuous improvement and address modern slavery through human rights due diligence, rather than mandatory reporting similar to international standards.  It will lead to increased scrutiny of Directors and their Fiduciary duties, however the details of such reforms are yet to be finalised and announced. 

Final TNFD draft framework released   

The Taskforce on Nature-related Financial Disclosure (TNFD) was launched in 2021, with the aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. In March 2023, the TNFD published its fourth and final draft framework (V0.4) for nature-related risk management and disclosure. It outlines its approach to disclosure metrics proposing a tiered a set of leading indicators that are relevant across sectors and reflect global policy priorities. This can strike the right balance between being science-based and practical when market participants assess risks, impacts and dependencies. The TNFD will undertake a formal consultation process from 30 March to 1 June and release its final recommendations in September.