What are Your Sustainability Obligations as a Company Director?

In September 2022, the Federal Government introduced two critical pieces of legislation to address climate change and implement Australia’s commitment to net-zero emissions. The Climate Change Act 2022 (Cth) (Climate Change Act) and the Climate Change (Consequential Amendments) Act 2022 (Cth) (Consequential Amendments Act) commenced on 14 September 2022.

The legislation set targets to reduce Australia’s net greenhouse gas emissions to 43% below 2005 levels by 2030 and to zero by 2050.

The Climate Change Act solidifies Australia’s commitment to an economy-wide climate change response. And the expectation that industry will comply with the Climate Change Act will have significant implications for organisations and their directors.

One key aspect of the climate legislation is the 2030 target’s implementation as an “emissions budget” – coupled with an accountability regime set to track progress against the targets in the form of annual progress reports.

Implications for Australian Businesses

The Climate Change Act will usher in a more climate-conscious economy and corporate environment – changing how Australian organisations operate.

Here are some key considerations for organisations when assessing the impact of climate change legislation on their future plans.

New policies

The emissions target will influence government policy on energy efficiency, conservation and the use of renewable resources.

When it comes to new policy changes, policymakers will likely need to justify how a new policy contributes to Australia’s emissions targets (or, at the very least, does not detract from them).

Therefore, the expectation of complying with climate change legislation will impact all new policies introduced into parliament, including policies directly affecting various industries.

As such, organisations must monitor the legislative environment closely to ensure their policies and decisions align with the Climate Change Act.

What to expect

The Victorian Climate Change Act 2017 provides a practical case study for organisations considering the potential impact of climate change legislation at the federal level. In line with the new federal legislation, the Victorian climate change legislation sets a net-zero emissions target for 2050.

One case that has since tested the Victorian legislation’s powers is Environment Victoria vs the EPA et al. (2021). In that case, Environment Victoria, an independent not-for-profit group that campaigns for a safe climate, launched legal action against the Environmental Protection Authority (EPA) over the EPA’s review of three power station licences.

Environment Victoria’s argument is that the EPA did not adequately consider the impacts of climate change when reviewing those licences. The power stations’ respective owners, AGL Energy, EnergyAustralia, and Alinta, are also named in the suit.

The emissions from the power stations in question represent 40% of Victoria’s greenhouse gas emissions – posing the biggest hurdle to achieving the net-zero target. At the heart of the issue is whether the EPA complied with the Victorian climate change legislation when issuing new licenses for those power stations.

The case in Victoria is still ongoing, and it’s one that Australian organisations should follow closely, as its outcome could set a precedent on how organisations must consider the Climate Change Act in their policies.

What actions should your organisation take?

While the Climate Change Act does not impose obligations directly on companies, it provides an indication of the increasing importance of environmental sustainability and greenhouse gas emissions, particularly for government-backed projects.

If your organisation or Board has not yet turned its mind to these issues, now is a great time to start.

Firstly, the Board and the management team should work together to seek clarity on the physical risks of climate change – and what you will need to change about your organisation to mitigate those risks. 

The questions you need to ask of your organisation are:

• Who is responsible for monitoring our compliance with legislation? 
  
  Ensure someone on your board and management team is in charge of monitoring any changes to the current legislation which might seek to impose obligations directly on companies. 

• Are you embedding Environmental, Social and Governance (ESG) Outcomes into all levels of decision-making within your organisation?

• Is there a Chief Sustainability Officer (CSO) who is part of your executive team? 
  
  Effective sustainability measures also include a validation process that allows boards oversight on what your organisation is doing regarding sustainability.

Conclusion

A proactive approach to sustainability will ensure your organisation is ready to meet any future legal obligations and help make the world a better, more livable place for future generations.  

Contact our team if you want guidance on your organisation’s legislative compliance obligations.