Essay by Eric Worrall

Legal penalties for greenwashing could force Aussie companies to declare their total lack of interest in climate action.

Mandatory climate reporting begins this year, marking generational change for corporate Australia

By national regional reporter Clint Jasper

In short:

Australia’s new mandatory climate reporting legislation begins this week.

The legislation requires companies to disclose their emissions and how a warming planet may impact their balance sheets.

What’s next:

Only the largest entities need to start reporting this year, but more will be captured by the legislation in coming years.

Australia has introduced new mandatory climate reporting rules that require business owners to estimate their company’s emissions and outline plans to tackle future risks.

The legislation, passed in 2024, is the most significant change to reporting requirements and director responsibilities in a generation, according to the Australian Institute of Company Directors (AICD).

It will require companies to disclose their greenhouse gas emissions and explain how a range of future climate scenarios could impact their business, in a sustainability report filed alongside their financial data.

Initially, the legislation will apply only to Australia’s largest companies but by 2027, thousands of corporate and not-for-profit organisations will be included — something AICD managing director and CEO Mark Rigotti said would be a significant change in the way companies approach their mandatory disclosures.

“It’s actually quite a fundamental step change in reporting and there probably hasn’t been as significant a change since 2003, when we moved from sort of domestic financial standards to international financial reporting standards,” Mr Rigotti said.

…

Read more: https://www.abc.net.au/news/2025-01-02/mandatory-climate-reporting-rules-begin/104718398

I’m not a legal expert so please consult your own lawyers, but it seems the only legally safe way to avoid being prosecuted for making misleading financial statements is to tell the truth.

Greens will be on the lookout, to pounce on companies which make misleading statements in their company reports about their climate policies. I fully expect to see some showcase prosecutions for companies which make misleading statements, directors who think they can play business as usual, misleading the public and their investors about their climate commitments.

The best way to play it safe is to admit you don’t have any plans to address climate change or reduce emissions.

Companies have a fiduciary duty to serve the interests of shareholders. A commitment to winding up the business if climate change erodes profit is a legally acceptable response to all these alleged climate threats. Companies are under no obligation to continue operating under adverse trading conditions. If the board believes shareholder capital is at risk, they are entirely justified enacting an orderly shutdown of the company and sale of corporate assets, to return as much capital as possible to shareholders.

So a company which says “If climate change adversely affects our business, we shall cease trading and sell all our assets” is entirely within their rights to do so, providing they can justify this statement as being in the best interest of shareholders. Going for short term profits, using their lack of climate action as a strategy to undermine competitors and win market share, then shutting down the company when this course of action is no longer tenable, is an entirely acceptable way to respond to the alleged climate crisis.

The reality of course is there is no climate crisis. But by taking an official position of accepting the existence of the crisis, then explaining you don’t intend to do anything about it, along with justifications for this position, company directors should be able to minimise their personal risk while serving the best interests of their shareholders.

If any director caves in to pressure to spend big on climate action, that course of action also carries risks. Merchant banks in the USA have been accused of conflicts of interest, because of their green commitments. Directors who cave to the green blob might find themselves personally liable for investor capital losses, if they divert too much shareholder cash away from profit making activities, if courts find they breached their fiduciary duty to shareholders.

I hope some company directors have the courage to take the high road, to stand up for shareholder interests instead of ducking and weaving, business as usual, trying to finesse their position while the green walls are closing in. Because if some of them do stand up and take the government on at their own game, 2025 is going to be an entertaining year for Australian climate policy.