Allegra Spender (Wentworth, Independent) Share this | Hansard source

I rise in support of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. I will focus my comments on schedule 4, which provides for the introduction of mandatory climate related financial disclosures, a positive and long-overdue reform.

I have spoken many times in this place about the risks posed by climate change, and these are getting greater every day. A few weeks ago, the Guardian revealed that hundreds of the world's leading climate scientists expect global temperatures to rise by at least 2.5 degrees, 'blasting past internationally agreed targets and causing catastrophic consequences for humanity'. Climate change poses huge risks to our society, and there are specific risks for our business community and the financial sector. This includes both the physical risk of a warming planet, like increased fires and floods, and the transition risks associated with moving to a net zero world.

Internationally, one of the tools being used to manage these risks is mandatory climate related financial disclosures. These disclosures are a key enabler of corporate climate action because they help companies identify and manage the genuine risks that climate change poses to their businesses, because they provide the transparency that helps shareholders and the public invest in the net zero economy, and because they hold companies accountable for setting and meeting their climate goals. This work has been led globally through the Task Force on Climate-related Financial Disclosures and, subsequently, the International Sustainability Standards Board—global progress to tackle a global problem.

Mandatory standards are now in place in economies worldwide. The UK introduced a mandatory climate related financial disclosures requirement in 2022. The European Union has a directive in place covering both large European firms and more than 10,000 non-European companies. In March this year, the US introduced its own long-awaited disclosure requirements. Once all pending disclosure rules are enforced, it is estimated they will cover nearly 40 per cent of the world's economy, also including Brazil, Canada, Hong Kong, New Zealand and Singapore, so it is absolutely time that Australia acts.

Whilst many large corporations listed on the ASX are already preparing sustainability and climate change reports, these disclosures are not consistent, not mandatory and not adapted for the Australian context. If we want a future to be made in Australia, if we want to attract the kind of capital that is critical to becoming a green energy superpower, if we want to meet even our modest climate targets, then investors need transparent and consistent information, and this is what this bill seeks to provide. It requires entities to make an annual climate statement which identifies the climate risks and opportunities they face, outlines their plan for managing these and sets out their climate related metrics and targets, including entities' scope 1, 2 and 3 greenhouse gas emissions.

The bill takes a phased approach to introducing these standards, with the very first reporting period starting on 1 January 2025 for 729 very large companies categorised under the legislation as group 1 entities, which are broadly comparable in size to those listed on the ASX. There are further grace periods for the so-called group 2 and group 3 entities, with medium-sized entities in group 3 not required to provide full disclosures if they can show they have no material exposure to climate change. This phased approach is appropriate, particularly when it comes to the group 3 entities, the smallest companies captured by this regime. I urge the government to take the lead from countries like Singapore, where significant support has been provided to help comply with the new reporting regime.

This bill is particularly relevant for my community in Wentworth. Over the past two years, I've spoken to many constituents, from those in the banking sector to venture capital investors to clean energy companies, who recognise the importance of this kind of transparency and disclosure being provided for in this legislation. I want to commend the government on the broad support for this legislation which exists across the financial, business and non-government sector. When this bill was introduced, 15 of Australia's most influential organisations representing business, finance, and investors came together to support the passage of schedule 4, including the Business Council of Australia, the Australian Institute of Company Directors, the Property Council, the Investor Group on Climate Change and the Australian Sustainable Finance Institute. Together, the group represents more than 900 companies, investors with over $80 trillion worth of assets under management and 7.7 million retail shareholders. It is great that they're backing the bill, as are those across the climate and environmental community.

But, whilst this is a good bill, I do have some concerns about the unintended consequences of certain provisions in the legislation, specifically the modified liability provisions. Under the legislation, entities must report on matters including their scope 3 emissions, scenario analysis on the impact of climate change on their business, and, critically, their transition plans—that is, the set of steps they are taking to transition their business to a net zero world. These are incredibly important disclosures. They may be challenging to put together in the first instance, but they go to the heart of the kind of transparency and accountability that this bill seeks to mandate.

However, the government has inserted modified liability provisions into this bill, which means that no legal action can be brought against entities in relation to these disclosures for the first three years of the new regime. ASIC will still be able to bring actions against businesses for claims that are misleading or deceptive, but the right of third parties, including investors, to do this has been removed. The weakening of this legal check and balance may undermine some of the policy intent of the new regime. As currently drafted, the bill may prevent action such as the 2021 case against Santos for misleading and deceptive conduct, which was brought when Santos claimed they had a credible pathway to net zero by 2040, despite plans to open up new major gas projects. This bill should enable companies to be more accountable for their climate transition plans, not less.

I understand there are practical difficulties for businesses having to meet new reporting requirements. It's not easy to get things right the first time, and there are inherent challenges with calculating scope 3 emissions, choosing the right scenarios to analyse climate impacts and plotting your company's path towards net zero. Large ASX listed companies, such as the group 1 entities captured by this bill, have the resources to comply with these new reporting requirements, and many have been making similar disclosures for some time. I'm not sure if they need three years to get it right.

I have much more sympathy for medium-sized businesses like the group 3 entities covered by this bill. As a former small-business person, running a small business myself, I don't underestimate the challenge of meeting new reporting requirements. When you're cash-strapped and short-staffed it won't always be easy to get your sustainability disclosures right the first time.

When it comes to the modified liability provisions in this bill, it's a mixed bag. I think it's appropriate that companies, particularly those in group 3, have some protection in the early years. I think it appropriate that these projections go to scope 3 emissions and scenario analysis in particular. And I think there is a role for these projections in helping companies make the most ambitious disclosures possible, rather than focusing very narrowly on regulatory compliance and needing to pull back on their disclosed decarbonisation plans for fear of litigation. I note the strong community support from the business community for modified liability provisions. I also note the bar for litigation for misleading disclosures in comparable regimes such as the UK is far higher than that provided for in this legislation. I'm also concerned that the provisions may make it easier for large fossil fuel companies like Santos and Woodside to greenwash for the next three years and to claim that they're committed to net zero whilst investing in new fossil fuel projects. I'm hesitant about removing these protections entirely, so I urge the government to look at whether they have achieved the right balance between these two competing priorities as this bill moves forward.

This is an important piece of legislation, and I commend the Treasurer and his colleagues for the broad support it has received. In closing I also urge the coalition to reflect on the support this bill has from the financial and business sectors and to support the provisions in schedule 4. If you're serious about taking action on climate change and seizing the opportunities of the green transition, you need to support legislation like this.

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