Climate reporting and greenwashing: What small businesses need to know

Small businesses are critical to Australia’s economy, and they have an important part to play in Australia’s transition to a sustainable future, writes ASIC Deputy Chair Sarah Court.

This article provides guidance on some current developments, and outlines what small businesses need to know.

Mandatory climate reporting
The government is proposing to introduce mandatory climate-related disclosure laws for large businesses and financial institutions. These laws would require large businesses to disclose information each year about their climate-related financial risks, opportunities, plans and strategies.

The reporting requirements are intended to apply only to large businesses and financial institutions, and will be phased in across three groups of businesses by size over time.

The first two groups will capture Australia’s largest businesses and financial institutions. The third group is expected to encompass businesses that meet at least two of the following criteria:

consolidated revenue of $50 million or more,
consolidated gross assets of $25 million or more, and
employees numbering 100 or more.
The majority of Australian small and medium businesses will not fall within this category. This means that those businesses are not expected to have any direct reporting requirements in the immediate future. However, many small businesses form part of the supply chain of larger businesses, which means they may need to engage with climate reporting considerations over time, even if they do not have any direct climate reporting obligations.

This is because the ‘scope 3’ emissions of a large business with reporting obligations may include the emissions of its small business suppliers. Scope 3 emissions are those emissions that occur up or down a company’s supply chain.

Under the government’s proposals, reporting entities will have to disclose their scope 3 emissions provided that this information is available at the reporting date without undue cost or effort. Scope 3 emissions reporting is required from the second year of reporting, which will provide additional time for reporting entities to develop the capabilities required to measure and report on them. The government expects that, in the immediate term, most scope 3 emissions will be estimates reflecting information that is accessible at the time of the disclosure.

Once the new laws come into effect, ASIC will work with small business representatives to develop practical guidance for small businesses in relation to the requirements of the new laws and how the new laws may impact them.

Greenwashing refers to claims made about a product that it is environmentally friendly, sustainable or ethical, when it is not. It is a form of misleading or deceptive conduct. Consumers and investors need to be able to rely on the claims made to them about the environmental benefits of their products, and tackling greenwashing is an enforcement priority for ASIC.

We have recently taken action in cases including where:

Listed companies described their operations, projects or products as ‘carbon neutral’, ‘clean’ or ‘green’ when there appeared to be no reasonable basis for these claims.
Financial products or managed funds were not ‘true to label’ – that is, the names of the products or funds included sustainability-related terms that were inconsistent with investments made by the fund.
The scope or application of an investment screen or exclusion was vague or overstated in a Product Disclosure Statement or website.
Our most recent greenwashing report (REP 763) highlights why and when ASIC intervened to correct disclosures made by listed companies and managed funds. We have also issued an information sheet (INFO 271) to help the entities that we regulate comply with their legal obligations. We encourage small businesses to consider this guidance if they intend to make sustainability-related claims in connection with the promotion or offering of financial products or services.

Our continued work in this area – alongside efforts from other regulators such as the ACCC – is designed to ensure that all participants in the financial system (including small businesses) can place greater trust and confidence in sustainability-related claims. The ACCC has produced some excellent reference materials relating to the Australian Consumer Law, including this guide for businesses on making environmental claims.

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