Keeping Up With ESG In Australia – June 2025

Welcome to the June 2025 edition of Herbert Smith Freehills Kramer's Australian ESG bulletin, 'Keeping Up with ESG'.

Our monthly ESG bulletin provides a targeted snapshot of key developments we see as reflecting the "must know" trends in the Australian market. In this edition, we spotlight recent ESG litigation updates.

ESG litigation update

Peruvian farmer decision to set a precedent in climate change litigation

On 28 May 2025, the German Higher Regional Court of Hamm issued a landmark decision in Liluya v RWE AG 5 U 15/17 OLG Hamm, the long-running climate litigation brought by Peruvian farmer Saúl Luciano Lliuya against Germany's largest coal-burning energy company, RWE AG (RWE).

The case was originally filed in 2015 and sought to test legal principles around the attribution of corporate liability for climate change. Central to the case was the claim that RWE's historical GHG emissions had materially contributed to the melting of the Palcaraju Glacier, leading to the expansion of a glacial lake which was said to pose a flood risk to Liluya's home. While RWE did not operate in Peru, the case alleged that as one of the largest CO₂ emitters in Europe (and allegedly responsible for around 0.5% of global emissions since industrialisation) RWE was nonetheless contributing to harm in Peru through its contribution to climate change as a global phenomenon.

At first instance, the District Court in Essen dismissed Liluya's claim. Liluya then sought to appeal to the Higher Regional Court. While the Court allowed the appeal to proceed it ultimately dismissed the appeal on the facts, finding that the likelihood of the flooding was too low, and that in any event a potential flood would not cause damage to Liluya's property. However, in doing so, the Court held that:

• scientific evidence demonstrated that, since 1965, emitters could reasonably foresee potential damage resulting from their operations;
• under the German Civil code, companies who contribute to climate change may be held proportionately liable if a real threat of harm can be shown to flow from their actions; and
• under German law, the fact that an emitter did not operate near, or in the same country as, a plaintiff would not be fatal to a claim.

Although Liuya's claim was ultimately unsuccessful, these findings by the German Higher Regional Court may open the door for further similar claims being made relating to the impacts of climate change. Whilst the Court's findings were made in respect of German law, the finding that the fact that an emitter did not operate near, or in the same country as, a plaintiff would not be fatal to a claim introduces, on its face, a level of extraterritoriality.

ACCC launches Federal Court action

The Australian Competition & Consumer Commission (ACCC) has launched a Federal Court action against Australian Gas Networks (AGN), alleging that claims made in its 'Love Gas' campaign from 2021 and 2022 were false and misleading.

The ads show a young girl and her father using gas appliances in the home for cooking, bathing or heating. The ads then fast-forward to show the girl, now a young adult, engaging in the same household activities. The claims that are the focus of ACCC's action are as follows (or similar):

• some things never change, but the flame we use will;
• it's becoming renewable;
• controllable, reliable gas; and
• for this generation and the next.

The final frame of each ad featured the company's logo next to a green flame, and the words; "Love gas. Love a renewable gas future"; or just "Love Gas". The ads did not contain any qualifications, fine print or disclaimers.

The ACCC has alleged that the ads were misleading as they "overstated the likelihood of AGN overcoming significant technical and economic barriers to distribute renewable gas to households within a generation". The ACCC alleges that it is not currently possible to distribute renewable gas at scale and at an economically viable price, and that at the time the statement was made it was highly uncertain whether, and when, this would be possible. Accordingly, the ACCC alleges that AGN did not have reasonable grounds for making the claims at the time the ads were aired.

The ACCC is seeking declarations, penalties, costs and other orders. See here for the ACCC media release.

Ad Standards upholds complaint

Ad Standards has determined that a claim made by Australian Gas Networks (AGN)relating to renewable gas was misleading under the revised Environmental Claims Code.

The ad, filmed in the MasterChef Kitchen, features a close up of a gas burner being used for cooking, accompanied by a voice-over which stated "at AGN we're working towards a future where renewable gas could one day be used in your kitchen."

Ad Standards determined that the advertisement contained the following "environmental claims" under the Environmental Claims Code:

• that the gas used in the MasterChef kitchen is renewable (Claim 1).
• that the advertiser is taking steps towards similar renewable gas being available in any kitchen (Claim 2).

Ad Standards determined that Claim 1 was not misleading as the average consumer would understand that biomethane gas is renewable as it is from a replenishable source. However, it found that Claim 2 was misleading as the phrase "where renewable gas could one day be used in your kitchen" was vague and did not clearly articulate that renewable gas would not be widely available until 2050. Instead, Ad Standards considered that this phrase conveyed the impression that renewable gas was presently widely available.

This decision is another example of the expanded impact of the revised Environmental Claims Code. It also emphasises the importance of not overstating the state of development and adoption of new technologies in the context of the energy transition. See here for more information.

ASFI releases Australian Sustainable Finance Taxonomy

On 17 June 2025, the Australian Sustainable Finance Institute (ASFI)released the Australian Sustainable Finance Taxonomy which provides a clear classification system for green and transition finance, tailored to Australia's unique economic and environmental context.

The taxonomy aims to allow for easier identification of investment and lending opportunities for financial institutions to then direct private capital allocation towards net-zero aligned activities. It covers key Australian sectors including green mining, metals and minerals and agriculture and has a focus credible transition activities. It also sets minimum expectations for engagement with First Nations peoples and cultural heritage management that an entity must meet when seeking to demonstrate that its activities are taxonomy-aligned. ASFI is now piloting the taxonomy with a small cohort of financial institutions, to inform broader implementation. At this stage, the taxonomy is voluntary but we expect that over time, investors and other stakeholders (including perhaps the regulators) will increasingly expect the taxonomy to be applied by financial institutions.

We are reviewing the taxonomy in detail and will provide a note with key takeaways. If you have any questions in the meantime, please get in touch with your usual Herbert Smith Freehills Kramer contact or the below.

New developments in Employment, Industrial Relations and Safety

Annual Wage Review 2025

The Fair Work Commission has determined to increase the National Minimum Wage and all modern award minimum wage rates by 3.5% from 1 July 2025. This decision aims to partially restore the real value of wages for low-paid workers, which has declined due to inflation since 2021. The decision was deemed sustainable given strong labour market conditions, stable business profitability, and the Reserve Bank's assessment that inflation has returned to its target range. However, the increase was moderated by factors such as weak productivity growth, uncertainty caused by changing US trade policies, and upcoming superannuation changes (including the increase in the Superannuation Guarantee contribution rate). The Fair Work Commission also reaffirmed its commitment to addressing gender-based undervaluation in modern awards.

New NSW workplace legislation

The NSW Government has introduced two major reform Bills in 2025 to streamline psychological injury claims and enhance workplace protections. These Bills highlight the NSW Government's continued focus on industrial relations and workplace safety reform, particularly in high-risk environments. In light of these proposed changes, businesses should reflect on their processes for handling these issues internally, and in particular ensure that they are continuing to take proactive steps to manage and prevent bullying and sexual harassment and manage psychosocial health at work.

• The Workers Compensation Legislation Amendment Bill 2025 (NSW) was introduced following an inquiry into the exposure Bill which led to changes to some initial proposals, including adding "excessive work demands" as a new compensable clause and removing the need for workers to go to court or a commission before seeking compensation for bullying or harassment injuries. However, workers who sustain a work-related psychological injury will only be entitled to compensation if their condition arose from one of a limited number of "relevant events" such as violence, bullying, harassment or traumatic events (and now excessive work demands).
• Meanwhile, the Industrial Relations and Other Legislation Amendment (Workplace Protections) Bill 2025 (NSW)empowers the Industrial Relations Commission to award up to $100,000 in damages for victims of workplace bullying and sexual harassment, introduces civil penalties for breaches of stop bullying or stop harassment orders, extends WHS prosecution timeframes, expands union enforcement rights, strengthens entry permit powers, and mandates employer reporting to SafeWork of provisional improvement notices.

For further information, please see our notes below.

Significant reforms to the NSW Compensation Sceme on the horizon

Major safety and industrial relations reforms proposed in NSW

Workplace surveillance and safety concerns

A Victorian Parliamentary inquiry has recommended that WorkSafe Victoria be empowered to oversee and enforce new workplace surveillance laws aimed at protecting workers from harmful practices and health impacts. The final report from the Victorian Legislative Assembly Economy and Infrastructure Committee highlights how rapidly advancing surveillance technologies – ranging from keylogging to AI and biometrics – are intensifying workloads, increasing stress, and fostering toxic workplace cultures. It found that excessive surveillance erodes trust and job satisfaction, especially affecting marginalised workers. The committee calls for principles-based legislation requiring employers to justify surveillance through risk assessments, notify and consult workers, and limit data use to its original purpose. It also warns against "function creep," where surveillance introduced for safety is repurposed to monitor performance, often without workers' knowledge, leading to disciplinary actions and emotional distress.

Businesses should put in place governance measures and controls or guardrails in relation to the use of AI and/or workplace surveillance technologies in the workplace, particularly with respect to potential use of employee data to ensure compliance.

Australia Federal Election 2025 Wrap Up

Following the re-election of the Australian Labor Party (ALP) in last month's federal election, the federal regulation of employment and industrial relations is expected to continue to embed existing changes as well as some new policy changes, including:

• the banning of non-compete clauses for workers earning below the high-income threshold (currently set at $175,000 per year and indexed annually);
• preservation of penalty rates in modern awards; and
• amending the Fair Work Act 2009 (Cth) to provide for paid parental leave (PPL) entitlements for parents of stillborn children or where a child dies while an employee is on PPL.

The ALP has also announced a productivity roundtable in August, with potential further reform arising from this. For further details, please see below.

Australian Federal Election 2025 Wrap-Up: What businesses should expect for employment and industrial relations reform

Australian Federal Election 2025: Spotlight on employment and industrial relations

SA's new Biodiversity Act introduces a general biodiversity duty

On 26 June 2025, the South Australian Biodiversity Act 2025 (SA) received royal assent. Most significantly, the Act creates a general biodiversity duty, the first of its kind in Australia. Under the duty, a person (which includes a business) must not carry out or undertake an act or activity that harms or has the potential to harm biodiversity unless the person takes all reasonable and practicable measures to prevent or minimise any resulting harm. The Act provides that what is reasonable will depend on a consideration of a range of factors, including:

• the likelihood of harm;
• the potential impacts of the harm, including cumulative effects;
• the extent to which an entity knows, ought reasonably to know about or to have reasonably foreseen the likelihood of harm and ways to eliminate or minimise it; and
• the availability, sustainability and practicability (including cost) of measures addressing harm.

Many Australian states have environmental laws that impose a general environmental duty, including South Australia. The scope of the duty is different in each jurisdiction, but broadly relates to identifying risk of environmental harm from the activity. If there is a risk of environmental harm from activities, there is a duty on the person undertaking the activity to consider and address the harm, which may logically involve due diligence to understand and then manage the risk. South Australia has now created a biodiversity-specific duty, framed along similar lines. Similar to South Australia's general environmental duty, failure to comply with the general biodiversity duty does not of itself constitute an offence, but compliance with the duty can be enforced using the enforcement tools under the Act eg a compliance order.

These measures form part of Australia's increasing regulatory focus on biodiversity conservation as part of its implementation of the Global Biodiversity Framework, which sets a biodiversity action agenda in alignment with international 2030 and 2050 targets. For more information on the Global Biodiversity Framework, see our notes below.

COP15: Nations adopt landmark Global biodiversity Framework

Keeping Up with ESG in Australia – October 2024

Guidance on climate-related disclosures

ASIC's approach to supervising sustainability reporting and monitoring greenwashing

ASIC has published its financial reporting and audit focus areas for the 2025-26 financial year. Unsurprisingly, one of the key focus areas is reviewing the first round of sustainability reports against the AASB S2 standards. ASIC has noted that it will share its observations with the market to assist in-scope entities with their ongoing and future climate-related disclosures. As in the past, ASIC stated that it will take a pragmatic and proportionate approach to supervision and enforcement as the sustainability requirements are phased in.

At the recent Responsible Investment Association Australasia Conference, ASIC Commissioner Kate O'Rourke provided further detail on ASIC's approach to reviewing climate related disclosures. In particular, she outlined ASIC's three-level strategy in supervising the climate reporting regime: provide guidance, use discretion to provide regulatory relief, and support 'capacity building'.

It is worth noting that Ms O'Rouke stated that ASIC's enforcement approach to greenwashing will be different to the approach taken to climate-related disclosures. She stressed that unlike climate reporting, greenwashing is a breach of long-standing, well-established legal obligations, and will be proactively monitored.

For more information, see the ASIC focus areas here and Kate O'Rourke's speech here.

IFRS Educational Material – greenhouse gas and transition plans disclosures

IFRS has published two guidance documents on certain climate-related disclosures under IFRS S2:

• 'Greenhouse Gas Emissions Disclosure requirements applying IFRS S2 Climate-related Disclosures' (GHG Emissions Guidance) and
• 'Disclosing information about an entity's climate-related transition, including information about transition plans, in accordance with IFRS S2' (Transition Plan Guidance).

These guidance materials may be helpful for entities reporting against AASB S2, as indicated in ASIC's Regulatory Guide 280 on sustainability reporting (which identifies ISSB-related educational material as being potentially useful for reporting entities in complying with AASB S2.

For more information, see the IFRS educational material here and here.

GHG Emissions Guidance

The GHG Emissions Guidance clarifies the context and reason underlying disclosures related to greenhouse gas emissions, and helps users navigate the 'Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard' (GHG Protocol).

It is in a Q&A format, and answers 15 questions, including whether:

• a reporting entity is required to disclose greenhouse gas emissions generated during the reporting period on a gross basis;
• a reporting entity is required to include all 15 categories in the GHG Protocol framework in its measurement of Scope 3 greenhouse gas emissions;
• a reporting entity is permitted to limit its measurement and disclosure of Scope 3 greenhouse gas emissions for each relevant category on the basis of the minimum boundaries provided by the GHG Protocol framework;
• there is there a conflict between the requirement to provide information about the reporting entity and the organisational boundary determined in accordance with the GHG Protocol framework; and
• a reporting entity is required to disclose any specific information if it has a net greenhouse gas emissions target.

Transition Plan Guidance

The Transition Plan Guidance was developed by building on the disclosure-specific material authored by the Transition Plan Taskforce, and in particular it:

• explains that an entity's climate-related transition is a process through which the entity, in the context of its overall strategy, pursues targets, undertakes actions or deploys resources to respond to climate-related risks and opportunities;
• steps through the information that it is necessary to disclose when applying IFRS S2 if the entity has set a strategy for its transition to a lower-carbon and/or climate-resilient economy; and
• sets out guidance on disclosures about an entity's climate-related transition.

It will be most useful to entities that have set climate-related targets, but will also be helpful for the general requirement to disclose material information about climate-related risks and opportunities, as this includes information about the effects of those risks and opportunities on an entity's strategy and risk management.

UK releases exposure drafts of UK Sustainability Reporting Standards

In June 2025, the UK government launched a consultation on an exposure draft of the two new UK Sustainability Reporting Standards (UK SRS) based on IFRS S1 and S2.

The UK SRS, as set out in the exposure draft, track very closely the content of IFRS S1 and IFRS S2 as published by the ISSB, with only a few minor amendments proposed. This is similar to the approach taken in Australia, where only minimal amendments were made to ensure the standards worked in an Australian context. However, distinct to the approach in Australia, the UK is proposing to mandate both IFRS S1 and S2-related disclosures (albeit with a 2-year delay for the former).

In the UK SRS, the proposed deviations from IFRS S1 and S2 are, for the most part, technical in nature and include:

• A transitional relief provision that would allow entities to phase their reporting under the UK SRS, such that companies would only need to report on climate-related risks and opportunities in years 1 and 2 of mandatory reporting (with reporting on Scope 3 emissions only required in year 2). It is proposed that reporting on wider sustainability-related risks and opportunities be required from year 3 onwards (providing an additional year's grace period for wider sustainability-related reporting compared to IFRS S1).
• A requirement for companies to report on wider sustainability-related risks at the same time as their financial statements (as opposed to the possibility of reporting this information at a later time during the first year of reporting, as is permitted under IFRS S1).
• No specific requirement for companies to refer to and consider the applicability of various additional materials originally published by the Sustainability Accounting Standards Board that accompany IFRS S1 and IFRS S2 (which is required in IFRS S1 and IFRS S2).

The consultation is due to close on 17 September 2025, after which the UK SRS will be finalised and endorsed. The implementation date for reporting in accordance with the UK SRS has not yet been determined.

For more information, see our more fulsome publication here.

New B Corp certification standards released

In April 2025 B Lab, the nonprofit network and administrator of standards for B Corp Certification, introduced new standards which aim to raise the benchmark for companies seeking to maintain, or attain, B Corp Certification.

According to B Lab, the rationale behind the changes is to ensure the standards better address intensifying global crises, galvanise impactful action, and lead the way to a more sustainable, equitable and regenerative economy.

Key changes in the new standards include:

• Companies will now be required to meet specific criteria across various Impact Topics to achieve B Corp certification, which introduces a change to the scoring process.
• Moving away from the previous 80-point threshold, B Corps must now demonstrate performance across a broader spectrum of social, environmental, and governance impact areas over time as the new standards integrate mandatory improvement actions.
• 100% of certification decisions to verify impact assessments will be made by a third party to increase impartiality and bring an additional layer of independence.
• Revenue and asset restrictions have been introduced. To be eligible for B Corp Certification, financial services companies must have less than 1% of assets in the fossil fuel, gambling, tobacco and weapons industries (among others), and electric utilities must ensure less than 50% of their product portfolio or energy mix is from fossil fuels.

The new standards take effect from 2026 onwards for companies seeking new certification, with a phased transition period in place for existing B Corps.

For more information, see the new standards here.

Diversity Progress across ASX300 boards

Steady advancements in gender diversity on boards, but stagnation or decline in other diversity measures: this is the key takeaway from the 2025 Board Diversity Index (the Index) published by Watermark Search International with Deloitte and the Australian Institute of Company Directors.

The Index analysed the diversity of boards within ASX 300 companies based on factors such as gender, cultural background, age, skills/experience, tenure and independence. Key findings from the Index since 2024 include:

• cultural diversity has decreased with Anglo-Celtic directors comprising almost 92% of boards, up from 91.2% in 2024;
• First Nations representation continues to be minimal, with only five directors with indigenous heritage occupying seven board positions in the ASX300;
• only four directors have openly identified as LGBTQ+, maintaining the same count as in 2024;
• representation for those living with disabilities remains absent, with no board members openly identifying as living with a disability; and
• the average age of directors remains steady at 61 years, with female directors averaging three years younger than their male counterparts.

Despite the shifting global political landscape and the diversity, equity and inclusion sentiment from the Trump administration, directors have reiterated their commitment to diversity, with 84% of directors (across listed, private, and not-for-profits) stating that their board's focus on diversity and inclusion will either stay the same or strengthen. Only 14% anticipated a decrease in their board's dedication to diversity efforts.

For more information, see the Index here and Australian Institute of Company Directors' media release here.

For clients with a presence in the United Kingdom, South African Development Community or Asia, we also publish trackers of ESG publications and developments for these regions at ESG Notes.

ESG thought leadership

To read more of our ESG thought leadership, please see:

• Our 2024 Unlocking ESG Investment in Australia Report
• Latest recordings of Third Wheel Podcast Series: ESG in Australia
• ESG Notes and Climate Change Notes
• ESG, Sustainability and Responsible Business

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.