Keeping Up With ESG In Australia – March 2026

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 progress towards mandatory climate-related financial reporting.

In the spotlight: Latest worker protection updates

It has been an eventful start to 2026 in the employment, industrial relations and safety space, bringing several notable developments that employers and practitioners alike need to have on their radar. Below, we unpack the latest updates, including changes to compensation for psychologically injured workers, the growing push to recognise extreme heat as a workplace health and safety risk, and Australia's first framework for responsible AI integration in the workplace.

Reduction in compensation for psychologically injured workers

The Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 (NSW) recently passed the NSW Parliament, reforming the Workers Compensation Act 1987 (NSW). The Bill makes several amendments, which will limit the availability and duration of compensation for psychologically injured workers. The key changes include:

• Narrowed definition of compensable psychological injuries: Compensation will now be exclusively available to workers with psychological injuries that arose out of a "relevant event", as prescribed in the legislation. Examples of "relevant events" include being subject to indictable criminal conduct or witnessing a death. The amendments also create a framework of definitions for relevant terms, including "excessive work demands", "vicarious trauma", and "traumatic incident". By confining compensable psychological injuries to those arising from a prescribed list of relevant events, the amendments are expected to significantly reduce the number of workers eligible for compensation.
• Whole person impairment (WPI) threshold to increase: The WPI threshold is the percentage of impairment attributed to a person as a result of their injury and which qualifies them to receive compensation. On 1 July 2026, the WPI threshold for psychological injury will increase to 25%, compared to 15% for physical injuries.
• Capped weekly payments for primary psychological injuries: Weekly payments for "all but the most serious primary psychological injuries" will be limited to 130 weeks, as opposed to a maximum of 260 weeks for primary physical injuries.

Push for further recognition of "extreme heat" as a WHS risk

Heat-related deaths are projected to more than quadruple in major Australian cities, a risk which is particularly inflated for transport, construction, agriculture and emergency services workers.

Against this backdrop, the Australian Council of Trade Unions (ACTU) has released the Work Health and Safety in the Era of Climate Crisis: ACTU Position Paper on Climate Change and WHS Reform (November 2025) (Paper), which calls on SafeWork Australia to develop specific regulations to manage the risk of extreme heat and other climate-driven hazards. The ACTU has advocated for the development of WHS regulations specifically addressing heat-stress risks, drawing on international frameworks and heat-exposure indicators.

The Paper also calls for:

• The expansion of WHS Codes of Practice to incorporate detailed guidance addressing extreme heat, cold, and outdoor work conditions, alongside the introduction of worker-acclimatisation protocols designed to improve heat tolerance over time;
• A review of deemed-diseases lists under workers' compensation schemes, with a view to recognising heat-related illnesses and other occupational risks arising from climate change; and
• PCBUs to embed climate-risk considerations as a standing agenda item at WHS committee meetings, ensuring that such risks receive ongoing and systematic attention.

Australian first framework for responsible AI integration in the workplace

The ACTU and Microsoft have signed a Memorandum of Understanding and Framework Agreement (Agreement) aimed at setting a new standard for "responsible AI diffusion" across workplaces and outlining tech sector workers' rights.

The non-binding Agreement includes commitments by Microsoft to consult with workers on key decisions, as well as during the development and deployment of new and existing AI products. It emphasises knowledge sharing, open dialogue between the tech giants and unions, and efforts to shape public policy around technology and the needs of workers. Under the Agreement, the parties will identify priority sectors for pilot programmes this year, and Microsoft and the ACTU will co-design resources to train workers and support skill development for working with AI systems, so that union members have the skills to understand the technology, negotiate over its rollout, and help implement it.

Area Vice President for Microsoft Australia, Steven Miller, said the company recognises its "responsibility to lead by example" and aims to ensure "workers' voices are at the heart of Australia's AI transformation".

Sustainability reporting updates

Australia: AASB amends AASB S2

The Australian Accounting Standards Board (AASB) has issued AASB S2025-1, which amends AASB S2 Climate-related Disclosures to:

• clarify that an entity participating in certain financial activities is permitted to limit its measurement and disclosure of Scope 3 Category 15 greenhouse gas (GHG) emissions to financed emissions;
• replace the requirement for an entity that participates in commercial banking activities or financial activities associated with the insurance industry to use the Global Industry Classification Standard to disaggregate financed emissions information by industry with less prescriptive requirements, allowing the entity to select an industry-classification system that enables it to provide useful information about its exposure to climate related transition risks;
• clarify that the relief from using the method in the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) for measuring GHG emissions is available to an entity when a jurisdictional authority or an exchange on which the entity is listed requires the use of a different method, but only for the part of the entity to which that jurisdictional authority or exchange requirement applies; and
• provide relief to an entity from using the global warming potential (GWP) values based on a 100-year time horizon from the latest Intergovernmental Panel on Climate Change assessment available at the reporting date, when a jurisdictional authority or an exchange on which the entity is listed requires the use of different GWP values.

These amendments follow the issuance of mirrored amendments to the equivalent international standard, IFRS S2 Climate related Disclosures, in December 2025. The amendments apply to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

UK publishes final sustainability reporting standards

The UK government has published the final UK Sustainability Reporting Standards (UK SRS) for voluntary use in the UK. The standards are closely aligned with IFRS S1 and IFRS S2 prepared by the International Sustainability Standards Board (ISSB).

The UK SRS comprise two standards:

• UK SRS S1: general requirements for disclosure of sustainability‑related financial information, covering governance, strategy, risk management and metrics and targets, as well as general requirements on general sustainability‑related risks and opportunities; and
• UK SRS S2: climate‑related disclosures, focused on climate‑related risks and opportunities.

At this stage, the UK SRS can be adopted voluntarily by any entity.

However, the Financial Conduct Authority (FCA) is consulting on requiring sustainability reporting under the UK Listing Rules. Under the draft rules, companies in the international secondary listing category (designed for non-UK incorporated companies with a primary listing elsewhere, such as Australia) will no longer be required to include TCFD-aligned disclosures in their annual report and accounts. They will also not be required to report under UK SRS S1 or UK SRS S2 or in relation to transition planning, but will be required to include a statement in their annual report setting out the climate and/or wider sustainability disclosure requirements, including transition plan requirements, to which they are subject pursuant to the requirements of their primary overseas listing or their place of incorporation (i.e. AASB S2), and where the relevant disclosures and/or information can be found. They will also be required to disclose whether or not they have obtained third-party assurance over any of those disclosures.

The FCA intends to publish its final rules later this year, with the new requirements applying to financial years beginning on or after 1 January 2027.

US: California becomes first US state to enact sustainability reporting requirements

On 26 February, the California Air Resources Board enacted SB 253, which requires corporate greenhouse gas reporting. Scope 1 and 2 greenhouse gas emission disclosure will be required from August 2026, and Scope 3 greenhouse gas emissions disclosure will be required starting in 2027. SB 253 applies to companies with annual revenue of over $1 billion doing business in California.

SB 253 was put forward as part of the Climate Accountability Package in 2023. Its companion bill, SB 261, requires companies with over $500 million in annual revenue doing business in California to biannually report climate-related financial risks and mitigation strategies. SB 261 faced legal challenge, and a Court injunction in November 2025 paused its enforcement.

ESG action – Global updates

Australia

Greenwashing complaint brought by the Australasian Centre for Corporate Responsibility dismissed

On 17 February 2026, the Federal Court dismissed a proceeding brought by the Australasian Centre for Corporate Responsibility (ACCR) against Santos Ltd, alleging that the entity engaged in misleading or deceptive conduct in relation to:

1. its net zero target;
2. statements that natural gas provides "clean energy"; and
3. statements that the entity could, in the future, produce "zero emissions" or "clean" hydrogen.

The Court found that none of these representations were misleading or deceptive. In particular, the Court accepted that:

1. At the time the alleged representations were made, the entity had reasonable grounds for making forward‑looking statements about emissions targets and its net zero target, and that the representations would have been properly understood by the relevant target audience as statements concerning long-term objectives which "necessarily and reasonably remained subject to uncertainty and contingencies and dependent upon the emergence of new markets".
2. The statements, when read in context, did not convey that "natural gas is 'clean' but that it is in relative terms cleaner than coal and diesel", and that the "ordinary person's understanding of natural gas is that when burnt it does emit GHGs".
3. A reasonable member of the target audience would have understood "clean", "zero emissions" and "carbon neutral" hydrogen to mean "the production of hydrogen from natural gas with CCS with no net emissions", i.e. that most emissions from the production of hydrogen from natural gas would be caught and that the entity could purchase carbon credits to offset any residual emissions.
4. The proceeding was dismissed in full, with costs ordered against ACCR.

UniSuper accused of greenwashing in Global Environmental Opportunities option

On 19 February 2026, the Environmental Defenders Office (EDO) made a formal complaint to ASIC against UniSuper on behalf of a UniSuper member. The complaint alleges that the investment criteria of the Global Environmental Opportunities (GEO) option is inconsistent with its marketing as "sustainable" and "environmental" and may may amount to misleading or deceptive conduct.

Prior to March 2025, the listed equity securities in the GEO option were required to derive at least 40% of their revenue from "environmental themes", including alternative energy, energy efficiency and green buildings. In March 2025, UniSuper lowered the revenue threshold to 20%. The complaint alleges that this reduced threshold, and the overly broad and vague definition of "environmental themes", creates a misleading impression that the GEO option is environmental or sustainable when this is not necessarily the case.

The complaint requests that ASIC investigate whether UniSuper may have engaged in misleading or deceptive conduct. It separately seeks to bring the issues to ASIC's attention to highlight the need for clearer guidance regarding environmental and sustainability claims in respect of superannuation funds, particularly broad headline claims such as "sustainable" in the absence of a uniform definition or assessment framework.

International

High Court of New Zealand upholds Minister for Oceans and Fisheries' temporary emergency closure

On 3 February 2026, the High Court of New Zealand has dismissed a claim brought by the Environmental Law Initiative (ELI) which contended that the Minister's emergency three-month ban on set net fishing around the Otago Peninsula did not go far enough to protect hoiho – yellow-eyed penguins. The ELI's primary contention was that the emergency closure should have encompassed a wider area. The ELI's submissions included that the Minister failed to adopt a precautionary approach as required under legislation and that the Minister was not told of the significant limitations of models relied on which meant the Minister did not base his decision on the best available information.

Seafood New Zealand Ltd (SNZL), which represents the fishing industry, successfully applied to be joined to the proceeding as second respondent, and argued, for different reasons, that the Minister's decision was unlawful. SNZL submitted that there was no emergency as required to bypass the consultation requirements under the legislation and that the ban unfairly and disproportionately affected commercial fishing operators.

The High Court concluded that the provision in question vested a broad discretion in the Minister. It was for the Minister to decide whether the crisis warranted emergency measures and the Minister was entitled to conclude the crisis affecting the hoiho population required immediate action. The High Court therefore rejected SNZL's arguments and acknowledged the importance of hoiho and that their survival is vital.

The High Court also held that the provision relied on for the emergency measure is a precautionary provision which permits the Minister, despite having incomplete information, to take immediate steps. Therefore, the High Court concluded that the Minister made no error in limiting the emergency closure to the specified area as that decision was made on the best information available to him at the time, which may not be the best information available now.

Cantonal Court of Zug allows climate lawsuit against Swiss cement company to proceed

On 17 December 2025, the Cantonal Court of Zug allowed a climate lawsuit brought by four residents of the Indonesian island Pari against the Swiss cement company Holcim to proceed.

By way of background, on 30 January 2023, the plaintiffs commenced proceedings against Holcim for their alleged role in exacerbating climate change that has caused flooding on Pari. The plaintiffs seek proportional compensation for the climate change-related damage to Pari, reduction of CO2 emissions by 43% by 2030 and 69% by 2040 relative to 2019 levels, and financial contribution to adaptation measures on Pari.

Holcim argued, at the 3 September 2025 hearing on the admissibility of the plaintiffs' claims, that the case should be dismissed.

The Court held that the plaintiffs' complaint should be admitted in its entirety. The Court held that it had jurisdiction to hear the matter, as the claim concerned the protection and enforcement of the plaintiff's human rights, and the political dimension of climate change would not preclude the application of private civil law. The Court also held that the plaintiffs had a legitimate interest worthy of protection as the plaintiffs are personally, specifically, and directly affected by the impacts of climate change, irrespective of whether others are affected as well.

Holcim have announced an intention to appeal the decision.

Hague District Court holds that the Dutch government is in breach of the European Convention on Human Rights

On 28 January 2026, the Hague District Court held that the Dutch government was in breach of the European Convention on Human Rights (ECHR) by not protecting and discriminating against citizens living in the Dutch-Caribbean special municipality of Bonaire from the impacts of climate change.

By way of background, on 11 January 2024, Greenpeace, on behalf of the inhabitants of the island of Bonaire, commenced proceedings against the Dutch government. Greenpeace alleged that the Dutch government had not taken sufficient measures to protect the inhabitants of Bonaire from the effects of climate change, and accordingly had failed to fulfill their international obligations (including under the ECHR).

Greenpeace further alleged that the Netherlands offered the inhabitants of Bonaire less protection against climate change than the inhabitants of the European Netherlands, and therefore had violated the prohibition on discrimination contained in the ECHR.

The Court held that the Netherlands violated the prohibition on discrimination, and failed to fulfill its obligations under the ECHR toward the inhabitants of Bonaire. In particular, the court held that the Netherlands' implementation of mitigation/adaptation measures in respect of Bonaire was much later and less systematic than for the European Netherlands, in spite of Bonaire's much greater exposure to the adverse effects of climate change.

Greenpeace sought broad orders including that the Netherlands take "all necessary measures" and that national emissions be reduced by net zero by 2030 at the latest. Instead, the Court opted for narrower relief, declaring that the Netherlands had acted in violation of the rights of the inhabitants of Bonaire under the relevant provisions of the ECHR, and that the Netherlands be required to incorporate absolute emission reduction targets for the entire economy, including intermediate targets and pathways for the reduction of carbon emissions for the period up to 2050.

Greenwashing class action in relation to "carbon neutral" watches dismissed in US District Court

On 20 February 2026, the United States District Court dismissed a class action brought by customers who had purchased watches marketed as "carbon neutral".

By way of background, on 26 January 2025, proceedings were commenced alleging that marketing the watches as "carbon neutral" was false and misleading because the offset projects through which carbon credits were purchased failed to provide genuine, additional carbon reductions. The class action sought to remedy the deceptive conduct and obtain compensation for consumers who paid premium prices for products that failed to deliver their promised environmental benefits.

The Court ultimately dismissed the proceeding, holding that:

• the plaintiff's allegations werebased on unsubstantiated assumptions;
• the plaintiff's methodologies for analysing the carbon credits had not been tested, audited, or open to public comment, or endorsed as reasonable or accurate, in comparison to the scientifically accepted methodologies that the carbon credits had already been subjected to under the relevant carbon credit standards; and
• the plaintiff's unsupported allegations cannot constitute a "reasonable basis" for its claims.

Regulatory Updates

EPBC Act reforms: latest updates and timeline

The first tranche of reforms to the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) commenced on 20 February 2026. The National Environment Protection Agency (NEPA) is scheduled to commence operations on 1 July 2026, and the balance of reforms are expected to take effect in further tranches, some from 1 July 2026 but all will commence by 1 December 2026. Stakeholder consultation on implementation details remains ongoing.

Tranche 1 Reforms – Key areas of change

The first tranche of reforms introduced procedural changes to improve flexibility and transparency under the EPBC Act. Several key areas have seen reform including:

• Strategic assessments – conditions on existing strategic assessment approvals may now be varied, and minor amendments to endorsed policies, plans or programmes no longer require a fresh approval;
• National interest exemption – the exemption has been broadened, with the Minister now empowered to impose conditions on exempt actions, set defined exemption periods, and vary or revoke exemptions;
• Reconsideration of decisions – the Minister may now reconsider a decision that an action is not a controlled one where the specified manner is no longer appropriate, or where substantial new information or changed circumstances arise;
• Surrender of approvals – approval holders may apply to surrender approvals that are no longer being acted upon, providing a formal mechanism to reduce ongoing compliance obligations;
• Indigenous Advisory Committee – the Committee's role has been expanded, with further changes anticipated under Tranche 2; and
• Wildlife trade permits – approved wildlife trade operation declarations may now be granted for up to five years, reducing renewal frequency.

The transitional provisions are complex and should be carefully considered in applying the amendments to existing approvals and processes.

Consultation – Draft Standards & MNES

Public consultation on the draft Matters of National Environmental Significance (MNES) Standards and the Environmental Offsets Standard closed on 30 January 2026, with finalisation expected in March - April 2026.

Once finalised, proponents should engage with the standards early, as the Minister must be satisfied that proposed actions and approval conditions are consistent with the relevant standards before granting approval. Notably, the draft MNES Standard requires application of the mitigation hierarchy, with offsetting permitted only as a last resort where residual significant impacts remain.

Stakeholder submissions reflected divergent views – environmental groups called for legally enforceable, prescriptive standards, while others advocated for a more pragmatic, proportionate approach that accommodates cost-benefit analysis. The standards are expected to be further refined following the Senate Environment and Communications Legislation Committee report, anticipated in March 2026.

Further public consultation is expected later in 2026 on draft National Environmental Standards for First Nations engagement, community engagement, and data and information.

National Environment Protection Agency

The National Environment Protection Agency (NEPA) commences operations on 1 July 2026, led by a Chief Executive Officer appointed for up to five years. Whilst the Environment Minister retains ultimate decision-making authority over referrals and approvals, those powers may be delegated to the CEO.

NEPA's core functions centre on compliance and enforcement. The CEO may issue Environment Protection Orders, including directing a cessation of works, where non-compliance is causing, or poses an imminent risk of, serious environmental damage. Orders may remain in force for up to 28 days in total. NEPA will also conduct environmental audits and compliance monitoring across a broad suite of Commonwealth environmental legislation.

The compliance regime is underpinned by substantially increased civil penalties for corporations, being the greater of:

• up to $16.5 million;
• three times the benefit obtained or detriment caused; or
• 10% of annual turnover for the relevant 12-month period, capped at $825 million.

Beyond enforcement, NEPA will review bilateral agreements, monitor bioregional plans, maintain public registers of decisions, and make recommendations to the Minister on regulatory improvements. Proponents should begin factoring NEPA's establishment, and the significantly heightened penalty exposure, into their project planning ahead of its commencement in the second half of 2026.

Further insight

For more information regarding the EPBC Act reforms please refer to some of our previous articles, including:

• Turning over a new leaf: what you need to know about the EPBC Act amendments
• The latest on EPBC clean energy project approvals
• EPBC reforms finalised

Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026

The Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 was introduced into Parliament on 12 February and amends the Australian Securities and Investments Commission Act 2001 to merge the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board into a new single organisation called 'External Reporting Australia'. This new organisation would have with responsibility for performing core financial reporting and sustainability standard-setting functions.

As stated in the Explanatory Memorandum, this reform aims to "create more flexible institutional arrangements for standard setting, not only to accommodate the establishment of a dedicated board of technical experts for the development and ongoing maintenance of the new sustainability standards, but also to better position the financial reporting system to respond to standard-setting needs that may similarly arise in the future."

A Governing Council will be established as the accountable authority of External Reporting Australia. This Governing Council will be empowered to create a number of standard-setting boards and appoint members to each board. It will be required to establish at least one Board for each of accounting, auditing and assurance, and sustainability standards.

The Office of the Australian Anti-Slavery Commissions publishes recommendations to strengthen Australia's modern slavery laws

The Office of the Australian Anti-Slavery Commissioner has published an initial position paper setting out recommendations to strengthen Australia's modern slavery laws. The paper is intended to inform government consultations and stakeholder engagement on proposed reforms to the Modern Slavery Act 2018 (Cth) (Act).

The paper focuses on two core recommendationsto introduce:

• a mandatory risk-based modern slavery due diligence obligation for reporting entities under the Act; and
• a mechanism for the Australian Anti-Slavery Commissioner to declare that a product, service, or industry carries a high risk of modern slavery. It is proposed that this mechanism is paired with a requirement for reporting entities to have regard to any declarations made in their due diligence and reporting obligations under the Act.

ACSI releases 12th edition of its Governance Guidelines

The Australian Council of Superannuation Investors (ACSI) has released the 12th edition of its Governance Guidelines (Guidelines), which has been revised and updated to address contemporary issues across the market. The Guidelines outline the updated expectations of long-term investors on material governance and sustainability issues at listed companies, and provide a useful reference point for both companies and ACSI members.

The more notable changes to the Guidelines are:

• Refreshed expectations of the Board, including that the Board "be composed of directors who are personally familiar with the company's operations and do not rely solely on information provided by executives or external advisers".
• Specific guidelines for the Board to oversee and maintain a dedicated CEO succession plan and to regularly assess the CEO's position.
• Text recognising challenges with competition for talent where companies are listed on the ASX but have executive teams in other markets.
• The inclusion of specific guidelines for companies with a founder or controlling shareholder on the Board, including that Boards:
• manage the competing interests that arise and ensure that adequate safeguards for minority and non-controlling shareholders are built into the Board structure and company constitution;
• have appropriate oversight to understand potential influence across the business's culture and establish appropriate mitigations;
• consider the connection and relationships between directors and founders when nominating other directors;
• appoint a Chair without any connection to the controlling shareholder or, where a connection exists, appoint a lead independent director; and
• be sensitive to the votes and interests of non-controlling shareholders, particularly where there may be misalignment between the controlling shareholder and other shareholders.
• New guidelines about digitisation and artificial intelligence (AI), in relation to which ACSI expects the Board to:
• have appropriate governance structures that reflect the scale of the risk of digitalisation to the business;
• establish policies and processes regarding the company's use of AI;
• consider instituting policies and principles to manage potential workforce dislocation driven by AI, including taking a long-term view of the risks and opportunities of these changes; and
• support a culture of responsible AI practice, governance and cybersecurity. This should include appropriate guardrails, training and upskilling.

The Guidelines also include "Better Practice Disclosure" guidelines on what ACSI considers should be disclosed around corporate governance, remuneration, and social factors (including climate and AI).

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 offering

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.