ESG in Australia: Understanding Legal Developments and Navigating Emerging Trends

Australian companies are entering a new disclosure landscape in which climate-related risks and opportunities must be treated as matters of legal and financial significance.

Effective from 1 January 2025, amendments to the Corporations Act 2001 (Cth) introduced a mandatory climate-related financial disclosure regime in Australia. The regime is supported by the Australian Sustainability Reporting Standards (ASRS), which prescribe the content and form of sustainability disclosures. Enacted through Schedule 4 of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth), the framework seeks to enhance transparency and accountability by requiring entities to report on climate-related risks, opportunities and financial impacts.

Entities within scope must prepare disclosures in accordance with AASB S2 Climate-related Disclosures (AASB S2), the Australian adaptation of the International Sustainability Standards Board’s IFRS S2 standard.

At the same time, greenwashing has moved beyond reputational risk to become a material source of regulatory and litigation exposure. The Australian Securities and Investments Commission (ASIC) has identified sustainability reporting and greenwashing as enforcement priorities, particularly in light of the expanded disclosure regime.

1. Reporting Entities

The ASRS significantly expands existing financial reporting obligations. Entities required to prepare annual financial reports under Chapter 2M of the Corporations Act must now also produce sustainability reports.

This reform integrates sustainability disclosures into the financial reporting framework, reinforcing the principle that climate risks are financial risks. Directors and senior executives must determine whether their entity falls within scope by reference to revenue, assets and workforce thresholds.

The regime is phased:

Group 1 (from financial years commencing on or after 1 January 2025)

Entities meeting at least two of the following:

• Revenue ≥ $500 million
• Assets ≥ $1 billion
• ≥ 500 employees

Group 2 (from financial years commencing on or after 1 July 2026)

Entities meeting at least two of the following:

• Revenue ≥ $200 million
• Assets ≥ $500 million
• ≥ 250 employees

Group 3 (from financial years commencing on or after 1 July 2027)

Entities meeting at least two of the following:

• Revenue ≥ $50 million
• Assets ≥ $25 million
• ≥ 100 employees

Excluded entities include foreign companies, small proprietary companies, registered charities, and entities granted relief by ASIC.

Although phased, the regime creates an immediate need for preparedness. ASIC has made clear that entities should establish systems to assess potential future applicability, particularly where thresholds may soon be met.

2. Content and Scope of Sustainability Reports

Sustainability reports must be lodged within three months of the end of the financial year and include:

• climate statements;
• required notes and legislative disclosures;
• statements directed by the Minister; and
• a directors’ declaration.

At their core, the disclosures must:

• identify material climate-related risks and opportunities;
• disclose emissions metrics and targets;
• outline transition strategies; and
• explain governance processes.

AASB S2 aligns closely with IFRS S2 and builds on the TCFD framework, requiring both qualitative and quantitative disclosures of the financial impacts of climate change across short-medium and long-term horizons.

Supporting records such as board minutes, internal reports, expert analyses and greenhouse gas inventories may be required to substantiate assumptions and disclosures.

The climate statements are central to the report. They must provide a clear account of the entity’s material climate-related financial exposures and demonstrate how governance processes manage those risks and opportunities.

3. Recordkeeping

Directors must ensure that records explaining the preparation of sustainability reports are maintained for at least seven years.

Failure to maintain adequate records constitutes a criminal offence.

Where records are kept electronically, entities must be capable of producing them in hard copy for inspection. Entities must also notify ASIC of the location of sustainability records within one day of lodging the report. Failure to do so is a strict liability offence.

4. ASIC Oversight and Enforcement

ASIC plays a central supervisory role. Where it considers disclosures to be misleading, incomplete or unsupported, it may:

• require explanations or additional information;
• direct corrections; and
• initiate enforcement action.

Before issuing formal directions, ASIC will generally provide an opportunity for the entity to respond at a private hearing.

Non-compliance with ASIC directions constitutes a criminal offence. ASIC may also investigate suspected misconduct, including failures to report or materially deficient disclosures.

5. Audit Requirements

Sustainability reports must be independently audited in accordance with applicable standards. Auditors must assess compliance and whether sufficient evidence supports the disclosures.

Reports must be presented to members alongside the audited financial report. Failure to comply constitutes a strict liability offence.

Non-compliance with audit requirements may expose entities to criminal penalties, including fines and potential custodial liability.

6. Directors’ Duties

Directors remain subject to duties under ss 180–184 of the Corporations Act, including the duty of care and diligence Sustainability disclosures must be accurate, evidence-based, and compliant with AASB S2.

Each sustainability report must include a directors’ declaration confirming that reasonable steps have been taken to ensure compliance. For the first three years, this may be a qualified declaration.

Directors must:

• understand climate-related risks and disclosures;
• critically assess methodologies and assumptions;
• ensure systems exist to identify and manage climate risks; and
• independently verify the completeness and accuracy of disclosures.

Reliance on management or advisors does not displace these obligations.

Protected Statements

Certain forward-looking disclosures such as Scope 3 emissions, transition plans and targets are treated as “protected statements”.

These statements benefit from modified liability settings:

• civil claims by private litigants are restricted;
• enforcement is limited to ASIC or criminal proceedings.

This framework reflects the inherent uncertainty in forward-looking ESG disclosures while encouraging early reporting.

7. Practical Implications for Australian Companies

The ASRS marks a structural shift in corporate disclosure. Climate risk is now embedded within financial reporting and governance.

ASIC has indicated a “pragmatic and proportionate” enforcement approach initially but will act where misconduct causes harm or reflects serious non-compliance.

For directors, ESG reporting requires:

• active oversight;
• robust governance systems;
• documented decision-making; and
• defensible, evidence-based disclosures.

Entities whether currently in scope or not should assess material climate risks and consider whether disclosures are required to present a true and fair view of financial position and performance.

8. ESG Litigation and the Role of Expert Evidence: ACCR v Santos Limited [2026] FCA 96

The Federal Court’s decision in February 2026 in Australasian Centre for Corporate Responsibility v Santos Limited [2026] FCA 96 illustrates the evidentiary challenges in ESG litigation.

Background

The ACCR alleged that Santos engaged in misleading or deceptive conduct under the Australian Consumer Law by:

• describing gas as “clean energy”; and
• representing that it had a credible pathway to achieve “net zero”.

Santos denied these claims and contested the meaning attributed to its statements.

The Court found that a reasonable member of the target audience would have understood the representations within industry context including the use of carbon capture and offsets. Accordingly, the conduct was not misleading.

Role of Expert Evidence

The outcome turned on the quality of expert evidence.

The ACCR’s case failed largely because its expert evidence was found to be inadequate. One key expert lacked the relevant industry experience needed to address the issues in dispute, undermining the reliability of the evidence.

By contrast, Santos’ experts were able to contextualise industry terminology and practices effectively.

Key Lessons

• Expert selection is critical: ESG disputes require experts with both technical expertise and current industry knowledge.
• Context determines meaning: Terms such as “clean energy” and “net zero” are interpreted by reference to industry understanding at the relevant time.
• Symmetry matters: Parties must engage experts capable of addressing the same issues with comparable authority.

The decision demonstrates that ESG litigation will often turn less on abstract legal principles and more on the evidentiary foundation established through expert testimony.

Conclusion

Australia’s sustainability reporting regime represents a significant evolution in corporate governance and disclosure. Climate related reporting is now a legal obligation embedded within financial reporting, with direct implications for directors’ duties and liability exposure.

At the same time, emerging case law underscores that ESG disputes will be highly fact-specific and evidence-driven.

For Australian companies, the practical priority is clear: develop robust systems, ensure high-quality data, document decision-making processes, and approach all ESG disclosures with the same discipline as financial reporting.