May 2025 ESG Policy Update—Australia

AUSTRALIAN UPDATE

ESG-Related Policy in Australia Under the Newly Re-Elected Labor Government

On 3 May 2025, the incumbent Labor government, led by Prime Minister Anthony Albanese, won re-election to a second consecutive term in office.

The government is expected to continue to advance its series of ESG initiatives. Central to their environmental agenda are the targets of 82% renewable electricity by 2030 and a net zero emissions economy by 2050.

The government made significant investments in the nascent green steel and hydrogen production industries and has also pledged AU$250 million to protect and conserve 30% of Australian land and sea by 2030 and allocated AU$96.6 million to expedite environmental approvals. These efforts are complemented by an AU$1.2 billion investment to safeguard the Great Barrier Reef.

Socially, the government’s immediate plans are to reform the Modern Slavery Act and enhance Medicare funding. Governance initiatives to date include mandatory climate related financial disclosures, which commenced in January 2025.

Most of these policies were promised or broadly flagged prior to this election campaign, however, the current government did make an election pledge to establish a Commonwealth environment protection agency, which was initially promised in the previous election. Additionally, a 30% subsidy for household batteries is expected to drive a million more installations by 2030, further supporting the transition to a cleaner energy grid.

ASBEC Releases its Report on the Reduction of Upfront Embodied Carbon in the Built Environment

The Australian Sustainable Built Environment Council (ASBEC) has released its report “Our Upfront Opportunity: Australia’s policy roadmap to reduce upfront embodied carbon in the built environment” (ASBEC Report). The ASBEC Report provides a comprehensive policy framework designed to reinforce and amplify government and industry efforts to reduce upfront embodied carbon across buildings and infrastructure.

Embodied carbon emissions are those that occur:

• Upfront during construction from materials manufacturing, transport to site, and site activities;
• From maintenance activities and refurbishment of the asset; and
• At the end-of-life as the building is disposed of and demolished.

The ASBEC Report observes that in order to achieve Australia’s national net zero commitments, Australia’s built environment needs to reduce its embodied carbon emissions by at least 60% by 2035.

It notes that early design decisions can dramatically lower the need for new resources, cut emissions, and reduce waste, for example, by building smaller; using prefabricated, modular, flexible layouts; and designing for longevity, reuse, decommissioning, and repair.

A key recommendation is for the government and developers to prioritise a re-use, re-purpose or retrofit-first approach, which requires an early assessment of strategic options in early project development and site selection.

Australia Enacts Landmark Gender Equality Targets

Following the 27 March 2025 assent of legislation requiring employers with 500 or more employees to set and achieve gender equality targets, relevant private sector employers are readying to select their first targets for reporting in the period commencing 1 April 2026. The legislation applies to “Designated Relevant Employers.” This is defined as an employer that directly employs 500 or more employees. This cohort includes nearly 2,000 employers and 3.9 million employees and marks a significant step in promoting workplace gender equality.

Under the Workplace Gender Equality Amendment (Setting Gender Equality Targets) Act 2025 (Cth), employers must select three targets from a list of numeric and action-oriented options. These targets focus on critical areas such as closing the gender pay gap, improving workforce composition, and preventing sexual harassment. Employers have a three-year period to meet or make progress on these targets, with noncompliance resulting in public naming and ineligibility for certain Commonwealth contracts.

The Workplace Gender Equality Agency (WGEA) will oversee the implementation, ensuring transparency by publishing selected targets and outcomes on its website. This approach is aimed at not only holding organisations accountable but also encouraging them to flexibly tailor targets to their specific needs, drawing from data already reported to WGEA.

ACCC Proposes to Grant Application Lodged by ASFI in Respect of Participation in Collaborative Sustainable Finance Initiatives

The Australian Competition & Consumer Commission (ACCC) has sought submissions in response to its draft determination on 17 April 2025 to grant authorisation to allow the Australian Sustainable Finance Institute Limited (ASFI), its members, and other participants to discuss and exchange information (such as definitions of natural capital and approaches to assessing materiality of nature-related risks) for the following purposes:

• To improve the integration of natural capital data into financial decision-making made by Australian financial institutions;
• To improve the co-design investment structures and develop regulatory reform proposals; and
• To make limited agreements in relation to co-designing investment structures.

This proposal comes following the publication of ASFI’s Sustainable Finance Action Plan for 2025-2027, in which ASFI recommended changes to competition law to provide a more permissive scheme for sustainability collaborations (reported on here in the April edition of our ESG Policy Update).

Collaboration and information sharing between competitors may risk contravening the cartel and anti-competitive conduct provisions of the Competition and Consumer Act 2010 (Cth). However, parties can obtain authorisation for this conduct if they can satisfy the ACCC that it would not substantially lessen competition (not applicable for cartel or other per se conduct) or otherwise result in a net public benefit.

While the ACCC is concerned about the potential negative effects that the proposed conduct may have on competition in the supply of sustainable financial products (and the risk of broader coordination between the parties), it also considers that the conduct may result in a net public benefit in the form of an increase in sustainable investments, which can preserve Australia’s environment. Collaboration of the involved parties can encourage better transaction cost savings and efficient processes.

To minimise the risks of its impact on competition, the ACCC proposes to implement specific conditions, which requires:

• ASFI to list all non-ASFI members on its website to recognise the participants in the authorised conduct;
• The participants to follow a protocol for the authorised conduct;
• A competition lawyer being present at authorised working-group meetings;
• The authorised conduct to be generally nonexclusive; and
• The agreements made during authorised meetings be recorded and not last beyond the co-design process or authorisation period.

The ACCC considers that such conditions can sufficiently mitigate the potential public risks on competition and therefore proposes to grant authorisation with conditions for five years.

The ACCC is expected to make a final determination on whether to grant authorisation allowing ASFI and other participants to exchange information for sustainability collaboration purposes on 25 August 2025.

Consumer, fair trading, and competition concerns in relation to sustainability are listed in the ACCC’s 2025-26 Compliance and Enforcement Priorities. The ACCC has published a guide for business in relation to the competition law implications of sustainability collaborations here.

VIEW FROM ABROAD

European Union and United Kingdom to Link Their Carbon Markets Under a Unified Emissions Trading System

On 19 May 2025, the European Commission and the United Kingdom (UK) government announced plans to link their carbon markets, aiming to unify the European Union (EU) and UK Emissions Trading Systems (ETS). This initiative follows the first-ever EU-UK summit, where leaders discussed various issues, including security and energy policy. The linkage would allow carbon allowances from either jurisdiction to be recognised under the other’s system, facilitating cross-border trading of emissions permits.

The unified ETS is expected to strengthen Europe’s carbon pricing mechanism, increase liquidity, and potentially stabilise carbon prices. The EU ETS, which launched in 2005 and covers emissions-intensive sectors like energy and aviation, is projected to generate €40 billion in revenues between 2020 and 2030.

The UK has operated its own ETS since leaving the EU and plans to implement its own Carbon Border Adjustment Mechanism (CBAM) by 2027. The proposed linkage aims to enable mutual CBAM exemptions for goods from each other’s markets, reducing trade barriers. However, alignment will only proceed if the UK’s emissions cap and reduction trajectory are as ambitious as those of the EU.

This development signals a broader trend towards regulatory consistency in climate policy, offering market predictability across Europe. For corporations and investors, it represents a move towards more efficient and cost-effective climate action.

ISSB Launches Public Consultation on Amendments to IFRS S2 GHG Emissions Reporting

The International Sustainability Standards Board (ISSB) has initiated a public consultation on proposed amendments to the International Financial Reporting Standards (IFRS) S2 Climate-related Disclosures standard. The objective of the IFRS S2 standard is to require an entity to disclose information about its climate-related risks and opportunities.

The proposed amendments are focused on greenhouse gas (GHG) emissions reporting and aim to address application challenges and reduce reporting complexity and compliance costs. The consultation period is open until 27 June 2025.

One significant amendment involves Scope 3 Category 15 emissions disclosures, which under the IFRS S2 standard requires entities engaged in asset management, commercial banking, and insurance to disclose GHG emissions. The proposed amendment would limit disclosures to financed emissions, excluding derivatives and other financial activities. Entities must disclose the number of excluded derivatives and explain their exclusion due to the undefined term “derivatives” in the standards.

Another amendment allows entities to use alternative industry-classification systems to categorise its lending or investment activities, if not required to use the Global Industry Classification Standard, provided they disclose and explain their choice of system. Additionally, the ISSB proposes clarifications on jurisdictional relief for GHG emissions measurement methods and the use of global warming potential values.

The ISSB will analyse feedback post-consultation and aims to redeliberate the amendments in the second half of 2025, with potential early adoption.

The authors would like to thank graduates Aibelle Espino and Isaac Gilmore for their contributions to this alert.