September 2025 ESG Policy Update—Australia

Australian Update

Australia Announces Commitment to a Minimum 62% Cut in Emissions by 2035

On 18 September 2025, Prime Minister Anthony Albanese announced Australia’s commitment to a 62%–70% reduction in emissions by 2035, compared to 2005 levels. This target marks a substantial increase from the previous goal of a 43% reduction by 2030. Mr. Albanese, senior ministers, and the Climate Change Authority (CCA) emphasised that the new targets are grounded in scientific evidence and practical planning.

To support this commitment, the Australian government has unveiled an AU$7 billion climate finance package. This includes an AU$5 billion Net Zero Fund within the National Reconstruction Fund, aimed at decarbonising industries, and an additional AU$2 billion for the Clean Energy Finance Corporation (CEFC) to advance renewable energy initiatives.

The CCA, following extensive consultation and analysis, recommended a 62%–70% target, describing it as ambitious but achievable. However, achieving this goal will require halving emissions across various sectors within the next decade. This announcement follows the release of Australia’s first national climate risk assessment, which attempted to quantify the gross adverse economic effects of climate change on the Australian economy.

Industry Bodies Weigh in on Treasury’s Sustainable Investment Product Label Consultation

Multiple industry bodies have released media statements clarifying their position on the proposed Sustainable Investment Product Label regime as submissions to Treasury’s Consultation closed on 29 August 2025.

A peak body for responsible and ethical investing has stated that a one-size-fits-all product labelling regime could destabilise Australia’s superannuation system and the broader responsible investment product market. The body cautions against an overly prescriptive and rigid framework that may prevent certain high-quality and responsible investment products from qualifying as a sustainable investment product under the regime.

In particular, the body contends that Australia’s unique compulsory superannuation system with highly diversified products investing across many different industries and asset classes, means that foreign regimes are not useful analogues. The body also argues that the product labelling regime would increase costs and compliance burdens for fund managers. Instead, it calls for a robust and credible principles-based framework to function within the existing structure.

Conversely, a major Australian accounting body has called for the government to have stricter rules to govern both the naming and marketing of superannuation and managed investment products. It advocates a standardised labelling approach and mandatory disclosures to be applicable to all investment products that are marketed as Environmental, Social and Governance (ESG) products to support consumer confidence and tackle greenwashing.

In particular, the body encourages the government to follow certain examples from overseas labelling regimes, such as applying the minimum asset threshold requirement that is used in both the United Kingdom and United States. The body ultimately calls for a hybrid regulatory model that features a principles-based framework, alongside mandatory consumer disclosures, naming rules and benchmarking transparency. This would be supported by a minimum threshold requirement and a mixed evidentiary model. Although the body’s representative has acknowledged stricter rules may create additional short-term costs, it has argued that, over time, these costs would be reduced through efficiencies by market participants.

With the consultation period now closed, the Treasury will consider feedback from stakeholders. It remains to be seen how the Treasury will take on board and incorporate feedback from various stakeholders into the design of the product labelling regime.

Australia to Invest AU$1.1 Billion in 10-Year Cleaner Fuels Program

On 17 September 2025, the Australian government agreed to invest AU$1.1 billion in the development of low carbon liquid fuels as part of its Cleaner Fuels Program (Program). The Program is expected to stimulate private investment in Australian onshore production of renewable diesel and sustainable aviation fuel (SAF). By establishing a domestic SAF production industry, Australia aims to diminish its reliance on imported fuels and promote energy security and economic resilience. Australia has the resources needed to make cleaner liquid alternatives to fossil fuels, with ready access to feedstocks like canola, sorghum, sugar, and waste.

The Australian government’s decade-long commitment to low carbon liquid fuels underscores its strategic importance in achieving net-zero carbon goals. Multiple airlines have expressed strong support. Although SAF is currently more expensive than traditional jet fuel, increased domestic production is anticipated to drive prices down, making it a financially viable option for the aviation industry.

Beyond environmental benefits, the initiative is poised to create thousands of jobs in renewable energy and advanced manufacturing sectors, particularly in regions historically dependent on conventional industries. The environmental and economic impact is significant as the CEFC estimates an Australian low carbon liquid fuel industry could potentially deliver around 230 million tonnes CO2-e in cumulative emissions reduction and be worth AU$36 billion by 2050.

AI and Data Centres Create Challenges for Australia’s Emissions Reduction Targets

On 12 September 2025, the CCA published its 2035 Targets Advice in order to help inform Australia’s greenhouse gas (GHG) emissions reduction target for 2035 (Advice). As part of the Advice, the CCA noted that the energy demands from rapidly expanding artificial intelligence (AI) technologies and data centres are presenting significant challenges to Australia’s emissions reduction targets.

The CCA has recommended a reduction in carbon emissions by 62%–70% by 2035, a target that was recently accepted by the Australian government. However, this target is lower than the initial draft range of 65%–75% proposed by the CCA in 2024, reflecting concerns over the projected energy consumption intensity of AI and data centres. The CCA has identified these sectors as key “delivery risks” contributing to increased electricity demand and higher emissions than anticipated.

Data centres, which power large AI systems, are expected to consume up to 12% of the national grid’s energy by 2050, with an annual growth rate of 25%. This surge in demand underscores the need for a strategic approach to energy management, including the co-location of data centres with battery storage and investments in energy-efficient technologies.

Despite these challenges, the CCA acknowledges the potential for AI to drive energy and cost efficiencies across various sectors, including transport and manufacturing.

View From Abroad

ISO and GHG Protocol to Develop New Standards for GHG Emissions Accounting and Reporting

On 9 September 2025, the International Organisation for Standardisation (ISO) and the Greenhouse Gas Protocol (GHG Protocol) announced a landmark partnership to harmonise their GHG standards and co-develop new standards for GHG emissions accounting and reporting. This collaboration aims to create a unified global framework, simplifying processes for companies and increasing consistency for policymakers. The partnership will integrate the ISO 1406X family of standards with the GHG Protocol’s Corporate Accounting and Reporting, Scope 2, and Scope 3 Standards.

This strategic alliance aims to address the fragmentation of existing standards and to provide a coherent approach and common global language across corporate, product, and project-level GHG accounting.

The collaboration is expected to enhance the technical rigour, policy relevance, and practical usability of GHG standards.

Global consistency of relevant standards will assist investors to make informed capital allocation decisions in the energy transition process.

Denmark Becomes the First Sovereign to Issue EU-Standard Green Bonds

Denmark is the first sovereign to issue bonds under the newly developed European Green Bond Standard (EuGBS). The EuGBS is a regulatory framework designed to enhance transparency and integrity in sustainable finance and is aligned with both the EU Taxonomy and Green Bond Principles established by the International Capital Market Association.

On 23 September 2025, the Danish government issued DKK 7 billion in European green bonds maturing on 15 November 2035 under the EuGBS framework. Denmark intends to support overarching climate goals by financing the sectors driving the green transition, with 100% of the proceeds allocated to refinancing of the taxonomy-aligned environmentally sustainable activities.

Unlike previous sovereign green bonds issued under voluntary principles, EuGBS-compliant bonds require full alignment with the EU Taxonomy. This means proceeds can only be used to finance activities that meet the European Union’s criteria for environmental sustainability.

Denmark’s initiative could mark a turning point in sovereign sustainable finance, introducing a higher standard for market integrity and disclosure. As investor appetite for credible green instruments grows, Denmark’s approach provides some potential insight of how the EuGBS could eventually reshape standards within sustainable finance markets.

International corporations operating in Europe may face growing investor pressure to ensure that green financing structures comply with the EU Taxonomy. The bonds provide opportunities to assign capital with a higher certainty of environmental sustainability and integrity.

Denmark’s issuance is likely to serve as a case study illustrating how sovereign frameworks balance EU sustainability objectives with investor appeal.

The authors would like to thank graduates Jessica Lim and Dorothy Sam for their contributions to this alert.