Climate reporting: What directors need to know in year one

If directors and companies think they are protected from legal action from shareholders in the first year of the climate reporting regime, they should think again.

Leading lawyers warn that companies and directors could be subject to lawsuits in the first year of the new reporting rules, despite legislation stipulating that only the securities regulator can bring civil action against key aspects of the report.

In the first year of the regime, which started on January 1, only the Australian Securities and Investments Commission can take action against companies in relation to key statements and claims made in their sustainability reports. But claims about emissions and climate risk made outside the sustainability report can be challenged by shareholders and other stakeholders.

Lawyers also caution that directors of big carbon emitting companies that are already making climate-related disclosures in annual sustainability reports are unlikely to be as prepared for the new reporting regime as they think.

From this year, companies which are roughly equivalent to those in the ASX 200 and their private equivalents must detail climate-related risks over the short, medium and long term, including for scope 3 emissions from their customers and suppliers. The reporting must include quantitative information about risks and opportunities of climate change on cash flows, access to finance, cost of capital, resource allocation and investment plans.

Smaller companies will be included in the regime in subsequent years.

Although the rules for large companies came into effect in January, most companies are only captured from July 1, given their June 30 balance date.

Warning over misleading statements

The regime adds to the growing burden of compliance facing boards, with experts warning the learning curve is steep and the new rules open companies further to the risk of legal action for making false or misleading statements about their environmental plans.

Legal experts say directors could be accused of greenwashing and subject to legal action in the first year of the reporting regime.

The problem is that modified liability provisions protecting companies and directors from legal action largely only relate to certain key statements made in the sustainability reports.

If those same statements are repeated in other communications, such as press releases, investor briefing packs, and on websites or podcasts, they could form the basis of a legal claim if they are considered misleading or deceptive.

“The sustainability report is not the sole vehicle of market communication. It’s common that some of these statements will get picked up [elsewhere] so that still leaves open avenues for activist claims for misleading and deceptive [statements],” says Carolyn Pugsley, partner and environmental, social and governance expert at legal firm Herbert Smith Freehills Kramer.

Protection ‘far from a safe harbour’

“[It’s] a pretty limited additional protection,” says Jillian Button, head of climate change at law firm Allens.

“Voluntary statements about climate related matters are not subject to modified liability. It’s some comfort, particularly to listed companies and super funds, because of that reduced risk of strategic litigation or public interest litigation.

“But beyond that, it’s far from a safe harbour,” Button says.

Modified liability provisions only provide limited additional protection, says Jillian Button.  

A finding that a company and its directors have misled shareholders or other stakeholders, such as super fund members, about their emissions or climate risks could result in financial penalties or director disqualification.

Experts also caution directors of heavy carbon emitting companies who have been overseeing the publication of sustainability reports for the past few years not to underestimate the leap in the information and assumptions that must be provided under the new reporting regime.

Big lift from previous rules

“The lift and the capability required to [meet the requirements of the new reporting regime] is relatively substantial, even for companies that are heavy emitters and are already producing sustainability reports,” says Zoe Whitton, managing director of Pollination, a specialist climate change investment and advisory firm.

“That’s been one of the interesting and probably slightly startling things about the exercise. I would say that has probably surprised even us as to how big the lift is.”

Zoe Whitton warns the workload associated with the new regime is leaving many companies with few resources to push ahead with fresh environmental initiatives. Dion Georgopoulos

“I think there are potentially quite a few directors of companies that have been voluntarily doing expansive sustainability reports in previous years that might be under a false sense of security, that they’re already where they need to be for the new regime. Even for the most mature climate reporters, this is a real step change,” adds Pugsley.

In order to sign off on the new reports, directors should satisfy themselves that the company has devoted adequate resources to preparing the documents and they have an understanding of the judgements, inputs and assumptions that underpin the disclosures, experts say.

Lawyers say boards can ill afford to wait until the end of the year to have a say in the final climate report.

Whitton says the workload associated with the new reporting regime is leaving many companies with little resource to push ahead with fresh environmental initiatives.

Sally Patten

BOSS editor

Financial Review

Aug 7, 2025