Heath says the law firm’s report also tried to also unpack some increasingly ubiquitous phrases in the business lexicon, such a “carbon neutral”, “net zero” and “net zero carbon” and what impact the differences in various targets have on company reporting.
“How are you actually going to measure that? Are you talking about CO2? Are you talking about all greenhouse gases? Are you taking into account abatement actions that you do here in Australia or overseas? Are you looking at the impact of the product you’re exporting or just what happens onshore? All those really tricky things start to come into play.
“The policy vacuum here is frustrating, but also really interesting, as to what regulators will do in this area.”
The law firm’s report highlights the variation in company disclosures and stress test scenarios. Some companies are sticking to stress testing their business to 1.5 degree increases in temperatures and others to testing for 2 degrees.
But disclosure and regulation can create significant danger for companies, says Heath.
“As companies disclose more about what they’re doing on ESG, and particularly what they’re doing on climate change, that disclosure opens the companies and their boards and management teams up to potentially more litigation, because most of the litigation we see in a company law context is related to disclosure.
‘People who don’t disclose and get left behind and then are pushed to make disclosure.’
Will Heath, King & Wood Mallesons partner mergers and acquisitions
“And you’re damned if you do and you’re damned if you don’t because as the market gets more disclosures, people who don’t disclose and get left behind and then are pushed to make disclosure.
“And that’s dangerous.”
Heath says that, conversely, disclosing can be dangerous where regulators and governments haven’t put in “guard rails” around what that disclosure should say. This is particularly so when the law generally imposes strict liability for inaccurate disclosure, meaning a company is liable for ensuring its public statements are accurate.
“People can make inadvertent mistakes, which hopefully don’t have consequences and that’s understood as being a learning thing,” he says.
“And on the other hand, some guard rails will help curb greenwashing disclosures where companies are trying to hide practices that aren’t reflective of the company’s best interest, but they’re dressing it up using all these acronyms.”
Heath says this is particularly important once you start looking at below the ASX50 and into the ASX100 and beyond.
“I think in the rest of the market, there are going to be some people who will see opportunities to leverage the grey and the opaqueness,” he says.
“That’s where regulators do have a role to play to set standards and enforce and equally make sure those standards are clear so that people can report against them.”