ESG under the microscope: What healthcare and education providers must know

A case in point: in March 2025, the Trump administration sent a survey to several Australian health and medical research organisations, including universities.

According to media reports, at least six Australian universities have had US funding for research projects paused or cancelled, as US agencies implement Donald Trump's "America First" agenda.[1]

The Trump administration has issued directives to recipients of US grant funding in the health and medical research space – impacting hospitals, health care providers and Australian universities– to align with US ‘program determinations’.

Some of the questions put to Australian universities to justify US funding include:

• Does your organisation encourage free speech and encourage open debate, and free sharing of information?
• Can you confirm that your organisation does not work with entities associated with communist, socialist, or totalitarian parties, or any party that espouses anti-American beliefs?
• Can you confirm that your organisation has not received any funding from the PRC (including Confucius Institutes and/or partnered with Chinese state or non-state actors), Russia, Cuba, or Iran?
• Can you confirm this is not a climate or "environmental justice" project or include such elements?
• Does this project directly contribute to limiting illegal immigration or strengthening US border security?

In Australia large corporate, insurance and government clients are increasingly incorporating ESG requirements into procurement contracts. 

For example, the Australian Standard Commonwealth Grant Agreement includes clauses which deal with:

• Conflicts of interest
• Prohibited interests, including dealing with terrorists
• Compliance with laws
• Fraud and corruption.

Both the Australian Securities & Investments Commission (ASIC) and the Australian Competition & Consumer Commission (ACCC) have announced that ‘greenwashing’ is a key enforcement priority. 

Further elevating the importance of ESG, The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) (Act) – which received assent on 17 September 2024 – amended the Corporations Act 2001 (Cth) and other legislation.

Schedule 4 of the Act, which commenced on 18 September 2024, introduced mandatory sustainability reporting for certain entities.

These changes have brought ESG to the forefront for both consumers and businesses– and will increasingly shape how business and sale transactions are approached.

‘Greenwashing’ refers to false or misleading environmental claims that give the impression a business is more environmentally friendly than it actually is. 

In some cases, simply omitting information can amount to misleading or deceptive conduct, depending on the circumstances and the overall impression created

Under the Australian Consumer Law (ACL) – Schedule 2 of the Competition and Consumer Act 2010 (Cth) – businesses must not make false or misleading representations or engage in misleading or deceptive conduct.

The ACL applies broadly to all forms of marketing and advertising including, information on packaging, in-store signage, social media, websites,, and verbal or written communications to consumers.  It also applies more generally to conduct in connection with the supply or possible supply of goods or services, or to conduct, in trade or commerce. 

The key test is whether the overall impression would mislead an ordinary and reasonable consumer. Any business making claims about it’s operations, products or services must ensure those claims are truthful, accurate and unlikely to give consumers the wrong impression.

The ACCC has outlined eight principles for making credible environmental claims[2]:

1. Make accurate and truthful claims
2. Have evidence to back up your claims
3. Don’t hide important information
4. Explain any conditions on claims
5. Avoid broad and unqualified claims
6. Use clear and easy to understand language
7. Visual elements shouldn't give the wrong impression
8. Be direct and open about sustainability transition

Under the ACL, maximum penalties for misleading and deceptive conduct can be significant: 

1. for Corporations are:
   1. $50,000,000;
   2. if the Court can determine the value of the 'reasonably attributable' benefit obtained, 3 times that value, or
   3. if the Court cannot determine the value of the 'reasonably attributable' benefit, 30% of the corporation's adjusted turnover during the breach turnover period for the contravention.
2. The penalties for Individuals are
   1. $2,500,000.

ASIC v Mercer Superannuation (Australia) Limited 2024 [FCA] 850 [3]

In a landmark case for ASIC, the Federal Court ordered Mercer Superannuation (Australia) Limited to pay a $11.3 million penalty after it admitted making misleading statements about the sustainability characteristics of certain superannuation investment options.

ASIC Deputy Chair Sarah Court said, 'This was ASIC’s first greenwashing case brought before the Federal Court; a landmark case both for ASIC and for the financial services industry. It demonstrates the importance of making accurate ESG claims to investors and potential investors.’

Mercer marketed its ‘Sustainable Plus’ investment options as suitable for members “deeply committed to sustainability,” claiming to exclude companies involved in fossil fuels, alcohol and gambling. However, the Court found that Mercer’s portfolios included investments in:

• 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd),
• 15 companies involved in the production of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd), and
• 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited).

ASIC v Vanguard Investments Australia Limited [2024] FCA 308 [4]

The Federal Court found Vanguard Investments Australia breached the law by making misleading claims about ESG exclusionary screens applied to investments in a Vanguard index fund.

At a hearing before Justice O’Bryan on 8 March 2024, Vanguard admitted that it had made misleading representations across various communications, including product disclosure statements, media releases, website content, Youtube interviews and fund manager presentations. Although Vanguard claimed its fund excluded companies involved in fossil fuels and other activities, on 28 March 2024, Justice O’Bryan found many securities in the index fund were not properly screened against ESG criteria. 

The Federal Court today ordered Vanguard Investments Australia to pay a $12.9 million.

FossielVrij NL v Royal Dutch Airlines (KLM) [20.03.2024]

The Court of Amsterdam found that 15 of the 19 sustainability-related statements made by KLM breached the Unfair Commercial Practices Act., These included claims that: 

• Flying can be or become environmentally sustainable; and
• Purchasing KLM’s climate initiatives (e.g. carbon offsets, ‘Sustainable Aviation Fuel’) reduces the climate impact of flying. The Court found that these statements were ”vague and general statements” overly optimistic, and likely to mislead consumers. It noted that KLM should have reasonably foreseen that its audience might rely on incorrect or incomplete information when making purchasing decisions.  
• While the court declined to impose the requested EUR 100,000 penalty per breach, it did order KLM to pay FossielVrij’s legal costs.
• This case underscores the challenge for businesses in communicating climate ambitions while staying within consumer law boundaries. 

Under the sustainability reporting regime under the Corporations Act, large Australian businesses and financial institutions are now required to prepare and lodge a sustainability report.[5]

Entities required comply include:

• Listed entities
• Unlisted disclosing entities
• Other public companies (including companies limited by guarantee that are not registered with the Australian Charities and Not-for-profits Commission)
• Large proprietary companies
• Certain small proprietary companies (for example, if foreign-controlled or subject to crowd-sourced funding)
• Registered schemes
• Registrable superannuation entities.

Chapter 2M of the Corporations Act outlines the required contents of a sustainability report. These include:

• The climate statements for the year
• Any notes to the climate statements
• Any statements that the Minister determines by legislative instrument concerning environmental sustainability and related notes
• Directors’ declaration about the above.

Climate statements must align with the sustainability standards issued by the Australian Accounting Standards Board (AASB). Notes must include:

• Disclosures required by AASB standards
• Requirements under Ministerial legislative instruments
• Additional disclosures outlined in section 296D

Section 296D requires that entities disclose, as per the sustainability standards: 

• Any material financial risks and material financial opportunities relating to climate
• Any metrics and targets relating to climate, including those relating to Scope 1, Scope 2 and Scope 3 GHG emissions (including financed emissions for Scope 3)
• Information about the governance of, the strategy of, or risk management by the entity in relation to the risks, opportunities, metrics and targets referred to above.

Key features of the reporting regime include:

• Mandatory reporting: Entities based or operating in Australia with an annual consolidated revenue of over $100 million must report annually on the risks of modern slavery in their operations and supply chains as well as the actions they are taking to address those risks.
• Voluntary reporting: Other entities based, or operating, in Australia may choose to report voluntarily.
• Government entities: The Commonwealth must report on behalf of non‑corporate Commonwealth entities. Reporting requirements also apply to Commonwealth corporate entities and companies with an annual consolidated revenue of more than $100 million.
• Transparency: Reports are kept by the Minister in a public repository known as the Modern Slavery Statements Register. All statements are accessible to the public free of charge, on the internet.
• Oversight and enforcement: The Act also established the role of the Australian Anti‑Slavery Commissioner, who is responsible for oversight, guidance and other administrative functions related to modern slavery reporting.
• What must be reported: Annual statements must outline the risks of modern slavery in the reporting entity’s operations and supply chains, including any entities it owns or controls. 
• They must also describe the actions taken to assess and address these risks. 

Modern slavery means conduct which would constitute: [7]

1. an offence under Division 270 or 271 of the Criminal Code; or
2. an offence under either of those Divisions if the conduct took place in Australia; or
3. trafficking in persons, as defined in Article 3 of the Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children, supplementing the United Nations Convention against Transnational Organized Crime, done at New York on 15 November 2000 ([2005] ATS 27); or
4. the worst forms of child labour, as defined in Article 3 of the ILO Convention (No. 182) concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour, done at Geneva on 17 June 1999 ([2007] ATS 38).

Note: In 2018, the text of international agreements in the Australian Treaty Series was accessible through the Australian Treaties Library on the AustLII website (http://www.austlii.edu.au).

270.1    Definition of slavery

For the purposes of this Division, slavery is the condition of a person over whom any or all of the powers attaching to the right of ownership are exercised, including where such a condition results from a debt or contract made by the person.

270.2    Slavery is unlawful

Slavery remains unlawful and its abolition is maintained, despite the repeal by the Criminal Code Amendment (Slavery and Sexual Servitude) Act 1999 of Imperial Acts relating to slavery.

270.3    Slavery offences

(1) A person who, whether within or outside Australia, intentionally:

(aa) reduces a person to slavery; or

(a) possesses a slave or exercises over a slave any of the other powers attaching to the right of ownership; or

(b) engages in slave trading; or

(c) enters into any commercial transaction involving a slave; or

(d) exercises control or direction over, or provides finance for:

(i) any act of slave trading; or

(ii) any commercial transaction involving a slave;

commits an offence.

Penalty: Imprisonment for 25 years.

(2) A person who:

(a) whether within or outside Australia:

(i) enters into any commercial transaction involving a slave; or

(ii) exercises control or direction over, or provides finance for, any commercial transaction involving a slave; or

(iii) exercises control or direction over, or provides finance for, any act of slave trading; and

(b) is reckless as to whether the transaction or act involves a slave, slavery, slave trading or the reduction of a person to slavery;

commits an offence.

Penalty: Imprisonment for 17 years.

‘commercial transaction involving a slave’ includes a commercial transaction by which a person is reduced to slavery.

Also note slavery-like offences

270.4 Definition of servitude

(1) For the purposes of this Division, servitude is the condition of a person (the victim) who provides labour or services, if, because of the use of coercion, threat or deception:

(a) a reasonable person in the position of the victim would not consider himself or herself to be free:

(i) to cease providing the labour or services; or

(ii) to leave the place or area where the victim provides the labour or services; and

(b) the victim is significantly deprived of personal freedom in respect of aspects of his or her life other than the provision of the labour or services.

(2) Subsection (1) applies whether the coercion, threat or deception is used against the victim or another person.

(3) The victim may be in a condition of servitude whether or not:

(a) escape from the condition is practically possible for the victim; or

(b) the victim has attempted to escape from the condition.

Mandatory criteria for modern slavery statements:

(1) A modern slavery statement must, in relation to each reporting entity covered by the statement:

(a) identify the reporting entity; and

(b) describe the structure, operations and supply chains of the reporting entity; and

(c) describe the risks of modern slavery practices in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns or controls; and

(d) describe the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes; and

(e) describe how the reporting entity assesses the effectiveness of such actions; and

(f) describe the process of consultation with:

(i) any entities that the reporting entity owns or controls; and

(ii) in the case of a reporting entity covered by a statement under section 14—the entity giving the statement; and

(g) include any other information that the reporting entity, or the entity giving the statement, considers relevant.

Example: For paragraph (d), actions taken by an entity may include the development of policies and processes to address modern slavery risks, and providing training for staff about modern slavery.
 

(2) A modern slavery statement, other than a statement to be given under section 15 (Commonwealth modern slavery statements), must include:

(a) for a statement to be given under section 13 (modern slavery statements for single reporting entities)—details of approval by the principal governing body of the reporting entity; or

(b) for a statement to be given under section 14 (joint modern slavery statements):

(i) details of approval by the relevant principal governing body or bodies; and

(ii) if subparagraph 14(2)(d)(iii) applies—an explanation of why it is not practicable to comply with subparagraph 14(2)(d)(i) or (ii).

The Modern Slavery Act 2018 (Cth) has established a national Modern Slavery Reporting Requirement, which applies to large businesses and other entities in the Australian market with annual consolidated revenue of at least A$100 million.

Purchaser

• During the due diligence stage of an M&A transaction, the purchaser must ensure they affectively consider the risks of modern slavery and investigate the supply chain of the target company.
• Purchasers can negotiate indemnities from sellers against losses related to modern slavery issues.
• Purchasers should also ensure that the transaction documents include appropriate representations and warranties from the seller(s) that the target company has not committed or been complicit in the commitment of any modern slavery practices.

Seller

• Sellers should ensure that they have up-to-date information on their supply chain as well as processes in place to mitigate modern slavery risks.
• This approach will contribute to a smoother due diligence process with respect to the sale of the business.
• Target companies that have established supply chain due diligence procedures may also be more attractive to potential buyers.

There are four factors that affect the risk of modern slavery. The highest risk occurs when one or more factors intersects with another.

(a) Vulnerable populations

Migrant workers and base-skilled workers are often from low socio-economic, or culturally diverse backgrounds. This makes them more vulnerable to systemic issues such as underpayment, withholding of wages and excessive working hours. 

(b) Business models structured around high-risk work practices

Third-party labour arrangements, or the outsourcing of significant labour needs, introduces complexity into a company’s supply chain. There have been reports of recruiters, often based overseas, fraudulently promising workers well-paid employment in Australia.

(c) High-risk locations 

High-risk locations may include conflict-affected zones, high corruption or an absence of labour laws. 

(d) High-risk product and service categories

Raw materials: The reliance on indirect suppliers can obscure the origins of raw materials, potentially exposing a company to risks of sourcing materials from conflict-prone areas like the Democratic Republic of Congo, where widespread labour exploitation, including child labour, is prevalent in mining operations.

Services: Slavery-like practices are known to be prevalent in services procurement, particularly where this intersects with base skill labour. For example, building services, cleaning, travel, security and maintenance services.

We recommend the following considerations when undertaking ESG due diligence:

• When drafting procurement contracts, clearly set out the obligations, along with reporting & audit rights. Try not to be too broad and aspirational.
• ESG risk often lies deep within the supply chain, making it difficult to identify issues such as child labour or modern slavery. This can be addressed by  requiring a cascade of ESG clauses through all tiers of the supply chain.
• In some jurisdictions – including parts of South America – contractual due diligence to address risk relating to criminal activity and money laundering is required.
• Be aware that some companies may simulate business activities for tax compliance.
• Proper due diligence and indemnification clauses are necessary. Don’t rely on certifications or third-party assurances without verification.
• Consider whether insurance coverage is appropriate for ESG-related claims.
• Dispute resolutions clauses (such as arbitration) are important in countries where the judicial system may lack independence and or be affected by corruption.
• Ensure contracts include a clear right to terminate clause in the event of supplier default, particularly for subcontracts.
• In logistic contracts, consider whether third-party criminal theft constitutes a force majeure event.
• Suppliers should also carefully negotiate the waiver of consequential damages – this can be critical in logistics and supply contracts.
• Take care with ESG warranties – ensure they are misleading or deceptive
• Suppliers should review whether force majeure clauses are fit for purpose in the context of ESG risks.
• Pay particular attention to the ESG due diligence where the supply chain involves food or agriculture.
• Assign responsibility to a single team to ensure compliance and oversight across the organisation.
• Train staff regularly on what is greenwashing, and how to identify and avoid it.
• Regularly review ESG-related claims to ensure they remain accurate over time.