Is ESG dead? Key takeaways from the Australian Financial Review ESG Summit 2025

In the wake of Australia’s new mandatory climate-related financial disclosure regime, companies can no longer push ESG to the side and must be prepared to back their reports with evidence of their environmental impact.

The impact of communities, stakeholders and investors on business decisions will continue to grow, and companies need to listen to those involved. 

Speakers at the summit heavily enforced that companies should be scared for the new disclosure regime, as it is a large jump from current requirements.

Since 1 January 2025, certain Australian entities have been required to comply with mandatory climate-related financial disclosure obligations under Chapter 2M of the Corporations Act 2001 (Cth). There are three tranches, with the final tranche commencing on 1 July 2027. This tranche will cover all entities with revenue of more than $50 million, value of gross assets of greater than $25 million, and the entity has 100 or more employees. 

A wide net is cast over companies by the third tranche, with the first and second tranche targeting companies with more substantial revenue and asset holdings. You can read more in our earlier article, Navigating the new era of climate disclosure: key takeaways from the RIAA Conference Australia 2025, and by reviewing RG 280.

While there has been, or will be, an uplift of reporting and disclosure requirements, entities must also keep abreast of their record-keeping obligations. Under sections 285(1)(b) and 286A of the Corporations Act, entities are required to keep written sustainability records, which are documents, board minutes, reports, inventories or any other papers that can explain and evidence the basis for the substantive content of the entities’ climate-related financial disclosures. 

Some speakers expressed a sentiment that the new rules could operate to punish leaders and protect laggards, as it could expose entities who disclose as much as possible to claims of misleading and deceptive conduct, but also ‘protect’ entities who take a more cautious approach to disclosure (ie making fewer climate-related statements, also known as greenhushing). There is some respite, albeit temporary and limited in operation, afforded to persons who make ‘protected statements’ in the sustainability reports, as follows:

• a future-looking climate statement will be protected from civil action (excluding ASIC and criminal action) if made in a report between 1 January 2025 and 31 December 2025;
• whereas statements made in relation to scope 3 emissions, scenario analysis or a climate or net zero transition plan will be protected from civil action (excluding ASIC and criminal action) if made in a report between 1 January 2025 and 31 December 2027. 

Together this is known as the modified liability settings. It is important to note the settings do not prevent action being brought by ASIC or criminal action being brought against such persons. 

Entities must also be vigilant about how these new rules might interact with existing directors’ duties under the Corporations Act. As the modified liability settings lapse, any disclosures or failure to disclose material financial risks or opportunities related to climate, in accordance with AASB 2, will be taken as to reasonably be expected to influence investors. This means entities need to be aware that such disclosures and reporting of climate-related risks comply with the following:

• are not misleading or deceptive (section 769C of the Corporations Act and sections 12BB, 12DB and 12DF of the Asic Act); and

• in making or declaring these statements, directors exercise their powers with care and diligence.

Recent ASIC moves have evidenced that governance rules and practices need to be strengthened and continually updated. A major theme from the Summit was that without Governance, the E and S of ESG will not work. 

Founder-led businesses should be careful, especially where the major shareholder has an executive role in the company. Succession planning was singled out as being key for good governance and planning.

Companies will lose value from poor governance, as investors have lowering tolerance levels for badly behaving boards and executives. 

The question was raised whether there are too many regulations for listed companies, and not enough for unlisted companies. Speakers asked how to regulate the private sector, and whether over-regulation is causing assets to be moved to unlisted companies.

Investors and community provide businesses with the social licence to operate, and companies should not forget this. But too much green tape can cause issues for SMEs, as requiring SMEs with limited resources and funding to provide reports could be ineffective and perhaps cause more breaches than progress.

Companies cannot solve all ESG issues on their own, and therefore government has a role in addressing more general ESG concerns and working with companies to solve these issues. ESG has moved beyond a concept to be a legal requirement, and businesses should be prepared to act, often pre-emptively, and embrace change. 

European and Australian investors place a heavier emphasis on ESG, compared to US investors. There is also heightened activist surveillance of greenwashing or greenhushing. Transparency around ESG investments and strategies or plans can reduce the risks for business.

There is an expectation that companies actively engage in good governance. Where there are failures in governance, it can bring about financial and reputational damage to the company by eroding shareholder value and public trust. This result was demonstrated in recent ASIC investigations into founder-led companies in the past year. 

A large proportion of members of some superannuation funds actively support investments based on a good track record in ESG. Where ESG issues arise in a company, superannuation funds may be more active in divestiture of holdings or may engage in proxy voting practices. 

The cost of implementing ESG into your business is less than the cost of risk, both monetarily and reputationally.

Boards must proactively address issues before they escalate publicly, balancing fiduciary duties to investors with broader responsibilities to the company and community. While ESG initiatives are increasingly important, their costs can challenge return expectations, especially among retail investors. 

Good governance, including independent board members, shareholder engagement, and succession planning, is essential for sound investment decisions. Superannuation funds face the added challenge of aligning member interest in ESG with their duty to deliver strong financial outcomes. As expectations rise, especially for entities funded by superannuation, ongoing professional development and accountability to stakeholders are critical. Key discussion points included:

• Boards can’t wait for issues to hit the media before they’re addressed.
• There is a fiduciary duty to investors regarding ROI, but also duty to company and community. How do you balance the duty when ESG implementation costs can bring down returns?
• Everyone seems interested in ESG until it costs too much, which accentuates the difference between retail and wholesale investors. Superannuation funds report that members have increasing interest in ESG initiatives and investments, but perhaps they do not understand the cost of this on their investment. How can superannuation funds listen to members’ interest and balance this with the duty of best financial interests.
• Business does not need to sacrifice investor returns in order to act sensibly and responsibly.
• Investors, customers and suppliers will hold business accountable before the regulators reach them – focus on what they have to say.
• Succession planning is integral to boards and executives: should we focus more on this than rules such as the two strike rule or board tenure caps?
• Superannuation funds are held to a higher standard due to the money they hold and the importance of retirement outcomes. Private entities that receive funding from such funds should be aware of the reporting standards they will take on by having investment from a superannuation fund.

This article was prepared with the assistance of Dylan Chan, Law Graduate.