Regulators pounce, activist pressure on climate eases, AICD report shows

Businesses are facing heady regulatory scrutiny on climate issues, but pressure from activists and lenders has eased, says new data.

Company directors are grappling with intense regulatory scrutiny as businesses navigate the climate transition, but pressure from lenders, customers and even activist groups has eased from just a few years ago, according to a survey by the Australian Institute of Company Directors.

The AICD’s latest climate governance study, released on Tuesday, also shows unsettled policy settings remain the highest barrier to effective climate governance, while directors have sounded the alarm on a too-narrow focus on compliance which they warn risks coming at the expense of real action.

Even as 2023 was named the hottest year on record, directors surveyed by the AICD noted a reduction in pressure on climate action from most stakeholders, including employees, customers, civil society (activist groups, media and individuals), lenders and investors, compared to its last climate governance study, taken in 2021.

The only exception to the trend was the pressure coming from the federal government and regulators, the AICD said.

While half of directors reported feeling at least “moderate” pressure from civil society in 2021, this has since dropped to 33 per cent, according to the report.

Regulatory pressure, meanwhile, jumped slightly to 40 per cent of directors across listed, unlisted, government and not-for-profits, the AICD said.

Among listed companies, just over half of company directors reported feeling regulatory pressure. This was up from 37 per cent in 2021.

AICD CEO Mark Rigotti. Picture: Hollie Adams

The divergence may be explained by the change in government as well as the complexities of moving from ambition to execution in the climate transition, AICD CEO Mark Rigotti said.

“If you look at Australia’s journey over the last five years, you had a previous government that wasn’t very supportive of change and now you’ve got a current government that is supportive of change,” Mr Rigotti said.

“You could argue about the pace and the type of change but it does feel like the train has left the station on (climate action) and so I wonder if that then feeds into how people are feeling. So there’s less need to focus on the corporates to drive change because governments are pushing it along as well.”

These same companies are also having to navigate competing shareholder interests, with more than a third of listed company directors reporting near-term business demands from shareholders as a barrier to climate governance.

Meanwhile, 42 per cent of directors cited a lack of clear and settled climate change policy as the largest barrier to effective climate governance, while a third of not-for-profit directors and a quarter of government directors are also facing time and resourcing constraints, indicating a bandwidth challenge, the institute warned.

Companies at the big end of town look better prepared for the coming mandatory climate reporting regime, Mr Rigotti said.

“You’ve got this bifurcation in the market of these larger, more corporate entities who are prepared for the change, more or less, and others who are not,” he noted.

Even those feeling prepared are concerned about what lies ahead and the potential for accusations of greenwashing, he warned.

“They’re trying to move from ambition to execution … people are worried about the level of stakeholder and regulatory scrutiny in an environment where there’s potential liability even if you’re trying your hardest and doing everything right.”

Directors surveyed warned against pushing too hard on compliance at the expense of action, while the increase in the risk of greenwashing accusations has encouraged a cautious approach to disclosure, according to the institute.

NAB chair Phil Chronican pointed to the shift taking place, saying: “The market is currently in a transition from an exploration, ambition, discovery phase, where organisations were making very ambitious scope 1 and 2 emissions targets, to a compliance phase. There is concern by corporates during this transition,” he said.

“There is increasing pressure for companies to demonstrate that they have credible plans to achieve their targets.”

NAB chair Philip Chronican. Picture: Daniel Mazzarella

Separately, the Carbon Market Institute on Tuesday added to pressure on Australian businesses, declaring its carbon-intensive and large corporate members must have publicly available decarbonisation transition plans in place by mid-2025 in order to be eligible for full membership.

CMI CEO John Connor said the policy was an important step in supporting best practice as businesses work to reduce emissions.

“Carbon markets are entering a new phase as global temperatures approach the Paris agreement’s 1.5C threshold, and amidst intense focus on integrity in carbon crediting and decarbonisation strategies,” he said.

“Corporations are grappling with how to lead in the climate crisis and CMI has a responsibility to engage and support business members in best practice responses.

“Previously some have understood carbon markets as just a means for business to offset emissions. Now they must help business achieve their net zero goals and in doing so, invest in climate solutions beyond their business to accelerate whole of economy net zero emissions,” Mr Connor added.

Originally published as Regulators pounce, activist pressure on climate eases, AICD report shows