Keeping Up With ESG In Australia – April 2026

Welcome to the April edition of Herbert Smith Freehills’ Australian ESG bulletin, ‘Keeping Up with ESG’.

Our monthly ESG bulletin provides a targeted snapshot of key developments we see as reflecting the “must know” trends in the Australian market. In this edition, we spotlight Treasury’s latest publication on the proposed Sustainable Investment Product Labelling regime.

In the Spotlight: Sustainable Investment Product Labelling – Policy Design

Treasury has published a second consultation paper on the proposed Sustainable Investment Product Labelling regime (Labelling Regime), aiming to help retail investors better understand the sustainability characteristics of financial products and provide greater certainty to issuers when making sustainability claims.

Element 1: Scope of Sustainable Investment Product Labelling

Treasury has proposed that the Labelling Regime will apply to financial products which are described, either in their marketing materials or product titles, as having a "sustainable" or similar objective.

It is proposed that the definition of a financial product will be imported from section 763A of the Corporations Act 2001 (Cth) (Corporations Act). Section 763A defines a financial product as

"facility through which, or through the acquisition of which, a person does one or more of the following:

(a) makes a financial investment;

(b) manages financial risk;

(c) makes non - cash payments.”

Treasury has suggested that whether a financial product carries a "sustainable" or similar objective could be determined by whether the product’s marketing or description contains any one or more terms from a non-exhaustive list of sustainability-related terminology. Treasury has provided an indicative list which includes terms such as "Sustainable", "Green" and "Socially aware" - the full list is set out below.

Element 2: Consumer-facing disclosures

For financial products falling within the scope of the Labelling Regime, issuers would be required to provide a consumer-facing disclosure (CFD) document intended to explain the sustainable characteristics applying to the relevant financial product. Examples of information that a CFD may contain include the fund’s sustainability approach, key sustainability metrics (e.g. emissions intensity) and investment exclusions (e.g. fossil fuels or controversial weapons).

Treasury has proposed the following options regarding the form of the CFD requirement, being:

1. Prescriptive template – requiring issuers to provide prescribed information according to a defined format;
2. Principles-based template – requiring issuers to explain sustainability characteristics, but in a flexible format without precise prescription; and
3. Hybrid approach – requiring certain disclosures to be dealt with in a prescribed format, but otherwise afford flexibility in the disclosure and presentation of other sustainability characteristics.

Treasury has acknowledged that the form of the CFD requirement will impact compliance burdens and costs faced by entities captured by the Labelling Regime. Relevantly, Treasury is consulting on whether the requirement can be integrated into existing disclosure frameworks to minimise duplication, such as in existing Product Disclosure Statements (PDS). Treasury is also considering how often CFDs should be updated, with a view to minimise regulatory costs that may stem from overly frequent updates. However, the paper notes that Treasury recognises the “merit” in mandating standalone CFDs, as sustainability disclosures may be less accessible to consumers in already lengthy and complex PDSs.

Element 3: Thresholds

Treasury consulted on whether financial products under the Labelling Regime should be subject to asset-based thresholds. The thresholds would operate by reference to the percentage of a product's assets that meet its marketed sustainability objective. Treasury has proposed two separate approaches:

1. requiring products marketed as sustainable to meet a minimum threshold (or threshold range) of assets aligned with their sustainability objective; or
2. requiring product issuers to disclose the proportion of assets that align with the product's sustainability objective instead.

As part of the consultation, Treasury has considered whether the assets in a product that do not count towards the threshold should be subject to an additional requirement: that they do not conflict with the product's sustainability objective. Under this approach, any remaining assets would need to be managed so that they do not undermine or detract from the stated sustainability objective. This intends to reduce greenwashing risk by ensuring that a product's overall investment profile is not inconsistent with its sustainability claims.

The use of thresholds may influence product design, constrain investment flexibility and increase ongoing compliance demands. Thresholds that allow products to satisfy minimum requirements without producing any substantial sustainability outcomes may reduce consumer confidence in the regime. A disclosure-only approach may still require product issuers to implement more sophisticated processes to support ongoing alignment reporting.

Element 4: Evidentiary Assessment

Treasury has proposed a principles-based approach to evidentiary assessment. This would require product issuers to demonstrate that their claims are supported by credible evidence when made. Rather than mandating a particular methodology, issuers would have flexibility in how they substantiate their claims. This could include relying on internal processes, external data sources or industry standards provided there is appropriate documentation and record-keeping. This approach is designed to support a broad range of sustainable investment approaches and remain effective as evidentiary standards evolve.

However, Treasury also acknowledged that greater flexibility in the use of evidence could increase complexity for investors if not implemented carefully. Those making sustainability-related claims should expect increased scrutiny of their documentation, internal controls and assurance processes which support those claims. Existing evidentiary practices should be reviewed to ensure they are sufficiently robust, applied consistently and are sufficient to support disclosures made.

With submissions now closed, Treasury will consider feedback as it moves towards finalising the Labelling Regime, with the final design scheduled to commence in 2027.

ASFI releases first of its kind guidance to support taxonomy-aligned debt issuance

On 24 March 2026, the Australian Sustainable Finance Institute (ASFI) released its new voluntary guidance on how the Australian Sustainable Finance Taxonomy can inform the use of debt instruments, such as bonds and loans. ASFI plans to release further supporting materials later this year to assist broader market adoption of the taxonomy.

The taxonomy is a structured framework that identifies economic activities which make a material contribution to environmental sustainability. It introduces a consistent standard for green and transition finance. The taxonomy will help make sustainable finance simpler and more credible by clarifying what counts as climate-aligned activity and reducing the time and cost needed to assess sustainable investments.

The guidance intends to assist issuers, facilitators, coordinators, independent reviewers and investors in understanding the terminology and processes of the taxonomy. The guidance explains how to apply the taxonomy to use-of-proceeds debt, including the allocation of proceeds to physical assets, capital expenditure (CapEx) and operating expenditure (OpEx). It also outlines expectations for the disclosure of taxonomy alignment to support transparency for users of sustainability information.

AASB publishes educational material on materiality and risks and opportunities

In March 2026, the Australian Accounting Standards Board (AASB) published new educational material on ‘Climate-related risks and opportunities and the disclosure of material information’ (Educational Material) to assist entities applying sustainability reporting standard AASB S2 Climate‑related Disclosures.

The Educational Material firstly covers how entities might determine what climate information is material for the purposes of disclosure. It sets out the main components of the definition of 'material information', which are:

• the information needs of primary users and the decisions they make based on general purpose financial reports;
• the meaning of ‘in the context of climate-related financial disclosures’; and
• the meaning of ‘omitting, misstating or obscuring’ information.

Entities are encouraged to understand each of these elements to inform the process by which they decide what information should and should not be included in their sustainability report. The Educational Material further sets out a four-step example of the approach an entity can use to assess whether information is material in preparing its climate-related financial disclosures.

The Educational Material further sets out how an entity can identify what climate-related risks and opportunities could reasonably be expected to affect its prospects. It states that an entity depends on resources and relationships throughout its value chain.” This section then goes on to cover each of the concepts underlying climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects – these being its value chain, resource and relationships and dependencies and impacts.

An example given of dependency on a particular resource is as follows:

• An entity grows and mills the wheat and sells it to customers.
• The entity’s business model depends on water because growing wheat relies on rainfall and on irrigation from other water sources. The region where it grows wheat currently has high baseline water stress and the entity expects the water stress to become worse over the medium term.
• The entity identifies water scarcity as a climate-related risk to which it is exposed, as it anticipates that increasing temperatures and changing precipitation patterns will drive water scarcity in the relevat region. This scarcity could affect the entity’s prospects because, for example, reduced water availability can disrupt its own wheat production and can increase the price it pays to purchase the crop from its supplier.

The Educational Material also highlights important 'connectivity considerations' between the climate-related financial disclosures and the entity's financial statements. For example, the guidance highlights that the definitions of ‘material information’ in the Australian Accounting Standards and AASB are aligned, but that they have distinct scopes in terms of relevant time horizons and the types of information required to meet the objectives of the statements, meaning that distinct materiality judgements are required. Reporting entities are required to craft their disclosure in a way that enables primary users of the sustainability report to draw connections between the two statements, relying on areas of alignment and ensuring clarity where the scope diverges.

ISSB agrees on path forward for nature-related disclosures

On 22 April, the International Sustainability Standards Board (ISSB) agreed to propose guidance on nature‑related disclosures through an IFRS Practice Statement (Practice Statement). The Practice Statement will support disclosures against IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) by providing guidance on how to provide information about nature-related risks and opportunities. The Practice Statement will draw on the Taskforce on Nature-related Financial Disclosures framework.

In the ISSB’s announcement, ISSB Chair Emmanuel Faber emphasised that material nature‑related disclosures are already mandatory under IFRS S1, and that the Practice Statement would provide practical guidance while allowing a pathway toward a future standard-based outcome. As such, the Practice Statement will not create any new requirements for entities already applying IFRS S1.

The ISSB plans to issue an exposure draft of the Practice Statement in October 2026 for public consultation, including feedback on whether a Practice Statement is the appropriate form of standard-setting for nature-related disclosures.

Gender in the workplace

New gender equality targets commence 1 April 2026

From 1 April 2026, amendments to the Workplace Gender Equality Act 2012 (Cth) will introduce mandatory gender equality target-setting for large employers, marking a significant shift from reporting to action-based compliance. Employers with 500 or more employees will be required to select and commit to achieving three gender equality targets over a rolling three-year target cycle.

Targets must be chosen from a prescribed “menu” spanning key gender equality indicators. These include targets focused on improving gender pay equity, increasing access to and uptake of flexible working arrangements, and improving the representation of women in senior leadership and high-earning roles. At least one target must be numerically measurable, requiring employers to commit to a specified percentage point improvement.

Employers will need to develop implementation plans and report their progress annually to the Workplace Gender Equality Agency (WGEA). At the end of each three-year cycle, WGEA will assess whether targets have been met or whether meaningful improvement has been achieved. Failure to comply may affect an employer’s eligibility for Commonwealth government contracts, unless a reasonable excuse applies. Target‑setting and progress reporting will also be publicly available on the WGEA website.

In this context, the Fair Work Ombudsman’s Gender Pay Equity Best Practice Guide (Guide) provides timely and practical guidance for employers preparing for the new regime. The Guide encourages employers to move beyond minimum compliance and adopt proactive strategies to identify, address and prevent gender-based pay disparities. Key recommended steps include:

• recognising and understanding where gender pay inequity exists with the organisation
• reviewing pay data and renumeration structures, including discretionary pay
• introducing initiatives to address inequality that go beyond legislative obligations

Importantly, the Guide emphasises that compliance alone is insufficient to achieve genuine pay equity. Consistent with commentary from the Diversity Council Australia, the effectiveness of the new target-setting framework will ultimately depend on how employers respond in practice. Meaningful progress will require deliberate, sustained action that prioritises the areas of greatest impact and the use of robust data to drive systemic change.

WGEA Gender Pay Gaps Report 2024-2025

The WGEA has released its 2024-25 Employer Gender Pay Gaps Report (Report), including information from more than 10,500 employers, who (combined) employ nearly 5.9 million Australians. The report shows a modest but continued improvement in gender pay gap figures across Australia, with the average total renumeration gender pay gap narrowing from 12.1% in 2023-2024 to 11.2% in 2024-2025.

Key insights from the Report include:

• The national gender pay gap has reduced by 0.9 percentage points, reflecting incremental improvement across many organisations.
• WGEA notes that many employers are still not adequately analysing or addressing the underlying causes of their pay gaps, including occupational segregation, uneven access to promotions, and disparities in discretionary remuneration such as bonuses and over‑award payments.
• Significant variation remains across sectors. Finance and banking continue to record one of the largest gender pay gaps, with women earning on average $53,549 less per year than men.
• WGEA has reiterated the need for employers to move beyond compliance-based reporting and adopt target‑driven approaches to pay equity, including clear, time‑bound targets and stronger leadership accountability. This focus aligns with the upcoming mandatory gender equality target-setting requirements for large employers commencing on 1 April 2026, as outlined above.

Just Transition: Statutory review of the Net Zero Economy Authority Act’s Energy Industry Jobs Plan tabled in Parliament

The Federal Government has tabled the statutory review of the Net Zero Economy Authority Act 2024 (Cth) (NZEA Act)’s Energy Industry Jobs Plan report, signalling potential changes to Australia’s “just transition” framework. The Minister for Science, Industry and Innovation, Tim Ayres, tabled the review in Parliament on 12 March 2026, prompting renewed focus on how government policy supports workers and communities affected by the energy transition.

The statutory review, led by academic Roy Green, makes several targeted recommendations aimed at strengthening the operation and coverage of the Energy Industry Jobs Plan.

In particular, the report recommends that the Net Zero Economy Authority (NZEA):

• publish a five‑year work plan identifying scheduled closures and anticipated “community of interest” (COI) processes, outlining expected timeframes and explaining how employers, workers and other stakeholders can participate in consultations; and
• adopt a more active enforcement and compliance role, including by proactively identifying and monitoring risks of avoidance of Jobs Plan obligations and advising the Government on legislative amendments needed to prevent corporate avoidance from undermining the scheme.

In addition, the report recommends that the Government consider amending the NZEA Act, including to:

• allow employers, employees and unions to enter into voluntary enforceable agreements through the Fair Work Commission before a COI process, provided those agreements do not disadvantage transition employees compared with a COI determination;
• expand the NZEA’s information‑gathering powers so it can obtain information from employers before the current two‑year closure notice period, where a closure is reasonably expected; and
• expand the definition of “dependent employer” so that workers performing on‑site or operationally-related work, including labour‑hire workers, can access transition supports.

Although the review does not impose new legal obligations, employers and regional stakeholders should monitor developments closely, with any future legislative amendments likely to shape how workforce transition arrangements operate in practice. We are already seeing just transition issues featuring in bargaining claims in affected industries, and relevant stakeholders are likely to continue to agitate for legislative change to achieve their industrial objectives.

National Expectations for Data Centre and AI Infrastructure Developers

The Federal Government recently released Expectations of data centres and AI infrastructure developers(Expectations) under the National AI Plan. The Expectations establish five pillars for securing a "social licence to operate":

1. prioritising Australia's national interest;
2. supporting the energy transition;
3. using water sustainably;
4. investing in Australian skills and jobs; and
5. strengthening research, innovation and local capability.

They apply to new or expanded developments, including co-location, hyperscale and large-scale AI compute centres, but not to small-scale edge or onsite enterprise facilities. While the Expectations do not create new legal obligations, the Government has signalled that aligned proposals will be prioritised through regulatory approvals, and that energy intensive proposals which are not aligned will not. The Government intends to work with States, Territories and energy market bodies to embed the Expectations into existing planning and approval frameworks.

The Expectations set nationally consistent benchmarks across key ESG areas - clean energy procurement and grid stability, sustainable water use, and workforce development – and developers should accordingly expect heightened scrutiny. Early alignment, particularly through credible energy, water and community engagement strategies, is likely to become a key differentiator for projects seeking timely regulatory consideration.

Given the pace of development and the prospect of further regulatory integration at the State and Territory level, proponents may consider it appropriate to have regard to the Expectations in project decision making as a priority. Read more about this update in our recent “what you need to know article” here.

Australia’s Water Reset

The Murray Darling Basin is entering its most consequential reform window in over a decade. Four separate statutory reviews are running simultaneously through 2026, and their combined effect will reset the policy and regulatory architecture for Basin water management well into the 2030s.

The big picture

The 2026 Water Act Review (led by independent reviewer Anthea Harris, reporting February 2027) and the 2026 Basin Plan Review (MDBA discussion paper open for submissions until 1 May 2026) are running in tandem, with the Water Act Review designed to build on Basin Plan findings. Parallel reviews of the Inspector-General of Water Compliance (due 30 June 2026) and the Snowy Water Inquiry Implementation Deed add further moving parts.

Drivers

Climate adaptation, infrastructure renewal and ecological decline are the stated drivers. The review of the Water Act is likely to present opportunities for tighter alignment between Commonwealth water governance and the incoming National Water Agreement, an increased focus on achieving environmental outcomes in the use of water, and consideration of whether existing water resource plans are fit for purpose.

Growing First Nation emphasis

The $100 million Aboriginal Water Entitlements Program has passed the halfway mark on spending and completed its first purchase of 200 megalitres on the Macquarie-Wambuul River in NSW. With First Nations peoples currently holding less than 0.2 per cent of Basin surface water entitlements, it is anticipated that the reviews may also make recommendations seeking to advance redistribution objectives. Over 50 First Nations cultural flows projects are now funded, a dedicated First Nations Adviser will sit within the Water Act Review, and the reviews are expressly required to consider alignment with UNDRIP principles. The National Water Agreement, shaped by independent First Nations advice, is with States and Territories for signing.

Stakeholders

Water entitlement holders, irrigators, and developers with projects dependent on water access should anticipate that the review outcomes may alter the current balance between consumptive and non-consumptive uses, along with growing focus on environmental and First Nations allocations and targets. Stakeholders with water dependent interests may consider it appropriate to engage early in these review processes, and to consider portfolio strategies and long-term water planning to prepare for relevant change.

Australia's Strategy for Nature 2024 – 2030: Implementation Plan

Background to Australia’s Strategy for Nature

Australia’s Strategy for Nature 2024-2030 (the Strategy) represents Australia's domestic adoption of its commitments under the United Nations Convention on Biological Diversity. The Strategy is aligned with the Convention on Biological Diversity’s Kunming-Montreal Global Biodiversity Framework (GBF), which aims to “halt and reverse biodiversity loss by 2030 and to live in harmony with nature by 2050”. Of the 23 targets outlined in the GBF, Australia has identified 9 national priorities (comprising six 'targets' and three 'enablers of change') in the Strategy.

Implementing the Strategy

Australia’s Strategy for Nature 2024-2030: Implementation Plan (Implementation Plan) establishes measurable outcomes to support accountability and track Australia’s progress towards the six targets and three enablers of change. The Commonwealth Government has categorised the policy measures outlined in the Implementation Plan as short-term, medium-term or long-term priorities. In summary:

• Notable high-priority changes to policy identified in the Implementation Plan include -
• defining ‘effective restoration’ for the purposes of Target 1 - Priority degraded areas are under effective restoration by 2030;
• better enabling the delivery of restoration projects by identifying opportunities to streamline and simplify planning and approval processes; and
• advancing Nature Repair Market methods for nature restoration.
• The Implementation Plan includes several medium-term priorities of interest, including climate policy integration, conservation area recognition, carbon market development, funding for restoration, and polluter accountability; and
• There is a general emphasis on polluter-pays principles, integrated climate-nature policy, and expanded conservation obligations throughout the Implementation Plan.