The path to net zero is paved with disputes

Monday, 7 August 2023

In committing to reducing emissions by 43 per cent by 2030 and to achieving net zero by the 2050 deadline, the Australian government has handed industry and business an enormous challenge. The race to meet the targets is sending Australian industry into a protracted period of upheaval like those experienced during the Covid-19 pandemic, the Banking Royal Commission, and the GFC.

Historically, these times of extraordinary change are often the most fertile for disputes. With decades of unprecedented developments now expected on a global scale, organisations need to double down on preparing for the unknown. The time for incremental change is gone. It must be rapid and widespread to meet the targets.

Additionally, the operational and technological innovation required is a double-edged sword – while improving environmental outcomes, it will likely introduce risks and uncertainties to previously stable businesses. The trend of businesses touting their environmental credentials to win consumer favour also brings into question the validity of these disclosures. As the status quo and expectations shift, it is clear organisations face a future riddled with disputes.

Companies must be resilient if they are to withstand fallout generated by the mandatory task of meeting environmental objectives. High-carbon emitters, particularly, must change the way they operate. But early research indicates we are far from ready. A 2022 report by Microsoft and the University of London concluded 34 per cent of Australian companies will fail to meet their net zero goals due to a lack of skills, under-investment in technology, poor government policy, and poor leadership.¹

Such findings are cause for considerable concern. Australian organisations and, more specifically, the C-suite are on the front line of a rapidly evolving commercial landscape and equally rapid shift in public expectations. This raises greatly the potential for litigation and high-stakes conflict, threatening economic loss and reputational damage.

Transparency is crucial. Regulators are monitoring, investigating and, in some cases, litigating alleged greenwashing, raising the risk of negative headlines that can’t be ignored. The Australian Competition and Consumer Commission has been proactive in identifying problem sectors and targeting those companies they believe to be causing the most harm with overstated environmental credentials.² The Australian Securities and Investments Commission (‘ASIC’) has also been investigating listed companies and super fund trustees making false or misleading environmental claims. ASIC is intent on continued vigilance in this area and recently revealed it had made 35 interventions resulting from greenwashing surveillance between July 2022 to March this year.³ These developments are a clear signal to Australian organisations that even potentially misleading disclosures can now result in regulatory action ranging from a public infringement notice to a scenario of civil penalty proceedings.

As the rapid increase of these multi-faceted environmental issues continues, managing risk will be critical. The race to hit government targets will see new industries and businesses emerge, and force others to adapt or fold. Under these circumstances, fulfilling long-standing agreements can be threatened.

A prime example is unfolding across the forestry industry as state and federal governments move towards native logging bans.⁴ Several states have now announced plans for a rapid exit from native logging, and the impacts will be significant. They range from job losses and resultant population shifts, and timber supply and pricing concerns to compensation schemes required for loggers and others affected.⁵

Achieving the net zero target relies heavily on new technology. Historically, this type of innovation is another trigger for disputes as expectations shift. While still being tested, upfront estimates of the technology’s capabilities or outputs may be based on limited metrics, so can differ substantially from actual results. Organisations’ inability to deliver on contractual requirements may expose them to litigation.

Many manufacturers must also look to where operational change is likely to occur and the impact on their businesses. Emerging technologies can quickly change working environments and fundamentally change the way industries operate and businesses interact. Such upheaval generates widespread fallout, hampering day-to-day management and initiating disputes. Issues borne from change can drag on for years as we have seen across the energy and resources sector where major projects are impacted while decade-old disputes remain unresolved and in the courts.

Successfully navigating the world ahead will require bold approaches, solid strategy, and openness to change. Meticulous data and record keeping will be imperative as it forms a first line of defence in any dispute. Organisations should be engaging early with the issues that affect them, seeking expert advice as early as possible and ensuring that, in the long run, they can foresee and adequately address the obstacles they will inevitably encounter on the path to net zero.