The Hidden Risk in Sustainability Reporting
Mar-03-2025
“Surprising” number of companies unprepared for anti-greenwashing reporting rules.
Clayton Utz National Practice Group Leader – Environment & Sustainable Development, Claire Smith, recently hosted 18 agriculture, finance and government leaders for a boardroom presentation and discussion in conjunction with Downforce Technologies’ founder, Prof Jacquie McGlade, on the importance of independently verified data sets compliant with ISO 14064, the international standard for quantifying and reporting greenhouse gas emissions.
As of January 1, 2025, Group 1 corporations in Australia must submit a sustainability report as part of their annual suite of corporate reports, with additional corporations and large asset managers required to meet the new reporting regime from July 1, 2026, and SMEs from July 1, 2027.
Claire Smith warned the new reporting process potentially posed a significant burden, and said some companies had been slow to consider the resources required, especially SMEs and those larger corporates who had not been voluntarily reporting under the global the global IFRS 1 and IFRS 2 standard.
“I specialise in legal risk and greenwashing issues so I find the lack of preparation a bit surprising, but I think that perhaps a lot of companies think that ASIC and the ACCC might take a lenient approach for the first few years of mandatory reporting,” Ms Smith said.
“But, there is no guarantee that these regulators will be lenient on greenwashing and both have been proactively investigating and prosecuting sustainable finance and energy companies.
“Companies need to consider how they’re trading off having good verifiable data sets with the expense. You could spend huge amounts of money on this, so it’s essential you choose a provider that will supply that level of comfort you need for a reasonable cost.
“The way that Downforce has gone about building multiple data points means they’ve managed to get to such a level of certainty that it allows an independent party to verify the data.”
“One of the big risks for the new mandatory reporting is ensuring data integrity, because if you don’t have accurate, timely, and independently verified data, you can be misleading on how you report your climate risks and opportunities and, consequently, be exposed to greenwashing risks,” Ms Smith said.
“From a legal perspective, when it comes to preparing and lodging your sustainability report (which will include a climate statement for the company's financial year) with the regulator, ASIC, or voluntarily preparing and disclosing a sustainability report publicly, companies need to really carefully consider how accurate it is, and whether you can rely on it.”
Downforce Technologies Head of APAC, Ben Wark, said: “Our ISO 14064 accredited solution allows for large-scale, net emissions reporting that provides internationally recognised emissions and removals measurement.
“This net position is then verified by our local verification partner SGS Global, to Reasonable Assurance.
“Downforce's outcomes-based analytics also provide clear insights into the impact of different land management practices on carbon sequestration and soil health, which empowers organisations to turn climate reporting and projections into actions.”
Downforce Technologies assesses soil organic carbon (SOC) levels by incorporating historical soil sampling data, more than 20 data layers related to soil-affecting factors, and earth observation data from the European Space Agency Sentinel satellite missions.
By updating this information every ten days, it generates long-term SOC data for each 10m x 10m land section, considering soil type, parent material, texture, elevation, topography, weather, and carbon levels. This approach evens out sampling biases, sets a baseline for land, and provides trend data for effective carbon sequestration interventions, empowering farmers to manage their land sustainably.
“Downforce Technologies’ combination of science and data points is also timely because the sustainability report that has to be prepared and disclosed along with other corporate annual reports, still has to have a Director’s declaration, that the Director has taken reasonable steps to ensure they’ve complied with the Corporations Act and the new Australian Sustainability Reporting Standards,” Ms Smith said.
“Normally corporations use an independent auditor to provide reasonable assurance but because mandatory climate-related reporting is such a new requirement, a whole range of governance, strategy and risk management issues need to be considered, which requires a range of expert disciplines.
“This leaves what I call a gap in the assurance process, where auditors may provide no assurance, limited assurance, or only a review opinion. Which is why Downforce Technologies’ tool is a great one – directors can take a level of comfort from it, that what they’re reporting is accurate and verifiable, and there’s limited risk to the corporation and themselves.”
And Ms Smith flagged the possibility of additional reporting requirements for the future.
“Added to mandatory climate reporting is the implementation of the EU corporate social responsibility directive in Europe, which doesn’t only cover climate or carbon, but a broader range of sustainability matters. It has a double materiality threshold meaning the business has to consider the climate risk impacts to its business but also the impact of its operations on the environment at large.
“That can be very difficult for agricultural companies with large supply chains or SMEs who are part of a larger value chain. I also do a lot of work in the nature space, where there’s a lot of innovative work going on in data analytics and eDNA etc, but it’s sometimes difficult for companies to understand the data integrity risks.
“I’m firmly of the belief that once they’ve bedded in climate-related reporting, they’ll be bedding in reporting on nature as well. With farming there are so many things to consider – besides climate-related matters, there are renewable energy opportunities and nature-related risks.”
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