Greenwashing, governance and reform: the latest in sustainability reporting

February-March 2026 has seen three new significant developments for mandatory sustainability reporting:

• The first mandatory sustainability reports have been released, for Group 1 entities with 31 December year ends. They provide the first indication of market practice in Australia, with key learnings for all reporting entities.
• The Federal Court dismissed the greenwashing case against Santos, confirming climate targets must be based on reasonable grounds or they will be deemed misleading, but finding Santos’ statements in the circumstances were not misleading. This is not the end of the road, as the ACCR has now appealed.
• The Federal Government is proposing to establish a separate board for developing and maintaining sustainability reporting standards, meaning they would no longer fall within the remit of the Australian Accounting Standards Board. This forms part of broader reforms to Australia’s reporting standard setters, with the draft legislation currently before the Senate.

In this article, we look at what these three developments mean for companies and the key actionable takeaways.

Emerging trends from the early days of mandatory sustainability reporting

We have seen broad variations in the disclosures made so far and the approaches taken. However, there are some key trends emerging across the mandatory climate disclosures published to date.

Many of the reports published so far have predominantly been from energy and resource companies with a 31 December year end. These reports have tended to be longer, ranging from 11 to 84 pages with an average length of 36 pages, and involve more detailed disclosures. This reflects their level of ESG maturity and the heavy scrutiny that these sectors have traditionally faced in relation to ESG.

Structurally, most entities in our dataset[1] (87%) have included their sustainability report within their annual report rather than issuing a standalone report. These were typically positioned before their financial report with a directors’ declaration usually included at the end of their sustainability report.

Of the companies that included voluntary disclosures (43%), many presented them as a separately identified section within their sustainability report. However, some companies cross-referred to voluntary disclosures in a separate document (17%). These voluntary disclosures covered a range of topics including for example historical comparative data for scope 1 and 2 emissions, scope 3 emissions and methodology for calculating scope 3 emissions. 83% of the companies in our dataset disclosed their reliance on the transitional relief provided under AASB S2, which permits reporting entities not to disclose scope 3 emissions in their first annual reporting period applying the standard.

All reporting entities in our dataset obtained limited assurance over governance, strategy, and scope 1 and 2 emissions disclosures in accordance with the Australian Auditing and Assurance Standards Board’s phasing-in assurance requirements. However, 30% of companies reviewed went further, obtaining assurance over for example, energy usage (including renewable energy) and scope 3 emissions.

Companies are also demonstrating that climate governance starts in the boardroom, with all companies identifying their board as having ultimate responsibility. A vast majority (88%) also included a dedicated climate, ESG, or sustainability metric in their board skills matrices and linked executive remuneration to climate or sustainability performance. We have also seen that most companies (around 60%) provided climate education and/or training for their directors, ranging from workshops through to formal short courses.

We expect these trends will continue to evolve and take shape as more sustainability reports are released.  

Key takeaways for boards include:

1. Invest in board-level climate governance and capability now: ensure your board is comfortable they are sufficiently ‘climate literate’ to be able to read and understand the sustainability report, and make the required declaration in relation to it. Arrange training and/or workshops where that’s not the case, and ensure board and committee charters reflect where responsibilities in relation to the sustainability report and climate-related risks and opportunities sit.
2. Be deliberate in your approach to voluntary disclosures: consider whether you do want to continue making voluntary disclosures that have been made in the past, having regard to the requirements in the sustainability standard about clear and concise disclosures, materiality and the fact the modified liability settings don’t apply to voluntary disclosures.
3. Consider the appropriate level of assurance and verification for your organisation: discuss and agree the level of assurance and internal verification the directors want to see on the sustainability report, in light of developing market practice, the approach taken for financial reporting and the potential liability for the company and directors for misleading disclosures.

Further information will be available soon in our annual climate report, which looks in detail at the developing market practice in relation to climate-related disclosures.

ACCR v Santos revisited: the greenwashing case resetting the bar

On 17 February 2026, the Federal Court dismissed in full the greenwashing case against Santos Limited (Santos). It is the latest of several unsuccessful strategic climate litigation cases. The ACCR’s application against Santos was considered the first case globally to allege that a company’s net zero target was misleading, rather than just inadequate.

On 17 March 2026, the Australian Centre for Corporate Responsibility (ACCR) lodged an appeal of the Federal Court’s decision, arguing that the decision sets the bar for corporate climate communications well below market and investor expectations and increases the burden on investors to interrogate the full context in which claims are made, and the assumptions, uncertainties and emerging technologies that may underpin them.

Key takeaways from the Federal Court’s decision include:

• Statements regarding net zero roadmaps, plans, expectations or targets are representations of future matters and must be based on reasonable grounds. The case demonstrates that having a reasonable process for setting targets, implemented by well-qualified, informed and experienced people, can go a long way in helping to demonstrate reasonable grounds.
• Whether a target is misleading depends on what a reasonable member of the target audience would understand. Here, the relevant audience was a large and diverse group of investors, who would understand that long-term net zero objectives may be achieved in different ways, which may change over time as circumstances change. Santos’ use of conditional and uncertain language and visual cues – such as graduated shading on its roadmap and terms like ‘planned’ and ‘potential’ – meant a reasonable member of the target audience would not expect Santos to have substantiated a range of future scenarios or undertaken detailed economic or market analysis. Companies should ensure their own disclosures similarly reflect the level of uncertainty applicable to their targets.
• Companies cannot ‘set and forget’ targets. In this case, it was found that the target audience would expect the ongoing evolution of Santos’ targets to be reflected in Santos’ future climate and annual reports. Companies must therefore continue to monitor their targets and whether they have reasonable grounds for them and, if they no longer consider there are reasonable grounds for them, or it is otherwise appropriate to update or change them, must reflect that in their disclosure.

We’ll be monitoring the appeal with interest, and in the meantime expect greenwashing challenges will continue (including where companies are perceived as not having reasonable grounds for making forward-looking representations), given the continued focus amongst climate activists and regulators.

Further information about this case can be found here.

Australia’s biggest shake-up of financial reporting standards setters in decades

On 12 February 2026, the Federal Government announced new legislation to significantly reform Australia’s financial reporting standard setters.

Under the Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 (Cth) (Bill), the existing standard-setting functions of the Australian Accounting Standards Board, Auditing and Assurance Standards Board, and Financial Reporting Council would be consolidated into a single body – External Reporting Australia (ERA).

The explanatory memorandum to the Bill anticipates the ERA would have three standard-setting boards at commencement, with responsibility for accounting, auditing and assurance and sustainability standards respectively. That’s consistent with one of the key objectives of the reforms – establishing a dedicated board for setting sustainability standards, separate to the board that sets accounting standards. It’s also consistent with the approach that’s been taken at an international level, where the International Sustainability Standards Board is separate to the International Accounting Standards Board.

The reform was prompted by the introduction of mandatory climate reporting and is aimed at ensuring sustainability standards are treated separately from accounting standards through separate boards for each. The approach is designed to ensure each board can be constituted by individuals with appropriate experience and relevant subject-matter expertise.

The explanatory memorandum also contemplates the possibility of one board being empowered to make auditing and assurance standards applicable to sustainability reporting, and a second board empowered to make auditing and assurance standards applicable to financial reporting. That would be a decision for the Governing Council of the ERA.  

The Bill has passed through the House of Representatives and is currently before the Senate.[2] Further consideration of the Bill is adjourned until 24 April 2026.[3]