Key ESG Considerations in the Aged Care Sector for FY24

ESG captures environmental, social and governance issues. ESG is all about business risk and looks:

1. at the long-term value of an organisation; and

2. beyond the immediate decision-making in the organisation to broader stakeholders such as shareholders, customers, the community, employees and the environment.

ESG is becoming a priority consideration for all entities in Australia and internationally. There are many drivers for ESG compliance, some of which include:

1. meeting stakeholder expectations – increasingly, consumers and customers are making product and service choices based on the ESG initiatives undertaken by the relevant entity.

2. Regulatory change – local laws and regulations are increasingly being updated to align with various ESG factors (for example, the introduction of mandatory climate disclosures).

ESG compliance can often be forgotten in amongst the rigorous reporting and regulatory requirements that aged care entities already have to comply with. The three key areas of the aged care sector to consider are as follows.

The “E” – climate disclosures and greenwashing

The “E” of ESG is the ESG pillar that is currently front of mind with the impacts of climate change being felt globally. Whilst some large and/or listed entities are required to report on their greenhouse gas emissions¹, it is increasingly becoming expected that all entities undertake steps to measure and reduce their greenhouse gas emissions to fulfil their broader corporate social responsibilities. Measuring and reducing greenhouse gas emissions can form part of a broader sustainability strategy alongside waste and water management, biodiversity and nature impacts.

Some entities have been voluntarily issuing climate disclosures under various reporting frameworks, the most common of which is the Taskforce for Climate-Related Financial Disclosures Standards (“TCFD Standards”).

The International Sustainability Standards Board (“ISSB”) (created by the IFRS) have prepared the “ISSB Standards” for climate and nature-related financial disclosures which will include mandatory reporting requirements for certain entities. The final versions of the ISSB Standards were released on 26 June 2023 and will take effect from 1 January 2024.

The Australian Government has released its second consultation paper on how it will introduce the ISSB Standards here in Australia.

Currently, the ISSB Standards will become mandatory for Australian entities through a “phased-in approach” depending on the size of the organisation: 

It is important that any climate-related disclosures are made in accordance with a framework such as the ISSB Standards to ensure that all climate and sustainability disclosures are consistent and to mitigate the risk of misleading and deceiving stakeholders through climate disclosures made by that organisation (i.e., greenwashing).

Based on this, aged care entities should consider:

• measuring their greenhouse gas emissions and any broader environmental impacts;

• developing an “E” strategy or updating any existing strategies to consider the above changes; and

• consider any existing climate and nature-related disclosures to ensure that they are aligned with ISSB Standards and the existing guidance on greenwashing. Entities should also ensure that all future disclosures are prepared in accordance with the ISSB Standards.

The “S” – Modern Slavery

Currently, the Modern Slavery Act 2018 (Cth) (“MS Act”) requires reporting entities (entities with an annual consolidated revenue of $100 million or more) to prepare annual modern slavery statements which fulfil the mandatory criteria set out in section 16 of the MS Act.

On 25 May 2023, the proposed amendments to the MS Act were released in a review paper. Most notably, the review paper proposed the following amendments:

• lowering the “reporting entity” threshold to $50 million annual consolidated revenue;

• introducing financial penalties for non-compliance with the MS Act; and

• introducing a positive obligation to undertake due diligence.

Given the current threshold, many aged care entities are already caught as reporting entities under the MS Act. However, the reduced revenue threshold will mean that more aged care entities are now deemed to be “reporting entities” and thus required to issue modern slavery statements and undertake supplier due diligence. Accordingly:

• existing reporting entities should undertake steps to review their modern slavery compliance framework (in particular their due diligence framework) to ensure compliance with the proposed amendments to the MS Act; and

• entities that may be caught as reporting entities under the reduced revenue threshold should start to develop their modern slavery compliance frameworks ahead of required compliance once the MS Act is formally amended.

For more on the proposed amendments to the MS Act, please see our article here.

The “G”- Whistleblower policies and compliance

The Corporations Act 2001 (Cth) (“Corporations Act”) establishes the whistleblower regime which encourages eligible individuals to “blow the whistle” and report misconduct, wrongdoing or breaches of the law. The Corporations Act outlines:

• what constitutes an eligible disclosure;

• who can make an eligible disclosure; 

• who can receive an eligible disclosure; and

• protections that must be afforded to eligible whistleblowers (for example, confidentiality and anonymity).

In addition to outlining the requirements for an eligible whistleblower disclosure and the processes that must be followed when an eligible disclosure is made, the Corporations Act requires certain entities to maintain Whistleblower Policies. This includes large public companies and companies limited by guarantee (“CLG”), which is a very common structure adopted for entities in the aged care sector.

For entities that aren’t required to have a Whistleblower Policy, it is best practice to have one to encourage and foster a culture of candidness and honesty.

Aged care entities structured as CLG’s should ensure that they have a Whistleblower Policy that is compliant with the Corporations Act.

Also, aged care entities with alternative corporate structures should consider implementing a Corporations Act-compliant Whistleblower Policy to ensure that the protections and processes outlined in the Corporations Act are properly outlined to employees and other eligible whistleblowers.

The regulatory environment for aged care entities is complex, however, an ESG strategy can complement any existing compliance strategies to ensure broader stakeholder expectations and corporate social responsibilities are satisfied.

The ESG Team at Cowell Clarke can assist aged care entities in developing ESG strategies and broader ESG compliance. For more information, please contact a member of our ESG team.

¹For example, large facilities and emitters are required to report under the National Greenhouse and Energy Reporting Act.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice.  You should not act upon the information contained in this publication without obtaining specific professional legal advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.