ESG red tape to be examined. Why not try something radical instead?
Australia is reviewing its ESG rules — but what if the whole disclosure-first model is the problem, not just the paperwork?
ESG red tape to be examined. Why not try something radical instead?
The Productivity Commission is examining the pile of non-financial reporting rules that Australian businesses must satisfy, from carbon disclosures and diversity targets to supply-chain ethics statements. These obligations have multiplied across federal and state statutes, often layered onto existing financial and operational requirements. What looks like accountability on paper has become a compliance machine that diverts time, capital and attention from the work of producing goods and services.
Today's compliance machine rewards over-reporting, not good conduct
Australian firms already navigate a thicket of approvals before they can break ground, hire staff or sell products. ESG rules sit on top of that stack, demanding detailed narratives about matters that often lie outside a company's direct control. A manufacturer must report not only its own emissions but also attempt to quantify those of its suppliers, customers and even its superannuation fund's investment choices. Each new disclosure regime spawns its own consultants, software platforms and audit trails. The time spent feeding this apparatus is time not spent improving processes, training workers or expanding output.
This is not a minor administrative annoyance. Australia's labour productivity growth has been tepid for years, as the Commission's own recent dashboard has documented. When every expansion project requires another set of impact statements, diversity metrics and climate scenarios, the hurdle rate for investment rises. Smaller firms feel it most acutely; they cannot afford dedicated ESG teams and so either hire expensive outsiders or simply forgo opportunities. The result is fewer projects started, slower capital deepening and ultimately lower wages across the economy.
The inquiry risks producing exactly what it was designed to prevent
The inquiry itself illustrates the problem it is trying to solve. Terms of reference that ask for "significant regulatory pain points" and "more efficient" ways to achieve the same objectives implicitly accept the current goals as settled. Submissions will flow in from peak bodies, from the compliance industry that profits from complexity, and from advocacy groups that see every reporting requirement as a moral necessity. The risk is a report that recommends marginal streamlining, perhaps a shared template here or a threshold increase there, while the overall architecture of constant disclosure remains untouched. That would be red tape examining red tape, a familiar Canberra ritual.
The alternative: clear prohibitions, real penalties, no approval theatre
A more radical approach would start from first principles. Define clearly what behaviour is prohibited: unlawful pollution, unsafe workplaces, fraudulent conduct, bribery. Remove the thicket of ex-ante approvals and narrative reporting that tries to predict or pre-empt every possible sin. Instead, maintain robust independent regulators with real investigative powers and set penalties that actually hurt. A large listed company that knowingly misreports its waste discharges should face fines measured in tens of millions, not the current cost of doing business. Directors who sign off on misleading ESG statements should face personal liability scaled to the scale of the harm.
This flips the incentive structure. Today the safest corporate strategy is to over-report, hire the right consultants and treat compliance as a marketing exercise. Under a high-fine, low-approval model the safest strategy is to simply obey the law, because the downside of getting caught is severe and the upfront burden of proving virtue is removed. Enforcement resources can focus on genuine breaches rather than auditing boilerplate statements that no one reads. New Zealand's experiment with lighter-touch product safety rules paired with stricter liability offers a partial precedent; we will see if the outcomes will improve without a surge in harm - time will tell.
Today the safest corporate strategy is to over-report, hire the right consultants and treat compliance as a marketing exercise.
Critics will object that high fines create uncertainty and could be applied arbitrarily. That risk is real and must be met with clear statutory language, independent tribunals and precedents that build over time. Yet the current system already contains uncertainty: changing ESG goalposts, inconsistent state and federal demands, and the ever-present threat that yesterday's compliant report becomes tomorrow's activist lawsuit. At least under a fines-based model the penalty matches the harm after it occurs rather than requiring every firm to insure against hypothetical reputational damage.
Even determined governments struggle when the underlying rules keep proliferating
The Coalition's recent small business tax package recognised that red tape is a drag on investment, proposing expanded instant asset write-offs alongside targeted cuts to compliance costs. Those measures offer modest relief for firms that can already navigate the maze. The deeper problem is the maze itself. Queensland's attempt to cut teacher paperwork by 25 per cent using AI tools shows how even determined governments struggle when the underlying rules keep proliferating. Simplification at source is harder but more powerful.
The energy transition provides a live case study. Official projections put the cost of renewables, storage and transmission at $106 billion, with promises of future fuel savings. Yet households have watched bills rise steadily through the decade of accelerating targets and disclosure rules. Each renewable project must satisfy layers of environmental, social and governance hurdles before a sod is turned. If the goal is genuinely lower emissions, clearer legal caps on emissions intensity backed by serious penalties for exceedance would allow engineers and financiers to focus on delivery rather than disclosure.
No one serious argues for the abolition of all standards. Modern economies need rules against fraud, pollution and exploitation. The question is which institutional design minimises the drag on productivity while achieving those ends. Endless reporting has created a compliance priesthood and a false sense of control. A leaner system that trusts markets to innovate within clear legal boundaries, but bites hard when those boundaries are crossed, aligns better with how successful economies have actually lifted living standards.
The Productivity Commission inquiry will produce a thorough report by early 2027. It will be filled with stakeholder views and sensible recommendations. If policy makers treat it as the final word, Australia will have simply added one more review to the pile. The radical alternative, stripping out the approvals and sharpening the penalties, is politically harder because it requires choosing priorities instead of pretending every concern can be monitored. But if the real objective is higher productivity and genuine accountability, the harder choice is the one worth making.
Sources
Productivity Commission — Business reporting requirements
Productivity Commission — Productivity dashboard
The Bearing — Productivity Commission opens data dashboard on Australia's stalling output growth
The Bearing — Coalition launches tax change for small business
Frequently Asked Questions
What is the Productivity Commission's ESG inquiry looking at?
The inquiry is examining the non-financial reporting obligations Australian businesses must meet — including carbon disclosures, diversity targets and supply-chain ethics statements — which have multiplied across federal and state law. The Commission is seeking to identify regulatory pain points and more efficient ways to achieve the same policy objectives. A final report is expected by early 2027.
Why does ESG compliance hurt small businesses more than large ones?
Small firms cannot afford dedicated ESG teams, so they must either pay for expensive external consultants or forgo opportunities altogether. Large companies can absorb the cost and treat compliance as a marketing exercise, which means the burden falls disproportionately on smaller operators who have less capacity to navigate the regulatory maze.
What would a high-fines, low-approval ESG model actually look like?
Rather than requiring businesses to produce detailed narrative reports before acting, regulators would set clear legal prohibitions — on pollution, fraud, unsafe workplaces — and impose fines large enough to genuinely deter breaches. Directors who sign off on misleading statements would face personal liability, shifting the incentive from over-reporting to simply obeying the law.
Don't disclosure rules help regulators detect wrongdoing in the first place?
That is the strongest objection to scrapping mandatory reporting: without disclosure requirements, regulators may lose the evidentiary trail they rely on to identify breaches. Proponents of the high-fines model argue that independent regulators with investigative powers can do this work more efficiently than auditing boilerplate compliance statements, though the article does not fully resolve how detection would work for diffuse harms like supply-chain emissions.
Has any country successfully replaced ESG-style reporting with stricter liability?
New Zealand's lighter-touch approach to product safety regulation, paired with stricter liability rules, is one partial precedent — outcomes reportedly improved without a surge in consumer harm. The evidence base for applying a similar model specifically to ESG obligations at scale remains limited.