Many American businesses welcomed the SEC’s retreat from proposed Scope 3 greenhouse gas emissions reporting. But an Australian High Court decision shows why value chain emissions remain a material legal risk. The court invalidated a coal mine expansion approval because the planning authority failed to consider conditions addressing substantial downstream emissions.

While from afar and not binding on U.S. businesses, the ruling adds significant Scope 3 emissions legal precedent with implications for domestic corporate accountability and commercial real estate risk.

What the Australian Court Actually Held

In a 3-2 decision, Australia’s highest court invalidated approval of an expansion of MACH Energy’s Mount Pleasant coal mine in New South Wales. The court focused on the statutory duty requiring the planning commission to consider Scope 3 greenhouse gas emissions stemming from the extracted coal, nearly all of which would be burned overseas.

The expansion would double output through 2048 and generate an additional 870 million metric tons of carbon pollution, with almost 98% classified as Scope 3 emissions arising from the eventual combustion of exported coal.

The High Court held that the commission breached a statutory obligation to consider whether its approval should include conditions “aimed at ensuring .. that greenhouse gas emissions are minimized to the greatest extent practicable.”

Beyond Borders and ‘Someone Else’s Problem’: The Court’s Reasoning

The court rejected the notion that emissions generated outside Australia or by third parties are “someone else’s problem.”

This decision was not a radical new mandate but rather a reinterpretation of existing statutory duties in light of evolving climate science and global climate law. The court likely correctly affirmed that a planning authority’s statutory responsibility to minimize emissions must encompass the full environmental footprint, including indirect but foreseeable impacts.

It should be lost on no one that Australia is the world’s second largest exporter of coal.

A Converging, but Not Uniform Global Trend

The ruling aligns with a growing body of international legal precedent. The International Court of Justice’s advisory opinion on the obligations of states in respect to climate change, issued in 2025 shortly before the underlying Australian appeals court ruling, expressly stated that fossil fuel production, consumption, the granting of exploration licenses or the provision of subsidies “may constitute an internationally wrongful act” attributable to the state involved.

Courts in Norway and the United Kingdom have required authorities to consider downstream emissions when approving fossil fuel projects. The Dutch courts, in the context of Milieudefensie v. Shell, have emphasized a duty of care for companies to reduce value chain emissions.

Where U.S. Real Estate Exposure May Arise

This global trend creates U.S. risks even without a federal Scope 3 disclosure mandate. And yes, California does have a Scope 3 disclosure law phasing in 2027 that applies to companies with more than $1 billion in annual revenue that do business in California. Implementation remains subject to regulatory and legal developments.

Consider the parallels: just as an Australian coal mine exporting its fossil fuel product faces scrutiny, a U.S. oil company exporting its fossil fuel gasoline could similarly encounter legal challenges. For commercial real estate risk, the implications are also broad:

• Development & Construction: Emissions from the production of steel, concrete, glass, and other materials (upstream Scope 3) are increasingly under scrutiny. Developers’ due diligence should extend to their procurement.
• Operations & Leasing: The energy consumption and waste generation of tenants can constitute downstream emissions for building owners, influencing asset value and attractiveness to environmentally focused investors.
• Financing: Lenders are being pressured to account for “financed emissions” related to their real estate portfolios, adding another layer of transition risk.

Ignoring indirect emissions no longer appears viable. And while the lesson is not to build a comprehensive inventory immediately. In a marketplace where commerce regularly crosses borders, regulators across the world, and increasingly, courts globally, are demanding a broader view of environmental responsibility.

A Proportionate Risk Management Approach

The Australian High Court’s ruling is a powerful reminder that focusing solely on direct emissions (Scope 1 and 2) or taking cover behind the fact that there are no federal mandates is an incomplete strategy. For commercial real estate owners and businesses with international tenants and customers, proportional engagement with Scope 3 risk is no longer just about theoretical future compliance; it’s increasingly a strategic imperative.

In domestic jurisdictions with greenhouse gas emission laws directed toward commercial real estate, including Maryland and California, consider that if a tenant leases space and pays its own utilities (triple net leases or direct submetering), that energy consumption is technically Scope 3 (downstream leased assets) for the landlord.

Practical Takeaway: U.S. businesses and real estate owners need not adopt costly and speculative Scope 3 accounting programs merely because foreign courts or activist regulators favor them.

Outright dismissal is equally shortsighted. While federal command and control is halted, private capital markets and administrative litigation are quietly enforcing their own standards. Project opponents are already using the logic of the Australian decision to weaponize environmental review statutes (like NEPA and CEQA). Concurrently, institutional equity and cross border lenders increasingly price indirect carbon risk into their underwriting and asset level diligence.

Sophisticated businesses should consider commercially focused measures:

• Protecting entitlements: Ensure state and local approvals consider reasonably foreseeable indirect environmental impacts to survive judicial review.
• Modernized Lease Covenants: Update commercial lease forms with ‘green’ provisions that secure contractual rights to tenant energy and utility data, satisfying government disclosures, apportioning new capital costs, and avoiding assuming operational liability for conduct the landlord does not control.
• Pragmatic Procurement Diligence: Focus supply chain scrutiny where international tenants and stakeholders demand it, such as identifying embodied carbon in structural steel and concrete, without creating open ended corporate exposure.

The objective is to protect approvals, portfolio liquidity, balance sheets, and defensible business decisions in an increasingly litigious and market driven climate landscape. The absence of a federal Scope 3 mandate does not eliminate indirect emission risk; it only changes where that risk appears.

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Join us for the next in our webinar series at the Intersection of Business, Science, and Law, “Phase I Environmental Site Assessments “Just Changed,” on Tues., November 10 at 9 am. The webinar is complimentary, but you must register here.