Australian company directors must consider and disclose climate change risks

Australian company directors “who fail to consider ‘climate change risks’ now could be found liable for breaching their duty of care and diligence in the future” – Noel Hutley SC

FBC and CPD release new legal opinion on fiduciary duties and climate change.

Over 30 senior business leaders, fund managers, legal experts and regulators met in Melbourne in October to consider a new legal opinion on how corporate law requires company directors to consider and respond to climate-related risks to their business.

Mr Noel Hutley SC, who provided the opinion, found that many climate change risks “would be regarded by a Court as being foreseeable at the present time” and that Australian company directors “who fail to consider ‘climate change risks’ now could be found liable for breaching their duty of care and diligence in the future”.

Mr Hutley’s analysis was commissioned by roundtable co-hosts the Centre for Policy Development and the Future Business Council and considered by senior participants from BlackRock, CBA, ANZ, Deutsche Bank, Qantas, ASIC, APRA and several of Australia’s largest super funds. It emphasises that as the economic and environmental implications of climate change intersect, company directors are legally empowered to elevate climate-related risks and opportunities to the forefront of corporate strategy. Directors who do not consider these issues properly, or who overlook climate change altogether, risk personal liability for failing to act in their companies’ best interests.

“It is only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk that can be demonstrated to have caused harm to a company”, Mr Hutley wrote. He added that the law would not protect directors “who are uninformed, who make no conscious decision, or who exercise no judgment.”

“This opinion makes it crystal clear – in a post-Paris world, the legal and financial risks associated with climate change must be a board-level issue” said CPD Policy Director Sam Hurley, who moderated the roundtable with Citigroup Chairwoman Sam Mostyn. “There is major upside for companies that lead from the front, not just on climate but on a range of ‘long-term’ issues impacting company performance here and now.”

“Australian companies are exposed materially to the physical risks of climate change, and the transition risks to a low carbon economy. Directors must proactively address this reality, and regulators need to set clear expectations for management and disclosure of sustainability risks”, said Tom Quinn, CEO of FBC.

“We have shown why directors may be personally liable and what boards and regulators should do about it to manage the risks and seize the opportunities of a sustainable economy”, said Travers McLeod, CEO of CPD. “The roundtable revealed the hard work has barely begun, but that enlightened directors can champion a constructive policy agenda.”

The legal opinion, co-authored by Mr Noel Hutley SC and junior counsel Sebastian Hartford-Davis, with instruction by Sarah Barker and Maged Girgis of Minter Ellison, is now available on the CPD and FBC websites

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Download the full legal opinion

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