Climate change is emerging as one of the most significant risks facing the Australian economy. Increasingly, shareholders, younger employees and investment managers are asking companies about their policies around climate change. Prudent, long-term planning is essential to mitigate its adverse impacts and exploit the opportunities presented by the new environment.

The former Federal government introduced new legislation that came into effect in mid 2008; new Renewable Energy legislation was passed in the Senate recently and it is likely that an Australian Government will place a price on carbon soon.

These changes all impose new compliance obligations on Directors.

Unfortunately, scientists have predicted that Australia will be heavily impacted by climate change. Australia will face more severe droughts, bushfires and storms.

Risks resulting from changes in the climate should be treated in the same manner as any other risk addressed by the Board Risk Committee. The nature of the risk has more dimensions than other traditional risks and it has the potential to cause considerable disruption to the operations of some industries.

Companies may suffer reputational risk if it transpires that Directors did not act prudently to mitigate the impacts of the new risks.

Industries most exposed are the large emitters, companies that have substantial operations located near the sea and those that have long supply chains. Industries dependent on primary production will need to be particularly mindful of the changes to the supply of water, arable land and impact on growing cycles.

The Stern Review in 2006 concluded that for Governments – the cost of inaction far outweighed the cost of early action. The same principle could be applied to individual organisations.

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