Topic: Fiduciary Duties

AICD Director Sentiment Index Survey H2 2018 | Minter Ellison

Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term.

 Download the full report  here

Download the full report here

Read Minter Ellison’s post which covers the key points identified in the survey and contains links to related media.

You can also download the summary report from AICD’s website.

Key takeouts

Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term. 

In agreement on the need for stronger governance: Directors across all industries are focused on governance practices and acknowledge the need for changes to deal with current governance issues.  There is strong support (52%) for an increase in penalties for misconduct and for an increase in funding for regulators (57% support). 

Less optimistic overall: Director sentiment has declined for the first time in 18 months (and was down 8.5 points on the last survey) although it remains positive at +4.2.  The AICD attributes the decline largely to directors feeling more pessimistic around regulation, legal issues and directorship conditions more broadly.

ASX Social Licence to Operate | PRObono Australia

“Greater proposed guidance on the disclosure of climate change risk (also referred to as “carbon risk”), includes explaining the different types of climate change risk, and that listed entities with material exposure to climate change risk implement the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.”

Super fund alleged to have breached duties over climate change risk | SMH

“A new amended concise statement, lodged in the federal court late last month, alleges REST failed to discharge its duties as a trustee to act with "care, skill and diligence" in relation to the impact of climate change, which it argues posed "material or major risks" to "many" of the super fund's investments.”

ASIC reports on climate risk disclosure by Australia’s listed companies - Media Release

ASIC commissioner John Price said:

Climate change is a foreseeable risk facing many listed companies in the Australian market in a range of different industries. Directors and officers of listed companies need to understand and continually reassess existing and emerging risks (including climate risk) that may affect the company’s business – for better or for worse.

The Media Release can be found here and the full report can be downloaded here.

Insurance firms could face fines over climate reporting failure | ClientEarth

“We think the law is quite clear on this and by omitting financially material climate risks from their annual reports, these companies are not giving the full picture. Without this information, how can investors make a fully-formed investment decision?”

Climate Horizons Report 2018 | Centre for Policy Development

"Climate change is not some distant threat. It is a global tragedy unfolding before our eyes, disrupting ecosystems, communities and economies. For companies, investors and financiers the risks and opportunities are immediate and pressing. The expectations of markets and policymakers on emissions reduction targets and adaptation measures are ramping up. Customers, shareholders and regulators demand increasingly sophisticated responses. If Australian businesses and company directors fail to react urgently and coherently, then they will jeopardise their own future: assets will be stranded or uninsurable, investment will stall, debts will go unpaid, and companies will collapse.” Download the full report here

Financing a Sustainable Economy | John Price, Commissioner, ASIC

Climate change

Keynote address by John Price, Commissioner, Australian Securities and Investments Commission, Centre for Policy Development: Financing a Sustainable Economy, Sydney, Australia, 18 June 2018

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“However, notwithstanding these issues, as a general proposition we do not consider that the law or our policy would impede an entity from undertaking scenario analysis. Likewise, we do not think that director liability should be a major impediment to reporting under TCFD Recommendations provided that the modelling adopts reasonable assumptions and inputs and discloses them in full. This can be achieved by making sure the disclosure is the product of a robust assessment of the best evidence available at the time”

Download the full speech here

NEG or no NEG: it’s time for companies to look at climate change financial risks | MinterEllison

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New legal analysis released to coincide with the Commonwealth Heads of Government Meeting (CHOGM) in London last month shows that Australian business needs to work on better understanding climate change through a financial risk lens.

If not, they may risk being left behind their global peers according to Sarah Barker, MinterEllison Special Counsel, Climate Change Risk.

 

“The key takeaways from the federal government’s response to the Senate Inquiry are that our law already accommodates action in this area, and that further regulatory guidance can be expected. This is only reinforced by the Commonwealth Climate and Law Initiative’s conclusion that Australian corporate governance laws demand a proactive approach to the governance and disclosure of climate-related financial risks. If this is news to any business or board, they would be well advised to accelerate their understanding of the issue before enforcement proceedings begin to flow.”  Continue reading.

2°C or not 2°C? Unanswered Questions in ExxonMobil’s and Chevron’s Climate Risk Reports | Union of Concerned Scientists

"In response to a 2018 shareholder proposal, Chevron goes so far as to “… disagree with the premise… that future diversification of energy sources requires all energy producers to curtail production of fossil fuel resources and/or to diversify their portfolios proportionately. A decrease in overall fossil fuel emissions is not inconsistent with continued or increased fossil fuel production by the most efficient producers. "

Climate change and human rights on ACSI’s radar | Governance Institute

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The Australian Council of Superannuation Investors (ACSI) recently released Governance Guidelines providing insights for the first time on how large investors expect climate change and human rights issues to be managed.

ACSI’s Governance Guidelines are updated every two years and outline its members’ expectations of the governance practices of the companies they invest in.

This year, a new chapter on environmental, social and governance (ESG) issues has been added, which covers climate change, labour and human rights, corporate culture and tax disclosure.

When it comes to climate change, ACSI expects to understand whether a company can:

  • successfully identify and manage the climate change risks and opportunities it faces
  • demonstrate future viability and resilience by testing business strategies against a range of plausible but divergent climate futures, including a 2°C scenario
  • achieve cost savings through efficiencies and identify low carbon opportunities.

Where companies identify climate change risks as material, ACSI says disclosures should extend to discussing the strategy, as well as metrics and targets, used to manage the risk.

Download the press release or read the full article.

Climate-related risks will jeopardise stability of banks, insurers: APRA | ABC

Banks and insurers are jeopardising their futures if they fail to prepare for climate-related risks, the Australian Prudential Regulation Authority (APRA) has warned.

The stark advice from the industry watchdog was delivered during a speech last night to the Centre for Policy Development in Sydney.

APRA said it had a duty to warn the institutions that it regulates, like banks, superannuation funds and insurers, if it identified a risk that could threaten their stability.

Actuaries reminded of legal duty to recognise climate-related risks | The Actuary

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It is increasingly likely that actuaries and investment consultants could face legal action should they fail to recognise the financial implications of climate risks.  That is the warning from environmental lawyers at ClientEarth, which argue that pension scheme advisors are delaying effective action and proper risk management in relation to the impact of climate change on investments.  Read more

ESG: The climate conundrum | Investments & Pensions Europe

Had Exxon Mobil reported its reserves differently in 2016, investors might have taken a another view of the company’s future trajectory. The company reported its Kearl oil sands as reserves, and in 2016 was ordered to debook them by the US Securities and Exchange Commission (SEC). An important shift in its disclosures ensued in March 2017, with proved reserves cut by 3.3bn oil-equivalent barrels.

In October 2016 the company admitted that, under the SEC definition of proven reserves, certain quantities of oil, such as those associated with the Kearl oil sands operation in Canada, would not qualify as proven reserves at the end of the year.

According to Tarek Soliman, senior analyst at the CDP, a non-governmental organisation based in the UK, the systematic practice of considering climate-related risk would have resulted in a different disclosure. It would transform investor perceptions if replicated across the whole oil and gas sector. “If the company were to integrate climate risk into its assessments, it would highlight that these assets show a high propensity to become impaired. They would have been downgraded to a resource rather than a reserve, and this problem would have been foreseen,” says Soliman.

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Comment: Could climate cause the next financial crisis? | IPE, Paul Fisher

Tail risks have an unfortunate habit of becoming reality. That was one of the clearest lessons of the 2008 financial crisis – an event that I lived through and had to deal with, as a senior figure in the Bank of England’s markets department.


The financial sector is all about risk. Taking it. Avoiding it. Monitoring, measuring, and limiting it. And, crucially, making money from it. When the improbable actually happened, ‘safe’ AAA-rated assets became junk, liquid markets dried up, the trust that oiled the financial system evaporated and we had to take the most extraordinary measures in response.

But new risks are emerging around climate change that are poorly understood, hard to manage and, at the extreme, pose threats to the financial system not unlike those we faced in 2008.

Banks come out on top for climate change disclosure | Financial Standard

In its 10th annual corporate sustainability report, which assesses the level of sustainability disclosure by ASX200 companies, ACSI found  86% of banks were rated as "leading" or "detailed" in their reporting, while five out of seven banks reported on three key indicators: emissions, a policy and a target.

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