Company directors can be held legally liable for ignoring the risks from climate change | The Conversation
Directors fiduciary duties
What are Fiduciary Duties?
Under the Corporations Act 2001 (Cth) (Act), a director of a corporation must exercise their powers and discharge their duties:
- with the same care and diligence that a reasonable person would exercise in the corporations circumstances if they occupied the office held by that director (s180(1)); and
- in good faith in the best interests of the corporation (s181(1)(a)); and
Generally, the best interests of the corporation are represented by maximising financial performance. As result, it is not for the directors to infuse their own ethical considerations into decisions that it may lawfully make.
Having said this, the interests of the corporation can include the physical, political and regulatory environment in which it operates and so the Courts have held that directors can take these matters into account to the extent that they are linked with the interests of the corporation.
Risks
Historically, climate change was often regarded as an ethical issue for investors – a 'non-financial environmental externality' that was secondary to, and largely inconsistent with, the imperative to maximise financial returns. Recently, however, the question of climate change has transformed into one of assessing material financial risk.
More recently, the financial risks and opportunities presented by climate change have become a mainstream issue for the business community. Debates over 'stranded asset' exposures (eg the IMF, OECD, WorldBank) and asset divestitures play out in the financial press. Recognised economic and financial institutions warn of the significant economic consequences of climate change. And, globally, we are witnessing a surge in political and regulatory interventions in an attempt to deal with climate change and the resulting community concerns.
Business leaders heed warning on climate change risks | The Australian
The nation’s top regulators, legal experts and leading company directors have backed a warning to listed company boards to factor climate-related business risks into their decision-making or risk breaching their duties under the Corporations Act. At a recent private meeting in Melbourne, more than 30 senior business leaders, fund managers, legal experts and regulators gathered to consider a new legal opinion by Noel Hutley SC on how corporate law requires company directors to consider and respond to climate-related risks to business.
Company directors to face penalties for ignoring climate change | SMH
Veteran UK banker Paul Fisher on climate change and the financial sector | The Saturday Paper
SEC’s Exxon Probe: the ‘Tipping Point’ for Oil & Gas Climate Change Accounting? | Environmental Leader
ExxonMobil’s climate change accounting is under investigation by the US Securities and Exchange Commission — and this could have major implications for the oil and gas industry, the Wall Street Journal reports.
The SEC probe is focusing on how Exxon calculates its business risk from climate change, including the figures it uses to project future costs of complying with emissions regulations.
CalSTRS Enhances Corporate Governance Principles With Expanded Board of Directors Accountability Standards
The Importance of Looking Forward to Manage Risks | Zenghelis and Stern
Companies that fail to plan for business scenarios in a low-carbon economy risk decline or even bankruptcy, according to a submission to the Task Force on Climate-Related Financial Disclosures published today (PDF) (6 June 2016) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science.
ASX Corporate Governance Council | KPMG
Disclosures against the nine new recommendations in the 3rd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations have been examined in a new KPMG report. While there was a high level of adoption and acceptance of the new recommendations, ranging from disclosure of a board skills matrix to directors’ induction programs to the company secretary reporting line, the report shows that disclosures on board skills and sustainability risks have considerable room for improvement.
Download the full report here.
To read the full Governance Institute introduction and analysis, please click here .
A new COP on the Beat | Minter Ellison
Sarah Barker (Special Counsel, Melbourne) and Maged Girgis (Partner, Sydney) examine international developments that are raising the bar on corporate governance, and disclosure of, risks and opportunities associated with climate change.
Background – economic and regulatory evolution
You may have noticed a subtle change in the emphasis of your morning coffee read. The financial press has begun to devote serious column space to the issue of 'climate change'. So why this mainstream interest on what was, historically, an issue consigned to the 'environmental fringe'? In short, leading market stakeholders have begun to recognise that issues associated with climate change present significant economic and financial risks (and opportunities) over both long- and shorterterm investment horizons, which cannot be ignored.
CalPERS' Climate Risk Reporting Proposal Overwhelmingly Passes at Glencore Plc | CalPERS
May 19, 2016 Contact: Joe DeAnda, Information Officer, newsroom@calpers.ca.gov
The California Public Employees' Retirement System's (CalPERS) climate risk reporting shareowner resolution, Resolution #16, overwhelmingly passed at the annual shareowner meeting of Glencore Plc. The resolution, which was supported by company management, requires the global commodity trading and mining company to report on environmental risks and opportunities associated with climate change.
Climate change for board risk committees
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.
Directors' personal liability for corporate inaction on climate change | Governance Directions
A proactive stance on governance of climate change is now seen as consistent with financial wealth interests. Boards must actively engage with how the issue of climate change impacts on their operations, risk and strategy. A passive approach to climate change governance may be inadequate to satisfy directors' duties of due care and diligence.
Author: Sarah Barker, Special Counsel, Minter Ellison Lawyers
Reprinted with the kind permission of the Governance Institute Australia
Corporate Governance and Climate Change: Making the Connection | CERES
This report is the first comprehensive examination of how 100 of the world’s largest corporations are positioning themselves to compete in a carbon-constrained world. With the launch of the Kyoto Protocol1 in 2005, managing greenhouse gas emissions is now a routine part of doing business in key global trading markets. As the United States moves to join the international effort to combat global warming, climate governance practices will assume an increasingly central role in corporate and investment planning. Eventually, nothing short of an energy and technology revolution will be needed to stem rising greenhouse gas emissions across the globe.
Author: Douglas G. Cogan