Topic: Fiduciary Duties

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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Could climate risk disclosure be the new bottom line for Australian companies? | The Guardian

Some of Australia’s largest listed companies, including Woodside, Rio Tinto and Santos, are likely to face sweeping changes to the way in which they model, plan for and disclose risk from climate change to investors. How they respond will affect their ability to attract funding from lenders, insurers and superannuation funds who are under pressure to stress-test investments for a carbon-constrained future.

The release last week of a report by the Financial Stability Board’s taskforce on climate-related financial disclosures is expected to add pressure on publicly listed companies to formalise their climate risk disclosure practices – particularly through scenario analysis – or risk investors pulling finance and rating agencies making assumptions about their risk profile.

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Final TCFD Recommendations Report Released

"Recognizing that climate-related financial reporting is still evolving, the Task Force’s recommendations provide a foundation to improve investors’ and others’ ability to appropriately assess and price climate-related risk and opportunities. The Task Force’s recommendations aim to be ambitious, but also practical for near-term adoption. The Task Force expects to advance the quality of mainstream financial disclosures related to the potential effects of climate change on organizations today and in the future and to increase investor engagement with boards and senior management on climate-related issues."

Disaster Alley, Climate Change Disaster and Risk | Ian Dunlop and David Spratt

The first responsibility of a government is to safeguard the people and their future well-being. The ability to do this is threatened by climate change, whose accelerating impacts will also drive political instability and conflict, posing large negative consequences to human society which may never be undone. This report looks at climate change and conflict issues through the lens of sensible risk-management to draw new conclusions about the challenge we now face. 

Shareholders described as more savvy on climate proposals | IR Magazine

Professionals say changes in wording of proposals can influence voting

One of the trends to emerge from this year’s proxy season has been the growing success of climate change-based shareholder resolutions – and speakers on a KPMG webinar this week attributed that success in part to more effective phrasing.

Environmentally conscious shareholders are learning how to catch the attention of large institutional investors by adapting the words used in the resolutions they file for AGMs, according to professionals. Specifically, they say, requesting that public companies report on the risks and business impact of climate change is helping concerned shareholders gain traction.

‘The reason we’ve seen a massive jump in support [for these proposals] is that the shareholder community putting them forward has become much more intelligent and sophisticated about the wording it uses,’ says Brendan Sheehan, managing director of Rivel Research Group.

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Climate change risk through a corporate governance & liability lens | Sarah Barker

Climate change risk through a corporate governance and liability lens - presented by Sarah Barker, Special Counsel, MinterEllison at the 2017 May Director Forum in Sydney.

The heat is now on Directors when it comes to climate change | Lexology

In a recent ASIC liaison meeting, a number of corporate governance items were flagged as being a current focus of ASIC. Of particular interest is the emerging focus on climate change risk management by directors and implications for directors’ duties.

The opinion ‘Climate change and directors’ duties’ published by the Centre for Policy Development in October 2016 (download here) promoted wide spread discussion about the implications of climate change risk for directors. It argues that Australian company directors who fail to consider such risks now could be found liable for breaching their duty of care and diligence under section 180 of the Corporations Act in the future.

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