Several recent legal and political movements demonstrate a push towards liability for company directors who fail to identify, plan for, and disclose climate-related risks which may affect their company’s operations and value. These include the Paris Agreement, which has helped galvanise action on all aspects of climate change and carbon management, and brings the transition risks (and opportunities) forward, given the policy and business changes necessitated by the agreement’s commitment to a sustainable economy. Nationally, in February 2016 the Senate referred an inquiry into carbon risk disclosure to the Senate Economics References Committee which is due to report by 31 March 2017. While organisations have different views on how disclosure frameworks should be developed, submissions agreed that it is necessary to improve Australian disclosure frameworks.
The Courts’ history of finding fault for inadequate responses to foreseeable risks, even where there is supposed uncertainty, combined with the recent political shifts led Hutley SC to conclude that “it is likely to be 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”.
Climate Risk Toolkit for Directors
Given the personal liability facing directors, and the push for greater transparency and disclosure of company actions to address climate change risks, The Future Business Council has released a timely Climate Risk Toolkit for Directors.http://www.futurebusinesscouncil.com/fiduciary-duties-and-climate-change/
The toolkit includes three key steps businesses should undertake to address the risks outlined in Hutley SC’s legal opinion.
Currently the main Australian framework for reporting carbon emissions and exposure to risk include The ASX Corporate Governance Council’s Principles and Recommendations, The National Greenhouse and Energy Reporting Scheme (NGERS), and The Corporations Act 2001. ASX listed companies must disclose any information concerning them that a reasonable person would expect to have a material effect on the price or value of the entities’ securities. An appropriate approach to improving and streamlining the disclosure framework is a major focus of the current Senate Inquiry.
Popular international frameworks include the Global Reporting Initiative (GRI) and the Carbon Disclosure Project (CDP). Additional avenues such as We Mean Business and Science Based Targets provide a platform for companies to take the next step in demonstrating their commitment setting ambitious targets, reporting emissions and scaling up low carbon investment.
Combining the right skills to identify and analyse climate related risks and opportunities with transparent disclosure and reporting processes will place companies in a more competitive position to take advantage of a low carbon economy, and assist directors to fulfil their fiduciary duties.
How we can Help
Ndevr Environmental is a specialist carbon, energy and sustainability consultancy that partners with clients to achieve positive business and environmental outcomes. Our specialist consultants can help you implement your custom solutions, manage liabilities and realise opportunities for emissions reductions, energy efficiency, sustainability initiatives and access to government funds and other low-cost finance.