Disclose your climate risks — or risk legal action


Friday, 11 November, 2016

Over 30 senior business leaders, fund managers, legal experts and regulators met in Melbourne last month to consider a new legal opinion on how corporate law requires company directors to consider and respond to climate-related risks to their business.

The opinion was provided by Noel Hutley SC and commissioned by the Centre for Policy Development and the Future Business Council. It followed the filing of a class action against ExxonMobil in September, alleging that the multinational oil and gas company and some of its officers and directors have violated the Securities Exchange Act of 1934.

The action claimed that Exxon stock has been trading at artificially inflated prices due materially false and misleading public statements that failed to disclose climate risks; in particular, that given the risks associated with climate change, the company would not be able to extract the existing hydrocarbon reserves it claimed to have. It is further alleged that Exxon employed an inaccurate ‘price of carbon’ that didn’t factor in the cost of regulations like a carbon price, which led to the value of its reserves being materially overstated.

Hutley’s analysis suggests that directors here in Australia are also highly likely to face legal action for neglecting to properly account for the potential impact of climate change on their business. It emphasises that as the economic and environmental implications of climate change intersect, directors are legally empowered to elevate climate-related risks and opportunities to the forefront of corporate strategy; directors who do not consider these issues properly risk personal liability for failing to act in their companies’ best interests.

“It is 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,” Hutley wrote. He added that the law would not protect directors “who are uninformed, who make no conscious decision, or who exercise no judgment”.

Future Business Council CEO Tom Quinn said the advice was unambiguous.

“Australian companies are exposed materially on two fronts and directors need to be on top of the risks,” said Quinn. “Firstly, the physical impacts of climate change present significant risks to sectors including insurance, property and agriculture. Secondly, transition risks are rising as the economy shifts to a low-carbon model, with significant impacts likely for the energy, mining and transport sectors.”

He said irrespective of the specific sector or business, all directors should inform themselves about climate-related risks to their business, including when and how those risks might materialise and whether they will impact the business adversely or favourably, and take steps to reduce the risk. For company directors who fail in their duties, the penalties include fines of up to $200,000 and disqualification from holding directorships.

The legal opinion can be found here.

Related News

Inquiry launched into local govt sustainability

The House of Representatives Standing Committee on Regional Development, Infrastructure and...

Global Alliance aims for more sustainable buildings

Standards Australia, the ICC and NBS have formed a Global Alliance to develop a Common Data Model...

Vic Govt proposes major changes to energy infrastructure

Under the proposed amendment, VicGrid will undertake all planning and consultation on energy...


  • All content Copyright © 2024 Westwick-Farrow Pty Ltd