Company Directors Face Penalties for Ignoring Climate Change

Wednesday 9th November 2016

In a landmark move, some of Australia’s top regulators, legal experts and top company executives have backed a warning to listed company boards to factor climate related business risks in to their decision making or risk breaching their duties under the Corporations Act. More than 30 senior business leaders, legal experts, fund managers and regulators gathered to consider a new legal opinion on how corporate law requires company directors to consider and respond to the risks posed by climate change within their businesses.

New legal advice by senior Sydney silk Noel Hutley being released on Monday suggests it is almost certain that directors of an Australian company will one day face legal action for neglecting to properly account for the potential impact of climate change on their business.”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 (including, perhaps, reputational harm),” the advice, commissioned by the Centre for Policy Development and the Future Business Council, titled “Climate Change and Directors Duties” concludes. Hutley advised the law would not protect directors “who are uninformed, who make no conscious decision or who exercise no judgement”. Furthermore, that “boards must ensure they have the targets, skills and processes in place to identify, disclose and respond to these risks – not just for legal or environmental reasons, but because the market demands that we do so”, said Mirvac, Transurban and Virgin Australia Director Sam Mostyn, who co-convened the round table.

 Legal expert Sarah Baker of Minter Ellison argued boards must actively engage with how climate change impacted their operations, risk and strategy: “The legal opinion is clear and was reinforced by the discussion in the room. Directors now have little choice but to understand how important climate change and sustainability risks are for them personally and for their companies, and act accordingly. The mindset of business leaders and regulators around the world has shifted – the business and financial risks climate change poses are not only real and significant, they are here now.”

 It is great news for the future of the planet but will be a real wake up call for many Australian businesses, who are ill-prepared to manage the risks that climate change bring with it. Boards will need to consider sourcing expertise In Sustainability and the environment to ensure they are implementing sustainable and responsible business practices and furthermore that they are compliant with policy and not exposed to legal action. It is a great step forward for the environment in Australia, a country which has often been perceived as lax in its approach to manage climate change.

2018-09-29T22:25:05+00:00November 9th, 2016|News|