An ASIC commissioner has urged company directors to take seriously a leading barrister's opinion that they could face lawsuits for failing to consider risks related to climate change.
As large corporations face pressure to tell their investors more about risks they may face from climate change, ASIC Commissioner John Price said in a speech on Monday directors "would do well" to carefully consider a 2016 legal opinion by Noel Hutley SC and Sebastien Hartford-Davis.
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| ASIC commissioner John Price says the regulator is looking at climate change disclosure across the ASX 300. Photo: Ryan Stuart |
"While matters such as this will, in the end, be determined by a court, we think the Hutley opinion is relatively unremarkable," Mr Price said in a speech to a CPD event in Sydney.
"We say that in the sense that, in our view, the opinion appears legally sound and is reflective of our understanding of the position under the prevailing case law in Australia in so far as directors’ duties are concerned."
The legal advice of Mr Hutley said it would likely be "only a matter of time" until a director personally faced litigation over their statutory duty of care relating to climate change.
AICD general manager advocacy Louise Petschler said: "The AICD promoted the Hutley opinion to widely to our members, noting there is little downside, and much potential upside, for directors in properly considering and disclosing climate risks.
"As the opinion itself stresses, the relevance of climate change risks to a specific company will be assessed on a case-by-case basis, and any allegation of a breach of duty in avoiding ‘foreseeable risk’ would be determined on its individual merits. The opinion is, necessarily, general," she said.
A key legal issue in any such climate change lawsuit would likely be whether the company was "materially" exposed to climate risk, and Mr Price said this would be determined by looking at the specific circumstances of the company.
Even so, Mr Price is the latest senior regulator to urge company directors to think about the potential for climate risks, which have become a growing concern of major investors here and overseas in recent years.
In another sign the corporate cop is closely focused on the issue, Mr Price also said ASIC was working on a review of how companies across the ASX 300 index disclosed information on climate change, and it planned to publish the findings later this year.
The comments come as regulators in Australia and internationally are taking a growing interest in the potential for climate change to destabilise financial markets.
The Council of Financial Regulators - which includes ASIC, Australian Prudential Regulation Authority (APRA), the Reserve Bank and the federal Treasury - has also created a working group looking at climate risk as it affects the financial system.
APRA executive board member Geoff Summerhayes last year also cited Mr Hutley's advice in a speech in which he described climate change as a "material" risk for the financial system.
A new report from the CPD, a progressive think tank, on Monday said more Australian companies were looking at how the Paris agreement on climate change could affect their businesses.
But it also said many big businesses' attempts to model potential climate change scenarios were based on "questionable" assumptions and did not consider the physical effects of climate change.
Mr Price also highlighted that social and environmental issues were an "acute" concern for some investors, and corporate boards should consider whether they were responding in a way that was consistent with their "social contract."
Links
- Australian firms told to catch up on climate change risk checks
- Australia's emissions reduction target 'unambitious, irresponsible'
- Leaked UN draft report warns of urgent need to cut global warming
- Australian shareholders should be told of climate risk to profits, says thinktank
- How Australia bungled climate policy to create a decade of disappointment
- Most global investors recognise financial risk of climate change, report finds
- Finance sector could face climate-risk testing, says Australian watchdog
- Climate change impact on Australia may be irreversible, five-yearly report says
- Big Australian banks invest $7bn more in fossil fuels than renewables, says report
- Energy suppliers, business and consumer groups call for climate policy certainty
- Australia being 'left behind' by global momentum on climate change
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