The former High Court judge says directors cannot hide behind "learned helplessness" as an excuse not to act, and lashed the "short-termism" of national debate.
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| Justice Kenneth Hayne says a sense of helplessness and short-termism is no excuse for inaction on climate risk. AFR |
In a private address to business leaders, regulators and government officials hosted by think tank, the Centre for Policy Development, Mr Hayne also took a swipe at the Morrison government, which has come under criticism for its unambitious emissions reduction policies.
He said both "learned helplessness" and "short-termism" yielded "a result that fits comfortably with those who still see climate change as a matter of belief or ideology".
"Framing the most recent debates provoked by the bushfire emergencies as part of the 'culture wars' reinforces the notion that climate science is a matter of belief, not scientific observation and extrapolation," he said.
"No less importantly, because the debate remains framed as a debate about belief, learned helplessness and short-termism can be translated into the nativist-populist terms that now have such currency in many political systems."Mr Hayne said in the remarks released exclusively to The Australian Financial Review, that international expert consensus was now clear that climate change risk was a matter of fact and boards could not hide behind excuses for inaction. "International opinion is now firmly behind the need for all entities with public debt or equity to respond to climate change issues in their governance, their strategy, their risk management and their metrics and targets and, importantly, to record their responses to the issues in their financial reports," Mr Hayne said.
He said the financial regulators – the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and the Reserve Bank of Australia – were all clear that climate change posed real and measurable financial risks.
"The inevitable consequence [of this consensus] is that, in Australia, a director acting in the best interests of the company must take account of, and the board must report publicly on, climate-related risks and issues relevant to the entity," he said.
He said more companies would need "to consider the potential impact of climate change and disclose their material findings than are now doing so", and dismissed the argument that the magnitude of the problem left directors helpless to act, referring to that position as "learned helplessness".
Mr Hayne's remarks come three years after barristers Noel Hutley, SC, and Sebastian Hartford Davis published a landmark opinion, which argued boards that failed to consider climate change risks could be found liable for breaching their duty of care and diligence.
Mr Hayne's opinion will add new force to the view that boards have clear legal obligations on climate risk.
As commissioner of the 2018 financial services royal commission, his recommendations on the treatment of non-financial risks, particularly cultural risks, have already sparked a radical rethink of directors' responsibility for areas previously considered outside their remit.
Alluding to the findings of the royal commission, Mr Hayne told the CPD roundtable: "As recent events in the financial services industry should have shown, the notion of 'non-financial' risks can be very misleading."
He said companies might take the view that the size and global nature of global warming – which is predominantly caused by the burning of fossil fuels, and the resulting emission of carbon dioxide into the atmosphere – left them helpless to act. But he said this excuse would not stand up under the law.
"A response often seen in Australian political discourse is that 'The issue is large; Australia is comparatively small; nothing we do will affect the outcome if the big emitters do not act.' That is, the response is, 'We can do nothing that will help.'
"By making that response, we are persuading ourselves that we are helpless," Mr Hayne said.
"Helplessness is then coupled with short-termism. At the national level, short-termism is expressed as: 'Doing something now will have adverse effects on employment in some part or parts of the country. That would be bad for the national economy. Therefore, we will do nothing.'"
He said directors must not be distracted by the "framing of the political debates", urging them instead to look at standards set out by the international business-led Task Force on Climate-related Financial Disclosures, which has been endorsed by Australian regulators.
Mr Hayne's remarks were made at a closed roundtable discussion hosted by the Centre for Policy Development late last month in Sydney. Also present were RBA deputy governor Guy Debelle, Bank of England executive director Sarah Breeden, APRA executive board member Geoff Summerhayes, and ASIC commissioner John Price.
Representatives from big business, including ANZ, Macquarie, QBE, AustralianSuper, Coles and UBS, were also present.
Government representatives who attended were from the Department of Environment and Energy, the Department of Prime Minister and Cabinet, and Treasury. Greg Combet, the Labor environment minister who oversaw the Gillard government's short-lived carbon tax, was also present in his capacity as chairman of industry super-owned fund management colossus IFM Investors.
The roundtable concluded: "First, the climate crisis is upon us, and decision-makers across the Australian economy have a clear and increasing obligation to address the risks and opportunities it presents. It is clear climate change is a ratcheting risk, a trend change that is highly interactive, systemic and irreversible, and one which will impact every aspect of Australian society.
"History is no guide to its future impacts, meaning that forward-looking scenario analysis is needed to manage the physical and transition risks it will generate. Australia’s economy and financial system is particularly exposed given the significant physical risks the country faces and its profile as a commodity exporter. Australian business is at increasing risk of retaliatory action from other countries because of a perceived view that Australia is not pulling its weight when it comes to reducing emissions."
The conclusions from the roundtable were prepared by the CPD and are not meant to represent individual policy positions of the participants.
Madrid meeting
The release of Mr Hayne's remarks coincide with the second week of the United Nations COP25 meeting in Madrid, at which government ministers from around the world, including Energy Minister Angus Taylor, will discuss details of the Paris climate agreement including potential carbon trading rules, and the use of Kyoto carryover credits.
The government confirmed on the weekend that it intends to use Kyoto carryover credits – that is, credits from its over-achievement of emissions goals under the Kyoto protocol – to meet its Paris goals. In real terms, that means Australia's emissions by 2030 will be 16 per cent below 2005 levels, not the 26 to 28 per cent below set out in the Paris agreement.
The Paris agreement does not mention the use of Kyoto carryover credits, and many nations are pushing for the practice to be formally banned.
Links
- Directors' climate liability exposure increasing 'exponentially'
- Climate litigation could become like tobacco actions: Martijn Wilder
- Climate Change and Directors’ Duties (pdf)
- What Kenneth Hayne Says About Climate Change - Transcript
- No More Room For Excuses On Climate
- (AU) Activism And Secondary Boycotts
- (AU) Morrison Is Being Transparently Political In Targeting Climate Groups
- Company Directors May Be Headed For Litigation Over Climate Change
- ASIC Issues Updated Guidance For Directors Seeking To Avoid Climate Lawsuits
- Climate Activists Turn To Lawsuits To Force Action On Global Warming
- Directors Are In The Crosshairs Of Corporate Climate Litigation
- Kids Suing Governments About Climate: It's A Global Trend
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