A $700 million oil and gas exploration group chaired by Future Fund guardian John Poynton and National COVID-19 Commission boss Nev Power was one of five fossil fuel firms warned by the corporate regulator they risked breaking the law because of non-disclosure of climate change risks.
The intervention by the Australian Securities and Investments Commission in mid-2020 was among the regulator’s first forays into the market as it ramps up its regulation of climate-related disclosures for shareholders.
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| National COVID-19 Commission chairman Nev Power is the deputy chairman of Strike Energy. Alex Ellinghausen |
The warnings were all triggered by complaints received by ASIC that alleged the companies’ operating reviews and directors’ reports failed to disclose risks posed to the businesses by climate change. While auditors do not audit directors’ reports in the annual reports, they are required to ensure any information in a director’s report is consistent with the audited operating and financial review.
Top lawyers say company directors could be liable for failing to understand and disclose climate risks, could be sued for failing to act on those risks once known, and may be liable for “misleading or deceptive conduct” for selectively disclosing exposures to climate change or declaring green goals while lacking credible plans to achieve them.
The arguments have gained the backing of the Reserve Bank of Australia, ASIC, the Australian Prudential Regulation Authority, the ASX corporate governance committee and the Australian Accounting Standards Board. The Taskforce on Climate-related Financial Disclosures (TCFD) is now seen as the global standard for informing shareholders of the climate-related risks faced by companies.
ASIC issued lengthy a guidance for companies in 2018 and considers it potentially misleading conduct to discuss a company’s prospects without also referring to potential downside risks.
In his letters, ASIC senior manager Ben Phillips warned Strike Energy, Carnarvon Petroleum, Pancontinental, Whitebark and Leigh Creek that the companies’ 2019 annual reports were “inconsistent and out of step” with other energy companies “without any clearly discernible explanation as to why this might be the case”.
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| The Taskforce on Climate-related Financial Disclosures is now seen as the global standard for notifying shareholders of the climate-related risks faced by companies. AP |
Mr Poynton’s 2019 annual report for Strike made no mention of climate change or the risk posed by fossil fuel transitions, but his chairman’s letter noted that: “Strike sees the role of gas in the energy system increasing in importance as an immediate and effective way of reducing Australia’s carbon intensity.”
After ASIC’s intervention, Strike’s 2020 disclosures noted the “potential risks and opportunities posed to our business, and the broader sector, as a result of climate change and the anticipated global transition towards a lower carbon economy”, and disclosed the board was considering using the TCFD disclosure template in future periods.
Strike managing director Stuart Nicholls told The Australian Financial Review the company would recommend to a new ESG (environmental, social and governance)-related board sub-committee, chaired by Mary Hackett and including Mr Power, that TCFD be adopted for this year’s annual report.
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| An oil rig owned by Carnarvon Petroleum. Supplied |
“These things are being taken very seriously at Strike,” Mr Nicholls said.
Mr Nicholls said ASIC was doing its job ensuring good governance and disclosure, and that in the absence of a market mechanism or policy framework from the federal government for carbon pricing, capital markets and corporations were now adopting more rigorous standards. “There is value in adapting,” he said.
In a speech in February this year, ASIC commissioner Cathie Armour noted that the regulator had written to “several companies that had come to our attention as potential ‘laggards’ in this area to remind them of their statutory obligations”.
Carnarvon Petroleum, which did not mention climate change in its 2019 annual report apart from noting the company was “cognisant of the need to achieve an appropriate balance, over time, in relation to ... the environment, social licence and corporate governance”, produced its first sustainability report in October 2020 after receiving the ASIC correspondence.
A spokesman for Carnarvon said the company had also aligned its climate change-related disclosures with the TCFD model. “We have also made a deliberate move to create a new stream of reporting on our commercial and operational risk register, enhancing the focus on ‘climate risk’ in mid-2020,” the company said.
Carnarvon’s 2020 annual report noted climate change might affect oil and gas markets, more extreme weather events could affect its operations, while government policy may have an “adverse impact” on the business.
Pancontinental Oil & Gas, which did not mention climate change in its 2019 annual report, did not respond to questions, but its subsequent annual report noted “the developing interest of our stakeholders in climate change and the potential risks that may arise”, and disclosed it would use the TCFD model in the future.
“Going forward it will be important for climate change risk to be considered in all business decisions particularly during the due diligence stages of new ventures,” Pancontinental’s latest annual report said.
Whitebark Energy, which omitted any reference to climate change in its 2019 annual report, warned investors in its subsequent report that climate change risks included the “transition to a low carbon economy” and policy changes that “may result in increasing regulation and costs which could have a material impact on the company’s operations”.
Leigh Creek Energy also did not mention climate change in its 2019 report, but in its 2020 annual report told investors it would “act to reduce our emissions in all areas of our operations”, pursue new technologies to minimise its impact on the climate and “work towards our objective of becoming carbon neutral by 2030″.
Links
- ASIC - Climate Change
- 13 fossil fuel companies named in climate risk complaint
- Fossil fuel gaslighting: accept climate change but undermine action
- ASIC issues updated guidance for directors seeking to avoid climate lawsuits
- Climate-related risk a key director responsibility: ASIC
- Rising heat in the Boardroom: Directors’ duties in the face of climate risks
- International Energy Agency warns against new fossil fuel projects. Guess what Australia did next?
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