Liability Spreads as Climate Risk Heats Up
Political views aside, now seems like a good time to talk about climate risk and its impact on Director responsibilities.
I am not an expert on climate science and what it means for the planet, so I’m going to leave that to the experts, but what we should discuss is climate risk and the director’s responsibilities.
It’s likely that we will see litigation against directors on this issue in the near future.
ASIC recently launched a surveillance program to ensure Australia's biggest companies are managing climate risks. You can read more from the ABC on this here.
There have been rumblings over the past 12 to 18 months that directors should be accountable for failure to address risks relating to climate change in the organisations they oversee. In light of recent events in Australia, this spotlight is potentially going to get bigger and brighter.
Directors have a duty of care to leave the company they are over-seeing in a better position than when they started. However you may feel personally about climate change, there is now nowhere for directors to hide by claiming it’s something they “weren’t aware of.''
Despite no formal change to legislation, there is commentary circulating that directors could be in breach of their duty of care and diligence for failure to consider the risks of climate risks. Regardless of their own personal beliefs, the expectation seems to be that directors ought to know and must consider the risks.
A decision to not make changes after assessing climate risk may be acceptable in many circumstances - so it’s not so much that a different course of action is required, it’s that the company can demonstrate the risk of climate change has been considered.
While it has not yet been tested, directors who ignore the impact of climate risks could be held liable for breaching their duty of care.
What You Should Do:
Below are SIX steps directors and business owners can take to give themselves a broader understanding of the issue:
Consider your internal understanding of climate risk - is this something that is discussed at Board and Management level?
Bring the conversation to the organisation’s staff and make them more aware of the risks of climate change within the business environment in which your organisation operates.
Make sure you keep up to date on developments in the area.
Assess your business risks: does your organisation have the potential to be exposed to the threat of climate change, such as fire, drought or floods? Or do key organisations in any part of the supply chain have potential risks which could impact your operations? What does this look like now and over the longer term?
What are the regulatory risks to the organisation which may be the result of changes to legislation? For some businesses, this threat presents a viability risk also.
Have you assessed the organisation’s financial risks associated with climate change and any adverse weather events?
Who is Definitely Impacted:
Primary producers, banking, insurance, property investment and development, energy, transport, food supply and forestry are most impacted by climate risk. This is well documented.
But even if you don’t operate in these industries, it’s likely that someone in your supply chain does, and that has flow-on effects for everyone's business risk.
Have we reached the point of no return? Where climate risk and the broader discussion around environmental issues will need to be taken into account by ALL directors. Has the risk of liability increased?
Key Takeaway:
As business leaders and directors, you can no longer NOT consider climate risk in your business practices.
If you need advice regarding climate risk in your business please feel free to get in touch.