A board non-negotiable? Climate change as a fiduciary obligation

Transcription

1 A board non-negotiable? Climate change as a fiduciary obligation Sarah Barker Special Counsel, Melbourne Sarah.Barker@minterellison.com CCBC, Auckland, 8 October 2018

2 1. Must directors consider climate change in order to discharge their duties? 2. Must climate-related risks be disclosed?

3 Duties FILE NUMBER

4 Fiduciary first principles Fiduciary = trust/loyalty + competence Given effect as duties of best interests/proper purposes/good faith + due care and diligence Relevant questions: Is it in the company s best (financial) interests to consider this issue? If yes: have we exercised due care and diligence in doing so?

5 Why? Climate change is squarely a financial risk issue Referencing climate risk framework adopted by Bank of England Prudential Regulation Authority Physical ecological impacts: gradual onset and extreme catastrophic Economic transition market impacts driven by policy, technology, social responses to those physical risks Liability consequences failure to mitigate, adapt or disclose. Cannot consign all these risks exclusively to the long term extreme catastrophic, transition risks (policy, technology and social), litigation risks all squarely within mainstream investment horizons Who says? The A-Z from AXA and Allianz to the World Bank and WEF

6 World Economic Forum Global Risks Report 2016

7 World Economic Forum Global Risk Landscape 2018

8 The impact of a scary American? FILE NUMBER

9 Be very afraid. FILE NUMBER

10 Demonstrable fluency FILE NUMBER

11 Credit ratings?

12 So: a material issue in a governance/strategy context? Governance & strategy - material risks & opps Directors must consider issues that have a reasonably foreseeable impact on performance or prospects (Hutley) (material issue) Only by that consideration via robust process can materiality of impact be assessed (material impact) Particularly (although not exclusively) in highrisk sectors, directors must consider climate change as a foreseeable financial risk issue (Hutley, ASIC, APRA) Kate Bastians, Daily Telegraph, 23 August 2016

13 ASIC announces 2018 priorities Culture, cyber and.climate change ASIC Commissioner John Price (Sydney, 18 June 2018) directors would do well to carefully consider the memorandum of opinion by Noel Hutley QC on climate change and directors duties the authors of that opinion observed that it is 'conceivable that directors who fail to consider climate change risks now could be found liable for breaching their duty of care and diligence in the future. reinforces the need for directors to adopt a probative and proactive approach in assembling the information reasonably required to inform their decision making in this area. Central to a company s social licence to operate

14 Disclosure? FILE NUMBER

15 Key issue: materiality Disclosure context True and fair view of performance and prospects Would a reasonable investor consider the information decision-useful?

16 Voluntary disclosure: G20 FSB TCFD What makes these voluntary standards so significant? Governance, strategy, risk management, metrics & targets Specific additional supplemental guidance for financial services + 12 non-financial sectors Stress-testing and scenario planning are central themes Investors from BlackRock, ACSI and Climate Action 100+ seeking disclosure by investees consistent with TCFD Recommendations

17 Not just hypothetical: litigation against companies / directors in the US, Europe and Australia

18 CBA case study Abrahams v CBA (Aug 17) Re FY16 FY17 Annual Report Indicated TCFD intent FY18 Annual Report

19 Help!! The climate risk reporting journey: a corporate governance primer MinterEllison, CPD and CCLI, July 2018

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