Refresher on directors’ duties and climate risk

  • Climate risk is an important legal, regulatory and reputational risk for Australian corporations.
  • Climate change is a foreseeable risk to Australian companies and directors should consider climate risk to satisfy their duty of care and diligence under section 180 of the Corporations Act.
  • Response to climate risk requires coordination across multiple functions — risk management, finance, executive management and legal will need to be increasingly involved.

Directors of Australian corporations need to have strategies to appropriately consider and disclose climate risks if they are to comply with their directors’ duties. This was one of the findings of a legal opinion commissioned by the Centre for Policy Development (CPD) in October 20161, and subsequently endorsed by statements of Australian Securities & Investments Commission (ASIC).

There has been a flurry of updated guidance from regulators in 2019, so it might be time for a refresher:

What is climate risk and why does it matter?

Climate change risk is often described in terms of:

  • risks related to the physical impacts of climate change (such as extreme weather events); or
  • risks related to the transition to a lower-carbon economy (such as policy, legal, technology, and market changes).2 

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