The CPD has released this discussion paper on the legal obligations of public sector corporate boards and directors to consider climate-related risks. Public authority directors’ duties and climate change finds that these directors likely have duties of care and diligence to consider climate risk which are at least as stringent as the duties of private corporation directors.
Earlier CPD work has explored the obligations of company directors in the private sector to respond to climate-related risks. The highly influential Hutley-Hartford Davis legal opinion on climate risks, which we commissioned in 2016, emphasised that directors who do not properly consider and disclose foreseeable climate-related risks could be held liable for breaching their legal duties. This finding has been echoed by Australia’s financial and corporate regulators, including the Australian Securities and Investments Commission, whose Commissioner John Price told a CPD audience in 2018 that company directors should take a “proactive and probative” approach to climate risk.
While the bar has been rising in the private sector, the responsibilities of directors in public sector authorities to consider climate in their decision making have attracted less attention. However, like major companies, many public sector authorities play a critical role in our economy: they build and maintain infrastructure, oversee superannuation portfolios, provide insurance and manage water resources, among many other activities. And just like private sector counterparts, many are likely to be subject to financial risks associated with climate change, not to mention reputational and other risks should they fail to take appropriate action.
- Public authorities are important institutions for managing Australia’s economy, and are both potential contributors to climate change and subject to climate risks.
- Public authority directors likely have duties of care and diligence to consider climate risk in their activities, which are at least as stringent as the duties of private corporation directors (detailed in Hutley-Hartford-Davis Opinion).
- Despite impediments to enforcement, public sector directors are now increasingly likely to be closely scrutinised and held to account for climate risk management – especially given rising standards demanded of private corporations.