Summary of findings:
The original Hutley opinion, which we commissioned and released in 2016 after extensive consultation with business leaders and legal experts, found that directors who do not properly manage climate risk could be held liable for breaching their legal duty of due care and diligence.
The supplementary opinion, provided again by Noel Hutley SC and Sebastian Hartford Davison on instruction from Sarah Barker at MinterEllison Lawyers, reinforces and strengthens the 2016 findings. It emphasises five material developments since 2016 that have elevated the need for directors to consider climate risks and opportunities and reinforced the urgency of improved board-level governance of this issue. These five developments are:
Coordinated engagement by financial regulators on climate: The opinion highlights recent statements on climate risk by APRA, ASIC and the Reserve Bank as evidence of “striking” alignment between Australia’s regulators on “the financial and economic significance of climate change.”
New reporting frameworks: The opinion highlights three major advances in financial reporting frameworks relevant to the disclosure of climate risk: the final recommendations of the Taskforce for Climate-related Financial Disclosures; new recommendations on assessing climate risk materiality from the Australian Accounting Standards Board and the Auditing and Assurance Standard Board; and updated guidance on climate disclosures from the ASX Corporate Governance Council.
Investor and community pressure: The opinion notes that “investor and community pressures concerning climate risk are becoming more acute”, highlighting shareholder actions on corporate climate targets and disclosures and co-ordinated efforts by institutional investors to target improvements by major emitters.
Advances in scientific knowledge: The opinion recognises “notable developments in the state of scientific knowledge that bear upon the gravity and probability of climate risks which directors need to consider.” These include comprehensive information and evidence presented by the IPCC’s 2018 special report on global warming of 1.5 degrees.
Increased litigation risks: The opinion cites important developments relevant to litigation risks, including advances in “event attribution science” that can identify the link between climate change and individual extreme weather events.
The advice concludes that: “In our opinion, these matters elevate the standard of care that will be expected of a reasonable director. Company directors who consider climate change risks actively, disclose them properly and respond appropriately will reduce exposure to liability. But as time passes, the benchmark is rising.“