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Corporate Directors Facing Increased Exposure to Climate Change Litigation

April 16, 2019

Corporate directors face an increasing climate liability exposure, according to an updated legal opinion by an Australian think tank, the Centre for Policy Development (CPD).

The original 2016 legal opinion by Noel Hutley SC and Sebastian Hartford Davis found that it was “likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk.”

New developments increasing exposure

As a result of five developments since the original opinion was published, the authors only see an increased need for need for directors to consider climate risks and opportunities.

The authors see an even stronger need for directors to consider climate risks and opportunities than outlined in the original opinion as a result of five recent developments:

  1. Climate progress by financial supervisors: in addition to multiple Australian bodies opining on climate change, the European Commission is rolling out its Action Plan and the Canadian Expert Panel on Sustainable Finance’s final report is anticipated before summer.
  2. New reporting frameworks: the disclosure recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) have quickly become industry standard and even mandatory for CDP and Principles for Responsibility Investing reporting participants.
  3. Mounting investor and community pressure: proxy season has shown no real decline in interest by shareholders and, indeed, new and maturing systematic engagement initiatives are gaining ground. Specifically, Climate Action 100 Plus has posted some impressive achievements with companies such as Shell and Glencore.
  4. Development of the scientific knowledge: the IPCC is the global thought leader and provider of climate science for the international policy process. Their latest report on the impacts of 1.5°C warming was a ground-breaking call-to-action to rapidly decarbonize our economy.
  5. Advances in attribution science: scientists can link weather events to climate change with more certainty than ever before. This adds another layer to how climate change is relevant to companies experiencing and contributing to climate impacts.

While the opinions are rooted in the Australian context, they mirror global developments. Therefore, key points are applicable to boards around the world, including North America. The five areas draw a compelling picture of why boards should not only be aware of their firms’ contribution and exposure to climate change but also be proactively managing and disclosing these risks and what actions they are taking to address them.