Developments in Australian jurisprudence are inching open the door for shareholder proceedings in response to failures by publicly listed companies to properly disclose climate-related risks. The Hayne Royal Commission’s Interim Report observed that “to preserve and enhance [an enterprises’ reputation it]…must do more than not break the law. It must seek to do ‘the right thing”. Noel Hutley SC built on this opinion in his 2021 Memorandum on Climate Change and Directors’ Duties, stating that “the benchmark for directors on climate change and attendant risks and opportunities continues to rise”. Mr Hutley drew particular attention to the consequences of ‘greenwashing’; or the making of erroneous representations regarding a company’s climate commitments and policies. Such conduct would place a company in conflict with s1041H of the Corporations Act 2001 (Cth) (the Act), which prohibits misleading or deceptive conduct in relation to financial products (such as a company’s shares).
Australian courts and financial regulators have explicated their views regarding the threats posed by climate change. In Minister for the Environment v Sharma [2022] FCAFC 35, Chief Justice Allsop, at [1] observed that the seriousness of the issue is not in dispute, referencing international collaboration directed to curb the fallout effects of carbon dioxide emissions. In this appeal, the Minister challenged the characterisation and factual basis of the primary judge’s findings regarding climate risks, which the Full Court unanimously rejected. In April 2021, ASIC stated that ‘the law requires an operating and financial review to include discussion of climate risk when it is a material risk that could affect the company’s achievement of its financial performance’. ASIC effectively guides directors and officers to regularly reassess and disclose climate risks to investors in their market reporting and when publishing product disclosure statements. In November 2021, APRA released a practice guide encouraging voluntary disclosures to ‘enhance transparency, and provide confidence to the wider market of the institution’s approach to measuring and managing climate change financial risks’.
In November 2020, REST Super settled proceedings brought by a fund member in respect of REST’s handling of climate change risk, REST acknowledging that climate change could lead to catastrophic economic and social consequences, and that it is a material, direct and current financial risk to the superannuation fund.
In August 2021, the Australasian Centre for Corporate Responsibility commenced proceedings against oil and gas company Santos Limited, regarding representations relating to the environmental impact of natural gas and the company’s emissions targets.
These developments will increasingly entice action by shareholders against apathetic corporate responses to the realities of climate change, and the risks presented by them.
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