Big super funds have threatened to vote against company directors who do not make sure their businesses are committed to action on global heating that includes hitting net zero by 2050.
The Australian Council of Superannuation Investors (Acsi), which represents investors that manage more than $1tn in retirement savings and hold about 10% of the shares in the top 200 companies in the country, said some boards were not tackling the climate crisis quickly enough.
The hardwiring of climate change-related disclosure guidance in ASIC's regulatory regime marks a new direction for the corporate regulator, and follows a series of other milestones in the push to include climate change on the global regulatory agenda.
Climate change is likely to drive some of the most profound changes to businesses in our lifetimes. Impacts on products and services, supply chains, loss of asset values and market dislocation are already being caused by more frequent and severe climate-related events. These effects are now compounded by the accelerating pace of policy and regulatory change as humanity recognises the challenge we face and the drastic and rapid actions we all must take in order to protect our planet and our own livelihoods.
Activists are disappointed after the majority of large superannuation funds failed to support shareholder resolutions on environmental, social and governance issues last year.
The exceptions were construction industry fund Cbus, Local Government Super and Vision Super, which voted in favour of shareholder resolutions on more than 75 per cent of occasions, Australasian Centre for Corporate Responsibility's climate and environment director, Daniel Gocher, said.
“Despite claims from many funds that they are ‘ESG aware’, there is still widespread reluctance to support sensible shareholder proposals on these issues,” he said.
As reporting season approaches, financial report preparers are grappling with new expectations concerning the disclosure of financial impacts associated with climate change.
“The vision and action of Directors, CEOs and senior-level executives is fundamental to addressing the risks posed by climate change and delivering a smooth transition to a low-carbon economy. Materials, such as this new World Economic Forum report, that support Boards and Executives understand how to deliver on the TCFD can help foster a virtuous circle of adoption, where more and better information creates imperatives for others to adopt TCFD and for everyone to up their game in terms of the quality of the disclosures made. “
The Hutley legal opinion on directors’ duties and climate risk, first released in 2016, has been updated by Noel Hutley SC and Sebastian Hartford Davison to emphasise five developments in the elapsed three years which increase the need for directors to consider climate risks. Those are: regulator alignment on the impact of climate change; new reporting frameworks; investor and community pressure; advances in scientific knowledge; and increased litigation risks. The authors write:
“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.”
Emma Herd, chief executive of the Investor Group on Climate Change and member of the global Steering Committee for the Climate Action 100+, said the change in sentiment was because of greater recognition by CEOs that climate change is not just an ethical issue.
"This is about financial risk, as well a company's social licence to operate," she said.
Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term.
Download the full report here
Read Minter Ellison’s post which covers the key points identified in the survey and contains links to related media.
You can also download the summary report from AICD’s website.
Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term.
In agreement on the need for stronger governance: Directors across all industries are focused on governance practices and acknowledge the need for changes to deal with current governance issues. There is strong support (52%) for an increase in penalties for misconduct and for an increase in funding for regulators (57% support).
Less optimistic overall: Director sentiment has declined for the first time in 18 months (and was down 8.5 points on the last survey) although it remains positive at +4.2. The AICD attributes the decline largely to directors feeling more pessimistic around regulation, legal issues and directorship conditions more broadly.
“Greater proposed guidance on the disclosure of climate change risk (also referred to as “carbon risk”), includes explaining the different types of climate change risk, and that listed entities with material exposure to climate change risk implement the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.”
“A new amended concise statement, lodged in the federal court late last month, alleges REST failed to discharge its duties as a trustee to act with "care, skill and diligence" in relation to the impact of climate change, which it argues posed "material or major risks" to "many" of the super fund's investments.”
ASIC commissioner John Price said:
‘Climate change is a foreseeable risk facing many listed companies in the Australian market in a range of different industries. Directors and officers of listed companies need to understand and continually reassess existing and emerging risks (including climate risk) that may affect the company’s business – for better or for worse.
The Media Release can be found here and the full report can be downloaded here.
"Climate change is not some distant threat. It is a global tragedy unfolding before our eyes, disrupting ecosystems, communities and economies. For companies, investors and financiers the risks and opportunities are immediate and pressing. The expectations of markets and policymakers on emissions reduction targets and adaptation measures are ramping up. Customers, shareholders and regulators demand increasingly sophisticated responses. If Australian businesses and company directors fail to react urgently and coherently, then they will jeopardise their own future: assets will be stranded or uninsurable, investment will stall, debts will go unpaid, and companies will collapse.” Download the full report here
Keynote address by John Price, Commissioner, Australian Securities and Investments Commission, Centre for Policy Development: Financing a Sustainable Economy, Sydney, Australia, 18 June 2018
“However, notwithstanding these issues, as a general proposition we do not consider that the law or our policy would impede an entity from undertaking scenario analysis. Likewise, we do not think that director liability should be a major impediment to reporting under TCFD Recommendations provided that the modelling adopts reasonable assumptions and inputs and discloses them in full. This can be achieved by making sure the disclosure is the product of a robust assessment of the best evidence available at the time”
Download the full speech here
