Turnbull is on a 'clean coal' collision course with APRA | The AFR

Prime Minister Malcolm Turnbull is on a collision course with the Australian Prudential Regulation Authority over his government's crusade for Australia's $10 billion green bank to invest in "clean coal" power stations, experts say.

The independent banking regulator entered the climate policy debate 10 days ago with a speech by APRA member Geoff Summerhayes warning that banks and their directors could be legally liable if they fail to consider the increasing risk of carbon-intensive assets such as power stations becoming "stranded'.

APRA's dramatic intervention came days after Treasurer Scott Morrison brought a lump of coal to Parliament to champion "clean coal" power as a solution to the blackouts that have hit the electricity grid with growing shares of wind and solar energy and coal plant retirements.

Energy Minister Josh Frydenberg and other ministers say they will change the $10 billion Commonwealth-owned Clean Energy Finance Corporation's guidelines to redefine "clean energy' to include "clean coal" power in order to stabilise the grid.

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APRA channels its inner Fisher/Carney | Sarah Barker, Minter Ellison

Sarah Barker at the Climate Alliance National Conference in October 2016 talking on the subject of fiduciary duties.

As was heavily covered in the weekend press, there has been a significant shift in APRA’s position on the relevance of climate change risk to the financial sector.  In a keynote speech to the Insurance Council of Australia entitled 'Australia's New Horizon: Climate Change Challenges & Prudential Risk', Mr Geoff Summerhayes (Executive Board Member of APRA) stated:

·      APRA-regulated entities can no longer treat climate change as ‘non-financial’ issue, or one that will only crystallise in the distant future.  Associated risks extend far beyond the physical (ecological) realm to economic transition risks (regulatory, technological and societal). Many of these risks are financial in nature, foreseeable and material – and are actionable now by Australian banks, insurers, asset owners and asset managers. 

·      The speech cites three key recent developments that have influenced APRA in articulating this view: (a) the Paris Agreement, and Australia’s ratification thereof, (b) the G20 Financial Stability Board Bloomberg TCFD climate risk disclosure recommendations, and (c) a recent legal opinion on directors’ duties with regard to climate change risks by senior commercial barrister Noel Hutley SC (briefed by Sarah Barker of Minter Ellison on instruction of the Centre for Policy Development and Future Business Council). 

·      In dealing with these risks, ‘scenario planning is the new normal’. Markets and investors increasingly expect corporations to apply a sophisticated and robust approach to modelling of the potential impacts of climate-related risks under different scenarios, and over different time horizons.  This includes the sub-2°C transition scenario around which the Paris Agreement (ratified by Australia in November 2016) is anchored.  The Recommendations of the G20 Financial Stability Board’s TCFD, released on 14 December 2016, provide clear guidance in this regard.

·      A failure to proactively govern the financial risks associated with climate change, now, can present significant litigation exposures for corporations and their directors.

·      This does not mean that APRA is ‘suddenly elevating climate-related issues to the top of our priority list. But it does mean joining the wider conversation that is already going on around this issue – and being explicit that climate change is likely to have material, financial implications that should be carefully considered.’  

The full transcript of Mr Summerhayes' speech is available here.  

Legal opinion shaking up the nation's boardrooms | The Age

On February 17 Australia's prudential regulator warned that climate change could threaten the stability of the entire financial system. It follows a landmark legal opinion that company directors could face heavy fines and damages if they ignore climate change related risk.

The climate bombshell the politicians didn't touch | The Age

APRA declares managing climate risk a prudential obligation | Investment Magazine

After years of ambiguity, the prudential regulator has stated clearly that banks, insurers and superannuation funds have a duty to calculate the financial risks associated with climate change.

The Australian Prudential Regulation Authority (APRA) last week put the financial services industry on notice that it is worried about the financial risks climate change poses, declaring it an “important and explicit part” of the agency’s thinking.  More

TCFD Recommendations Report Overview Webinar 24 January 2017

This one hour webinar provides an overview of the main points of the Recommendations report and the implementation guidance. 

The 60-day public consultation period on the Recommendations of the Task Force on Climate-related Financial Disclosures report is currently open through to February 12, 2017. The consultation is a critical way to solicit views on the Task Force's recommendations. Results from the public consultation will be shared with the Financial Stability Board in February 2017 followed by an updated report to the Financial Stability Board in June 2017. 

You can submit feedback directly via the online questionnaire to facilitate analysis of the comments.  

Recommendations of the Task Force on Climate-related Financial Disclosures report

The report outlines a set of recommendations for voluntary, decision-useful, climate-related disclosures to be made as part of mainstream financial filings. The recommendations will help organisations identify and disclose information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities.

The recommendations are issued for public consultation which is open until February 12, 2017.

The Task Force developed four widely adoptable recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions. Importantly, the Task Force’s recommendations apply to financial-sector organisations, including banks, insurance companies, asset managers, and asset owners. Large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organisations in which they invest to provide better climate-related financial disclosures.

The Task Force structured its recommendations around four thematic areas that represent core elements of how organisations operate: governance, strategy, risk management, and metrics and targets.

The four overarching recommendations are supported by recommended disclosures that build out the framework with information that will help investors and others understand how reporting organisations think about and assess climate-related risks and opportunities. In addition, there is guidance to support all organisations in developing climate-related financial disclosures consistent with the recommendations and recommended disclosures. The guidance assists preparers by providing context and suggestions for implementing the recommended disclosures. 

Click here to download the full report. The TCFD website has additional reports relating to the project: Public Consultation, Implementing the Recommendations and a Technical Supplement.

Pension trustees could face legal challenge for ignoring climate risk – leading QC confirms | ClientEarth

In a hugely important development for the pensions industry, two leading independent UK barristers, including pensions expert Keith Bryant QC, have confirmed that pension fund trustees who fail to consider climate risk could be exposing themselves to legal challenge.

The opinion concludes that where climate risks carry material financial implications for fund performance, trustees must take those risks into account in investment decisions. Its authors state that this is “beyond reasonable argument” and that failing to do this “would not be a proper exercise of [trustees’] powers.”

You can read the opinion here.

For a summary of the opinion and what it means for pension fund trustees and pension fund members, please see ClientEarth’s briefing here.

Launch of Trillion-Dollar Transformation Initiative, Focusing on Pensions and Climate Risk | Mercer and CIEL

Trillion Dollar Transformation, a collaborative initiative by Mercer Investment Consulting (Mercer) and the Center for International Environmental Law (CIEL), is designed to educate pension fund fiduciaries on the challenges and opportunities presented by climate change.

Two cutting edge reports have been released detailing the financial and legal challenges climate change presents for pension fund trustees.  The key findings and recommendations have been summarised in this 2 page document.

Climate Change Investment Risk Management for US Public Defined Benefit Plan Trustees is a financial analysis by Mercer, identifying the various approaches trustees can use when considering investment risks from climate change. Mercer’s findings demonstrate that the average US public pension is markedly exposed to the potential for billions in lost asset value under a Transformation scenario, which is aligned with a 2oC global temperature increase outcome, the baseline goal of the 2015 Paris Climate Agreement.

In its companion legal analysis, Trillion Dollar Transformation: Fiduciary Duty, Divestment and Fossil Fuels in an Era of Climate Risk, CIEL reviews how climate change may affect the fiduciary obligations of pension fund trustees and concludes that a failure to acknowledge and respond to these financial risks may constitute breaches of trustees’ fiduciary duties.

New legal opinion and business roundtable on climate risks and directors' duties | CPD

You can download the legal opinion here and the media release here.

Company directors can be held legally liable for ignoring the risks from climate change | The Conversation

Business leaders heed warning on climate change risks | The Australian

The nation’s top regulators, legal experts and leading company ­directors have backed a warning to listed company boards to factor climate-related business risks into their decision-making or risk breaching their duties under the Corporations Act. At a recent private meeting in Melbourne, more than 30 senior business leaders, fund managers, legal experts and regulators gathered to consider a new legal opinion by Noel Hutley SC on how corporate law requires company directors to consider and respond to climate-related risks to business.

Company directors to face penalties for ignoring climate change | SMH

Veteran UK banker Paul Fisher on climate change and the financial sector | The Saturday Paper

SEC’s Exxon Probe: the ‘Tipping Point’ for Oil & Gas Climate Change Accounting? | Environmental Leader

ExxonMobil’s climate change accounting is under investigation by the US Securities and Exchange Commission — and this could have major implications for the oil and gas industry, the Wall Street Journal reports.

The SEC probe is focusing on how Exxon calculates its business risk from climate change, including the figures it uses to project future costs of complying with emissions regulations.

CalSTRS Enhances Corporate Governance Principles With Expanded Board of Directors Accountability Standards

The Importance of Looking Forward to Manage Risks | Zenghelis and Stern

Companies that fail to plan for business scenarios in a low-carbon economy risk decline or even bankruptcy, according to a submission to the Task Force on Climate-Related Financial Disclosures published today (PDF) (6 June 2016) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science.

ASX Corporate Governance Council | KPMG

Disclosures against the nine new recommendations in the 3rd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations have been examined in a new KPMG report. While there was a high level of adoption and acceptance of the new recommendations, ranging from disclosure of a board skills matrix to directors’ induction programs to the company secretary reporting line, the report shows that disclosures on board skills and sustainability risks have considerable room for improvement. 

Download the full report here.

To read the full Governance Institute introduction and analysis, please click here . 

A new COP on the Beat | Minter Ellison

Sarah Barker (Special Counsel, Melbourne) and Maged Girgis (Partner, Sydney) examine international developments that are raising the bar on corporate governance, and disclosure of, risks and opportunities associated with climate change.

Background – economic and regulatory evolution

You may have noticed a subtle change in the emphasis of your morning coffee read. The financial press has begun to devote serious column space to the issue of 'climate change'. So why this mainstream interest on what was, historically, an issue consigned to the 'environmental fringe'? In short, leading market stakeholders have begun to recognise that issues associated with climate change present significant economic and financial risks (and opportunities) over both long- and shorterterm investment horizons, which cannot be ignored. 

Download the report