Significance of Climate Change in Corporate Decision Making

This article discusses the significance of climate change in corporate decision making and the impact on director duties in Australia. It highlights recent comments made by regulatory bodies and the importance of considering healthy environmental practices in business functions.

Commercial law
[DATE]
Student name

COMMERCIAL LAW 1
Link for the article: https://www.lexology.com/library/detail.aspx?g=5d9c8712-afa6-46cc-
9341-777b5a82c96f

COMMERCIAL LAW 2
As per the stated news article, it is significant to note that regulatory bodies have been
considering the climate change and the environmental issues even more seriously in respect
of the corporate business operations. The following work will summarise and analyse the
stated news piece from the corporate business law point of view, stated as follows.
The news article states that the three chief corporate regulatory bodies of Australia namely
the Australian Securities and Investments Commission (ASIC), Australian Prudential
Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) have made recent
comments on the significance of the climate changes in the corporate decision making. The
said comments are significant because they expand the ambit of the law on the director duties
of the Australian directors. The news piece is significant as it draws attention of the
regulatory, judicial and legal attention that has been garnered lately since the early 2018 and
thus highlights the importance if consideration of healthy environmental practices in the
business functions. It is significant to note that the said heat wave on the company executives
aroused primarily after the court action taken against Volkswagen in Australia with respect to
the diesel car emissions scandal experienced by the entity (Letts, 2016). This is not the first
case initiate and further signifies that the environmental groups are increasingly proceeding
with the court actions to hold corporations accountable for their climate impacts.
Some of the significant events that have been taken place in the last year are stated as
follows. The ASIC had published the report in the February 2018 stating the vitality of the
disclosure of the climate risks by the companies, because of their operations. This was
followed by the creation of a working group to facilitate a co-ordinated response by Council
of Financial Regulators to include the regulators like ASIC, APRA, the RBA and Treasury
for the directed efforts to regulate the corporates and environmental activities. Recently a
revised edition of the Corporate Governance Principles and Recommendations have been
released by the ASX Corporate Governance Council. According to the said edition, the listed
public companies are required to abide by the changes in the compliance on the lines of
disclosure of the climate change risks. The said reporting changes are applicable from the 1
January 2020.
The said changes are significant for the directors of the companies in Australia. The role of a
company director is to govern a company on behalf of the shareholders and the varied range
of the stakeholders of that company. The Corporations Act (Cth) elaborates the duties of the
directors in the sections 180, section 181, section 182, section 183, and other such various

COMMERCIAL LAW 3
sections of the act (ASIC, 2016). Accordingly, the directors of the companies are liable
personally in various instances, where the corporate fails to abide by the required
compliances as stated in the various laws and regulations.
In addition, it is significant to note the fact of the usage of the "stepping stone" approach by
the ASIC against the directors and making them personally liable as a means to set an
example for the other corporates and ensure the regulatory compliance (Minter Ellison,
2016). Further, a landmark judgement is important to note here which is of Federal Court in
ASIC v Cassimatis (No 8) [2016] FCA 1023, which states that the ASIC powers are not just
limited to the company's breach of the Corporations Act, but can also be extended towards
the breach of other legislation which includes the environmental laws. Further, it is important
to note that section 180 of the Corporations Act specifically states the directors of the
companies to consider foreseeable risks that can pose losses to the company. The definition
will include the physical world risks on the lines of the environment risks such as impacts of
business operations on tourism or health, severity of extreme weather events and others.
Thus it can be concluded that the consideration of the environmental and climate change risks
are part of the role of the directors to be take due diligence and care while discharging the
functions of the corporate directorship. The recent landmark judgements, introduction of new
set of ASX corporate governance principles and commentary by the corporate regulators
together guide towards the fact that directors must take the climate risks as seriously and
ensure reporting and compliance is done by the corporates.

COMMERCIAL LAW 4
References
Australian Securities and Investments Commission (2016) Directors' key responsibilities
[online] Available from: https://asic.gov.au/for-business/your-business/tools-and-resources-
for-business-names-and-companies/asic-guide-for-small-business-directors/directors-key-
responsibilities/ [Accessed on: 16/04/2019].
Letts, S. (2016) Volkswagen emissions scandal: VW taken to court by ACCC over diesel data
[online] Available from: https://www.abc.net.au/news/2016-09-01/volkswagen-emissions-
scandal-taken-to-court-by-accc/7804352 [Accessed on: 16/04/2019].
Minter Ellison Services Pty Ltd. (2016) Federal Court Finding that Storm Financial
Directors Breached Their Duties [online] Available from:
https://www.minterellison.com/articles/federal-court-finding-that-storm-financial-directors-
breached-their-duties [Accessed on: 16/04/2019].
Utz, C. (2019) It's not just the climate that's warming up: New heat on directors [online]
Available from: https://www.lexology.com/library/detail.aspx?g=5d9c8712-afa6-46cc-9341-
777b5a82c96f [Accessed on: 16/04/2019].