The Impact of Climate Change on Corporate Governance: A Law Report

This law report delves into the evolving landscape of corporate governance in Australia, emphasizing its increasing significance due to corporate collapses and global financial crises. It examines the interplay between hard law, soft law, and non-binding guidelines, particularly focusing on the impact of climate change on businesses. The report analyzes the G20's new guidelines and their implications for investors, companies, and regulators in managing climate-related financial risks. It highlights the challenges climate change poses to business operations, including weather events, supply chain disruptions, and regulatory changes, and underscores the importance of corporate leaders adapting business models and reporting practices to address these issues. The report further discusses the impact of climate change on business profitability, legal liabilities, and public perception, emphasizing the need for organizations to proactively address climate-related risks and enhance their corporate governance strategies to ensure long-term sustainability and avoid potential liabilities. It underscores the importance of transparency and reporting to manage the financial risks and improve the investment decisions.

Running Head: Law 1
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Introduction:
Last few years of Australia, witness the increasing role of corporate governance in the business
environment. Importance of corporate governance increases because of the high profile corporate
collapse and global financial crises. Both Australian government and industries actively adopts
the new framework of the corporate governance in their practices. It must be noted that,
corporate governance has developed in Australia in an ad hoc and iterative manner.
In Australia, Corporate governance not only addresses the compliance of legal and regulatory
requirements, but it also includes prescriptive and voluntary requirements. Generally, there are
three important factors of corporate governance:
 Hard law: it includes legal requirements such as Corporation Act 2001.
 Soft law: it includes rules of Australian Securities Exchange Limited (ASX).
 Non-binding guidelines: it includes ASX Corporate Governance Council’s Principles and
Recommendations (Williams, 2016).
This paper states the arguments related to the chosen article, issues related to the corporate
governance theories, importance of these issues for business and general public. Lastly, paper is
concluded with brief conclusion.
Arguments stated by the article:
On 7th July 2017, article named as “The G20’s new guidelines will help investors tackle climate
change” was published by “the conversation”. This article addressed the new guidelines issued
by G20 taskforce and its impact on the industries of Australia. In this article, Emma Herd, Chief
Executive Officer of the Investor Group on Climate Change, has been contributed.
These new guidelines will change the management of the financial risk related to the climate
change by the individuals, companies, investors and regulators. These financial risks include
physical events, new technologies, changing regulations, etc.

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It is also recommended by the taskforce that individual companies must considered the factors
related to the climate change, impacts of climate change on their strategies, measures to tackle
these impacts, and also their approach for managing the climate risk.
This article further stated that, big investors put pressure on the companies to address the impact
of the climate change in the reports issued by the company. Recently, Blackrock (one of the
largest investors of the world) give their vote in the favor of the resolution proposed by the
shareholders in the meeting of oil giant ExxonMobil for increasing its reporting on climate
change factors. This resolution was passed with the 62% of the vote after a similar resolution
failed last year.
For this purpose, Guide was developed by the group of the Australian and New Zealand
institutional investors with A$1.6 trillion in assets under management and this guide state the
standards for review and improve climate change reporting in Australia.
These guidelines not only changed the perspective of big the investors in terms of climate
change, but it also changed the things for ordinary investors as well. When big companies and
investors increase their reporting on climate change, then more information will be available for
everyone. Therefore, it will be easy for ordinary investors to manage their financial risk and
other investments (The conversation, 2017).
Issue related to climate change:
Climate change itself is considered as the global problem which requires global solution. It is
necessary for the business organizations to consider the impact of climate change on their
business operations and its impacts on the sustainability of the business. Climate change not only
includes environmental situations, but it also includes social, political, and economic changes
also. Major climate change challenges for business includes weather conditions, floods,
droughts, rapid snowmelt, and rising sea levels, and it directly affects the commerce at global
level (Mitchell, Agle & Wood, 1997).
These climate changes especially affect the agricultural and production operations, such as
reduction in the supply of water may automatically decrease the supply of food and it threat food

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security. However, it result in increase of commodity price, unrest at both social and political
level, inflation, finally economic slowdown, and with such things it is not possible to run the
business operations in smooth manner. In 2008, report published by KPMG International stated
that it becomes necessary for the companies to take the measures for the purpose of addressing
the problem related to climate change and just provide the solutions. Report further stated that it
becomes necessary for companies indulged in carbon and climate activities to make higher
disclosure on carbon footprint, risk and related governance (O’dwyer, Hessisson, 2005).
Various challenges are faced by the business organizations because of the climate change, and
these challenges increased if a business organization does not take steps to understand the
impacts of climate change and its solution. Therefore, it becomes necessary for corporate leaders
to frame their business models, business priorities, and business sustainability one more time. In
other words, business organizations must consider the climate change while framing business
goals and objectives. Organizations must state in their reports how they reduce the impact of
climate change, lower their risk, adopt the changes occurred in the environment, and take
advantages of the opportunities.
Business organizations and investors must address the climate change as an important factor and
take decisions which recognize the need to adapt these changes. The main factor to recognize
this issue is that adaption of these changes will increase the cost of the business, but lack of
adaption results in heavy loss. If organizations want to understand these changes in better way,
then organizations must work towards the solution. Organizations must consider how they use
their profits in climate change for incurring more profits. Organizations must address the
following issues by adopting these measures:
 Must take steps to understand the issues related to climate change in detail and broader
manner.
 Organizations must engage in global issues which affects our planet.
 Companies must address the sustainability issues related to mountain communities at
global level.
 Organization must support the solutions introduced for climate change.

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 Must consider the problem at local, national, and international level and provide solutions
for that.
 Must contribute in the programs which are developed for changing the perception of the
general public that business also care about the climate.
 Must reflect by their operations that they consider this global cause and take measures for
resolving it.
 Must increasing the reporting requirements related to climate change (ICIMOD, n.d.).
Organizations are aware about the above stated issues but it becomes difficult for them to find
solutions, and for solving these issues guidelines are introduced by taskforce of G20. These
guidelines are developed for investors, businesses, accounting firms, stock exchanges and ratings
agencies at global level. These guidelines are voluntary in nature but they are already adopted by
the big investors and companies who want a proper standards and regulatory regimes for
addressing the risk of climate change. However, when these guidelines are adopted by the big
investors then they will also put pressure on the companies to address the same in their portfolio.
These guidelines are framed on the existing accounting and reporting frameworks, and mainly
focus on the performance data of the company and information related to market which can be
used for making investment decisions.
These guidelines covered the range of reporting requirements in relation of climate change, and
it is necessary for companies to make report on the increased operating costs because of the new
regulations, investments which are necessary in low-emissions technology or reduced revenue if
any because of the heat stress or events related to weather. It also helps the investors in
comparing the company’s effectiveness while managing climate related events.
However, special guidelines are also introduced by the task force for some specific industries
which account for the largest contribution of greenhouse gas emissions, energy and water usage.
Guidelines issued by taskforce also recommended those disclosures which address the request of
the investors from companies to publish “2°C scenario analyses. These reports mainly state the
potential business, impact of climate change on strategic and financial aspects, considered the

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different climate-related scenarios. Potential businesses of the organization are also assessed by
these reports. As a result of these recommendations, BHP, AGL and Westpac published 2°C
scenario analyses in their reports, and other similar companies also work on this prospect.
As stated above, companies like BHP already address issues related to climate change in their
reports, but still disclosures related to climate change has been patchy, shallow and not relevant
in financial prospects.
Therefore, these new guidelines provide common language for stating the issues related to
climate change as a financial risk. These guidelines help the companies in providing more
detailed reporting related to climate change and how these changes impact the investment
portfolios, investment decisions, financial performance, and strategies to manage the risk.
This issue is considered as the most important issue for business organizations and directly
affects the performance of the business and indirectly affects the society and general public.
Impact on business and general public:
Climate risk includes both direct and indirect impacts of the climate change and it also includes
the regulatory risk which cause because of the changes occurred in the political environment.
Additionally, it also introduces risk elated to legal liability which is not been addressed at present
stage but they are definitely introduced in the future because of the increasing concern of the
climate risk.
Legal liability must be introduced for the companies which includes litigation and higher
penalties against the company in case of default at addressing the climate risk and its impact.
Therefore, it is necessary for government and other authorities to addressing the issue.
Organizations must frame formal strategies for reducing the risk related to legal liability in case
of climate change.
Issues related to climate change not only affect the profitability and operations of the business,
but it also affects the reputation of the organization. Climate change is considered as the
important issue in the society, and society does not trust and consider those organizations which

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fail to address the climate related issues. Therefore, it is necessary for business organizations to
address this issue and take relevant measures to reduce the same (Business Government, 2014).
It is critical for business organizations to develop up to full extent to the policies which are
introduced for public development, because organizations are not meant for charity and social
welfare. It is unfortunate that business never provides accurate report of their operations and
nature of their activities, but it is necessary for organization to match their policy contribution
with the political activities. There are number of organizations which state in their reports that
they collaborate with the solutions, but in actual picture is completely different.
There are number of reasons of lack of disclosure related to climate change under corporate
governance practices, and companies are put themselves on the risk by not addressing the issues
related to climate change at present stage, as many evidences are present which state that strict
action is required related to these issues in future. Liabilities are imposed on companies if they
fail to address this issue and adopt the changing environment and political conditions. Therefore,
it becomes necessary and important for organization to address these issues at present stage for
avoiding future liabilities (Lodhia, 2006).
Conclusion:
As stated above, climate change is the issue which is now determined at global level, and various
international authorities try to find solution for the same. Impact of climate change is considered
by various business organizations, and organizations also addressed this issue for ensuring good
corporate governance practices. It must be noted that, climate change not only includes
environmental situations, but it also includes social, political, and economic changes also.
For this purpose, taskforce of G20 address guidelines which impose various voluntary
obligations on companies to address the issue of climate change and increase the reporting
requirements for the same.

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References:
Williams, I (2016). Corporate Governance in Australia: A Snapshot. Viewed at:
https://theconversation.com/the-g20s-new-guidelines-will-help-investors-tackle-climate-change-
80612. Accessed on 4th September 2017.
The conversation, (2017). The G20’s new guidelines will help investors tackle climate change.
Viewed at: https://theconversation.com/the-g20s-new-guidelines-will-help-investors-tackle-
climate-change-80612. Accessed on 4th September 2017.
Lodhia, S., 2006. ‘Corporate Perceptions of Web-based Environmental Communication-An
Exploratory Study into Companies in the Australian Minerals Industry’, Journal of Accounting
and Organizational Change, Vol. 2 No.1, pp.74-88.
Mitchell, R., Agle, B. & Wood, D., 1997, ‘Toward a Theory of Stakeholder Identification and
Salience: Defining the Principle of Who and What Really Count’, Academy of Management
Review, Vol. 22, No. 4, pp. 853-886.
O’Dwyer, B., Unerman, J. & Hession, E., 2005, ‘User Needs in Sustainability Reporting:
Perspectives of Stakeholders in Ireland’, European Accounting Review, Vol.14, No. 4, pp. 759-
787.
Business Government, (2014). Environmental risks to your business. Viewed at:
https://www.business.qld.gov.au/running-business/environment/environment-business/
risks+&cd=2&hl=en&ct=clnk&gl=in. Accessed on 4th September 2017.
ICIMOD. Why is Climate Change Relevant for Business. Viewed at: http://www.icimod.org/?
q=3488. Accessed on 4th September 2017.