Analysis of 'It's not just the climate that's warming up' article

This report analyzes the Clayton Utz article "It's not just the climate that's warming up: New heat on directors," focusing on the increasing responsibilities of company directors regarding climate change risks in Australia. The article highlights the growing need for directors to address environmental issues, emphasizing the potential liabilities they face for non-compliance. It examines key actions by regulatory bodies such as ASIC, the Council of Financial Regulators, and the NSW Land and Environment Court, highlighting the impact of court proceedings like the Volkswagen emissions scandal. The report details how director duties, as outlined in sections 180, 181, 182, and 183 of the Corporations Act, now extend beyond financial risks to include environmental risks, with a focus on the implications of section 180 and 292. The analysis concludes that directors' duties extend to stakeholders, including the environment, and that climate change poses a significant business risk, requiring due diligence and prudence. The report references key rulings and statutory interpretations, pointing towards more stringent rules and liabilities for directors in the future.

LAW
ARTICLE ANALYSIS

The article chosen for the analysis is titled “It's not just the climate that's warming up: New
heat on directors” by Clayton Utz, as published in Lexology. The link for the article is:
https://www.mondaq.com/australia/Environment/799502/A-new-era-of-climate-change-
litigation-in-Australia

Introduction
The increased awareness of the rights and interests of the stakeholders as well as
globalisation has led to the acknowledgement of the more responsible role of the directors of
the global corporations of the present times. This means, the directors of the companies have
to ensure to meet the objectives of the company in such a manner that is considerate of the
interests of employees, suppliers, customers, regulators as well as the environment. The
article highlights the significance of the efficient environmental practices to be adopted by
the directors on behalf of the companies.
Summary and analysis of the article
The primary subject of the article is the responsibility as well as the need of the companies to
disclose the climate change risks and an overall enhancement in the addressing of the
environmental issues. The first segment of the article highlights the growing need of the
imposing liabilities on the directors who fail to respond to the climate change risks. The key
steps taken by various authorities are highlighted such as Australian Securities and
Investment Commission, the Council of Financial Regulators, NSW Land and Environment
Court, and the ASX Corporate Governance Council (Utz, 2019). Thus, the steps are in the
form of rulings, guidelines and recommendations for the entities. It must be essential to note
that the reason for the increased focus of the regulators is the court proceedings against the
global giant Volkswagen in Australia related to the recent diesel car emissions (Letts, 2016).
The article further elaborates the role of the ASIC as referred as the “stepping stone
approach,” for imposing personal litigation oh the directors in this regard. The rationale
behind the said approach is to set examples for the other corporates about the grievance of the
issue. A key ruling has been pointed out in the article that is ASIC v Cassimatis (No 8) [2016]
FCA 1023, as conducted in the Federal Court of Australia. The ruling highlights a significant
fact that the powers of the ASIC extend beyond the compliance of the Corporations Act and
in the mentioned case; the breach of the environmental laws was the key subject matter
(Minter Ellison Services Pty Ltd, 2016). As per the study of the article, the ruling, and the
expectation of the regulatory bodies, it is to be noted that the director duties sections do not
limits itself to the financial risks, but also the physical world risks or the environment risks.
The examples of such risks are the severe impact on the tourism or health of the country,
extreme weather events and other business activities that endanger the environment of the
surroundings. The Hutley Supplementary Opinion additionally highlights that the role of the

directors must be more elevated for the affected sectors where there has been violation of the
environmental regulations.
Further, it has been highlighted that with the increased need of responsible environmental, the
general duties of the director involving the standard of care as mentioned in the Corporations
Act, must expand. This means the impact of the article directly is on the director duties, and
the liability that would be faced by the directors in the event of the failure of abidance of such
duties. The key sections of the Corporations Act, that highlight the significance of the duties
of the directors are the sections 180, section 181, section 182, section 183 (Australian
Securities and Investments Commission, 2016). It has been mentioned in the above
mentioned sections that the directors of the corporate must exercise due diligence, care,
professional behaviour and an overall abidance with the legally applicable rules to companies
and directors. The section 180 of the act is worth specifically noting here. It has been
explicitly mentioned in the section 180 of the Corporations Act specifically that it is the duty
of the directors to be considerate of the probable risks that can lead to business losses to the
entity. In addition, the section 292 of the Act is also worth noting. As per the said section, it
is the duty of the directors to provide details of the performance of the company in relation to
that significant environmental regulation if applicable to the entity. The article highlights the
statutory interpretation of the said section that is to disclose risk of climate change on the
financial performance of the enterprise. Hence, it is expected in the near future that specific
amendments can be made in the Corporations Act in relation to the director duties where the
nature and extent of the personal liabilities of directors would be mentioned for breach of
climate related regulations.
Conclusions
The conclusion reached on the analysis of the article is that the duties of the directors are just
not limited to the well-being of the shareholders, rather stakeholders at large which also
includes the environment. The environmental and climate change risks form a major business
risk and the directors must mandatorily exercise prudence and due diligence towards climatic
issues while discharging the directorship functions. The key recommendations and
judgements, pave the way for more stringent rules for reporting and compliance, and
liabilities for non-adherence.

References
ASIC v Cassimatis (No 8) [2016] FCA 1023
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: 03/04/2020].
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: 03/04/2020].
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: 03/04/2020].
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: 03/04/2020].