NASSIM KHADEM. Why Australian company directors have started caring about climate change.

Oct 29, 2018

For the first time Australian company directors have nominated climate change as the number one issue they want the federal government to address in the long term, according to a survey of more than 1,200 company directors. 

The Australian Institute of Company Directors’ (AICD) biannual Director Sentiment Index — based on a survey of 1,252 public and private company directors undertaken between September 13 and 27 — shows directors are heeding warnings from regulators about the risks of climate change and the fact that they may, in future, be held liable for failing to act. Regulators including the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) are among those that have spoken out about the threats of climate change and the risks to companies.

Dr Katherine Woodthorpe, chairman of start-up Fishburners and who until recently was a non-executive director on the board at Sirtex Medical, said company directors were not just being influenced by regulator warnings, but also a push from investors to act. “Investor pressure is certainly one of the factors having an impact,” she told ABC News. Conversations were being had at the board level, especially for companies with infrastructure in coastal areas where there were higher risks of climate-related events. “Directors get it about climate change,” she said. “It’s real. The scientists are unequivocal in their advice. And were conscious of the need for action.”

But directors were frustrated by the failure of political leaders on issues like energy policy. Former prime minister Malcolm Turnbull tried to announce a national energy policy with emissions reduction targets, but then changed tack after pressure from within his party.

“Most people understand that it [climate change] is a real and an increasingly urgent issue,” Ms Woodthorpe said. “In other countries it is not a political issue — it’s an issue that is given bipartisan support and it is disappointing that it is not [given the same support] in Australia.”

In a speech in June, ASIC Commissioner John Price said directors “would do well” to carefully consider a 2016 legal opinion by Noel Hutley SC and Sebastien Hartford-Davis that they could face lawsuits for failing to consider risks related to climate change. Mr Price said the advice, which was commissioned by the Centre for Policy Development (CPD) and the Future Business Council, “appears legally sound and is reflective of our understanding of the position under the prevailing case law in Australia in so far as directors’ duties are concerned”.

Mr Price’s comments follow APRA executive Geoff Summerhayes, in a speech in November last year, noting that “should extreme weather events become more frequent and intense as scientists predict”, there could be “adverse economic impacts” that threaten financial system stability.

AICD managing director Angus Armour said ASIC had recently met with a group of company directors to discuss how they can prepare for reporting about climate change risks. Mr Armour said the “big end of town” — which already have to adhere to global reporting requirements — were now having conversations about the potential legal risks companies face if they do not act.

The AICD survey found that directors are also concerned about the global environment, with rising global protectionism and economic uncertainty rated as the top two economic challenges facing Australian business. There was also increasing pessimism around Canberra’s impact on business, with 84 per cent of directors surveyed saying the quality of policy debate in Australia was poor. And 54 per cent said the federal government’s performance had a negative effect on their business decision making, while 79 per cent said it had a negative effect on consumer confidence. “They’re pretty stark results,” Mr Armour said.

The survey also found more than 80 per cent of directors support stronger penalties for misconduct, and 57 per cent support an increase in funding for regulators. Almost 90 per cent of directors said they were working on cultural change within their organisation.

Nassim Khadem is a business reporter with the ABC.

First published on ABC News, 25 October 2018.

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