The ‘School Strike for Climate’ movement, spearheaded by Swedish schoolgirl Greta Thunberg, appears to have mobilised the sense of urgency around climate change, and as recently stated by BHP CEO Andrew Mackenzie: ‘As we have seen from activism and debates from schools to parliaments all around the world, we see this period as an escalation towards a crisis.’
Climate change risks for business are now seen to include transition risk (for example, through new laws and changing policy) as well as physical risk. Climate change litigation is also on the rise, with risks including exposure to damages claims, the financial and reputational cost of defending litigation, disruption to operations, and enforcement of disclosure requirements.
Rising pressure
Increasing investor and regulatory pressure is evident in public statements made by leaders from the finance sector. Top financial regulators, including the Bank of England, the US Commodities Futures Trading Commission, and the Reserve Bank of Australia have recently made public statements highlighting the increasing significance of climate change risk to national economies and financial markets.
The development of reporting frameworks for climate related financial risks has also been gathering pace. The widely endorsed recommendations of the G20’s Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) is considered to provide useful guidance to company directors in developing their approach to assessment and disclosure of climate risk. At the same time, global regulators are increasingly providing guidance on expectations for how climate risk should be incorporated into financial accounting and reporting.
Investors are also increasingly agitating for stronger business action to address climate change risks by limiting investment in highly emissions exposed sectors and are moving to setting emissions intensity targets or weightings in their investment portfolios. To date, more than 320 investors with more than USD $33tn in assets under management have signed up to Climate Action 100+.
Disclosing risks?
These developments are raising the bar for company directors and executives to properly assess climate change risks. In Australia, an influential legal opinion by barristers Noel Hutley SC and Sebastian Hartford Davis concludes that company directors who now fail to consider climate change risks could be found liable for breaching their duty of care and diligence in the future, and that a negligence claim against a director who ignores climate risk was only a matter of time.
As regulation further develops globally through countries implementing their emission reduction commitments under the Paris Agreement, such legal obligations are only likely to keep expanding.
An emerging pattern of activist shareholders filing resolutions against corporations, particularly major energy companies, demanding increased transparency surrounding climate change risks and company policy is gaining traction around the world. Actions have been filed in the US alleging under reporting of climate risks to business. In a world first, legal action has been filed in the Federal Court of Australia alleging that climate change information disclosed by a superannuation fund is insufficient to discharge disclosure obligations imposed by Australian law.
Litigation risk
Legal action directly targeting businesses perceived as major contributors to climate change has dominated the climate change litigation space. The most common defendants are fossil fuel corporations and associated entities. Although the majority of this litigation originates in the US, similar complaints are increasingly seen in other jurisdictions, including Australia, the UK, the European Union, New Zealand, Canada, and Spain.
There is also a trend in proceedings opposing development on the basis of climate change. In a notable decision, the Land and Environment Court of New South Wales recently refused development consent for a new coal mine for reasons that included its greenhouse gas emissions and contribution to climate change.
Conclusion
Risks to business from climate change have increased exponentially in recent years, both in terms of transition risks and physical risks, but also reputational and litigation risk. In our view, these risks are only going to intensify as the challenge of meeting the globally accepted target of well below 2ºC starts to crystallise in the next decade.
Walking the talk
Norton Rose Fulbright has a corporate social responsibility programme that champions human rights, seeks to support those most disadvantaged in our local communities, and importantly, strives to address those issues negatively impacting on our global community. Tackling environmental sustainability issues is a crucial part of our programme.
In addition to advising clients on environmental issues, we also recognise that our firm has a responsibility to address environmental issues threatening the earth’s ecosystems and the future of our communities. As a global firm, we take a deliberate and strategic approach to reducing our environmental impact by reducing energy use, resource consumption and waste, and we continually look for innovative ways to reduce our own environmental footprint. We also use our extensive cross disciplinary expertise to provide pro bono legal support to clients whose work focuses on innovative environmental sustainability solutions aimed at reducing environmental degradation.
Each year, our global offices come together to support a global charitable initiative. In 2019 and in line with UN Sustainable Development Goal (SDG) 2 ‘Zero Hunger’ our initiative was dedicated to reducing food waste and improving food security in each of the global communities we operate. Food sustainability and the environmental hazards created by food waste are significant global issues, with food waste being a major contributor to global greenhouse gas emissions and climate change. Our commitment to reducing food waste and improving food security remains at the forefront of our environmental sustainability framework.
We are also committed to reducing our impact on the environment through sustainable property and business management practices. In 2019 and 2020, our Sydney office will relocate to a new sustainable building at Sixty Martin Place targeting a ‘6-Star Green Star Office’ rating and ‘5-Star NABERS Energy’ rating, while our Melbourne office will move to 477 Collins Street, a premium office tower targeting a ‘5-Star Green Star’ rating and ‘5 Star NABERS’ rating.