Climate change: a financial issue for Australian businesses
The mainstream view of climate change is that it has evolved from an ethical, non-financial issue to one that presents material financial risks (and opportunities) within the global economy. This shift is driven by:
- The physical impacts of climate change, both acute catastrophic and gradual onset. These include more frequent and intense extreme weather events, coastal inundation, ocean acidification, as well as ecological impacts such as species extinction. These physical impacts have consequences for infrastructure and assets, productivity, supply chain integrity, and the cost and availability of finance and insurance;
- The policy, legal, technological, stakeholder and market responses in the transition to a net zero emissions economy; and
- Litigation risks from attribution of climate change to a company's activities or a failure to manage or disclose physical or transition risks.
In 2019, this became unequivocal following updated regulatory guidance from the Australian Securities & Investments Commission (updated Regulatory Guide RG247 Effective disclosure in an operating and financial review (August 2019)) and the Australian Accounting Standards Board and Australian Auditing and Assurance Standards Board (April 2019)). Corporations (and the Board and Directors) should consider the impact of climate change on their financial performance, position and prospects.
In addition to these heightened regulatory expectations, shifting stakeholder positions on climate change – from large institutional investors to customers and employees – are becoming a critical issue for business in managing their climate-related risk exposures.
Want to learn more? Refer to our related publications:
Employees and climate change
A growing number of businesses are recognising that their employees and customers are making decisions about where to work and what to buy based on the organisation's public view on climate change. In an age where the congruence of employee and employer or business values is increasingly critical, perceptions about business greenhouse gas emissions and actions to manage climate-related risk issues have become a significant pressure point for many organisations in the war for employee talent and customer loyalty. For example, in April, more than 4,200 Amazon employee shareholders backed a shareholder resolution and signed an open letter to CEO Jeff Bezos demanding that Amazon adopt a wide-ranging plan to fight the climate emergency, including a demand to stop offering cloud services to the oil and gas industries.
Global Climate Protests in September
The need for meaningful engagement on climate change with employees and customers will be brought into sharp focus with the Global Climate Strikes planned for 20 and 27 September this year. Since Greta Thunberg started a solo protest outside Swedish Parliament in August 2018, millions of students across the world have drawn inspiration from the Swedish teenager and joined the 'Fridays For Future' school strikes to demand an urgent response to climate change. Accelerating in numbers, passion and impact throughout the year, the youth-led climate movement has expanded to the adult workforce. Expected to involve 150 countries, the global climate protests will top and tail the United Nations Climate Action Summit on 23 September, where world leaders will meet in New York to discuss the heightened ambitions and actions required to meet the goals of the Paris Agreement on climate change.
The global climate protests aim to disrupt 'business as usual' to demand urgent action to address the climate crisis. The global climate coalition is calling for the declaration of a 'climate emergency' and immediate action by the public and private sectors aligned with climate science and 'climate justice'. Local demonstrations are planned across Australia, from Burnie in Tasmania, to Melbourne, Sydney, Dubbo, Ballarat, Townsville, Broome, Toowoomba and beyond.
Trade unions, corporations, NGOs and religious groups around the world are supporting the September climate protests. In Australia, unions which have expressed their support include the Community and Public Sector Union, Maritime Union of Australia, National Union of Workers, United Firefighters Union, National Tertiary Education Union, National Union of Students, and the Victorian Allied Health Professionals Association – although the approaches being taken differ. For example, the CPSU is calling on members and workers to support the protest by taking a day of leave, organising a workplace solidarity selfie or passing a workplace resolution in support of the young activists. The National Tertiary Education Union has called on universities to give staff and students permission to 'strike' without a penalty – a recommendation taken up by the University of Sydney and the University of Technology Sydney. The NSW and ACT Synods of the Uniting Church, organisations are encouraging their 10,000 students and 8,000 staff of Unity Church schools to attend the climate protests.
In addition, many corporate employers have taken a public stance on the protest and their employees' participation. For example, Australian engineering firm Cundall is allowing its staff to join the demonstrations and calling on other businesses to do the same. Energy major Shell is allowing staff to take annual leave to participate in the protests, while American clothing company Patagonia is actively encouraging its employees to take part and will post bail for any employees arrested during non-violent climate protests. Tech giant Atlassian has announced that it will provide employees with a 'special leave day' on 20 September to participate in the protests, and others (such as cosmetics company Lush and ice cream manufacturer Ben & Jerry's) have announced that they will close for the day to allow their employees to participate.
The global climate protests may result in tangible impacts, particularly in Europe, which is experiencing a groundswell of support for political action on climate change. In May, the UK Parliament declared a climate emergency, in part in response to widespread climate protests led by Extinction Rebellion that paralysed London. In June the UK became the first major economy to legislate to achieve net zero emissions by 2050. While Extinction Rebellion is not leading the global climate protests, has expressed its support for the youth-led movement.
What does the Global Climate Strike mean for your business?
Despite the language, the climate 'strike' is not protected industrial action within the meaning of Australian employment and industrial law. This, however, does not mean that the protests do not raise risks for organisations to manage. Employers are already receiving requests for permission from their employees to take part or take annual leave.
More broadly, the September protests can be seen as a contextual opportunity for business to accelerate their consideration of climate-related impacts on their financial performance, position and prospects, and their governance, strategic and risk management responses. Engagement with stakeholders – both internal and external – is a critical part of both determining, and communicating that position.
This will be particularly critical for government and corporations in industries such as mining and energy, which may face the dual challenges of employee absences and targeted protest action.
Employers in all industries should proactively manage any reputational risks that may arise from an ad hoc or reactive response to the planned action by proactively considering their position on employee participation in the planned protests. Employers should consider the need to prepare internal and external communications strategies and use the climate protests as an opportunity to engage employees and manage their employee brand in the market.
Initial questions to consider to navigate climate risk issues.
Some initial questions to consider as you navigate these issues include:
- What is our understanding of the climate-related impacts on our financial position, performance and prospects? What is the robust process through which that understanding has been reached? How has that position been publicly articulated – via statutory disclosures (eg. annual reports) or otherwise?
- What are our employees' and customers' views on climate change? How can the climate protests help to better understand our stakeholders' views?
- What is our policy on employee participation in the climate protests and how does this accord with our corporate position on climate change?
- What is the likelihood that we will face increased pressure to take action on climate change in response to the September climate protests or further protest action?
- How should we communicate our position on the climate protests to our employees and external stakeholders?
While the impacts of the climate protests in Australia remain to be seen, there is no sign that the pressures on businesses relating to climate change will subside.
MinterEllison’s Climate Risk Governance team is an integral part of our Responsible Business practice. We lead the market in advising on climate change through a corporate law lens. Our unique multi-disciplinary team of lawyers and auditors works closely with scientists, economists, financiers and international regulators to ensure that our clients have the benefit of global thought leadership in this dynamic risk area. Our subject matter expertise is combined with deep sectoral experience to provide an unrivalled commercial lens across climate-related risk, governance and disclosure law issue
