Updated Hutley opinion released

6 mins  05.04.2019

Directors' exposure to the risk of climate change litigation has only increased since 2016

On 7 October 2016, Noel Hutley SC and Sebastian Hartford-Davis provided an opinion considering the extent to which the duty of care and diligence imposed upon company directors by s 180(1) of the Corporations Act 2001 (Cth) permitted or required Australian company directors to respond to climate change risks (2016 Opinion) (see: Governance News 07/11/2016).  The Centre for Policy Development (CPD) has now released a supplementary opinion, responding to developments since the original opinion was finalised.  

Key takeouts

The risk for directors has only increased since the original opinion was issued in 2016, and will 'probably' continue to do so: Given the impacts climate change will have on the economy, it will become 'increasingly difficult' for directors to 'pretend that climate change will not intersect with the interests of their firms'.  In light of this, 'the exposure of individual directors to “climate change litigation” is increasing, probably exponentially, with time'.


Investors and regulators expect companies to act (and to invest): Regulators and investors' now expect much more from companies and firms will be expected to invest seriously in 'capabilities to monitor, manage and respond to climate change risks'.


There are, 'significant and well-publicised risks associated with climate change and global warming that would be regarded by a Court as foreseeable'. These risks 'require engagement from company directors', especially directors in the banking, insurance, asset ownership/management, energy, transport, material/buildings, agriculture, food and forest product industries.



The opinion (which was provided by Noel Hutley SC and Sebastian Hartford-Davis on instruction from MinterEllison's Sarah Barker for the Centre for Policy Development) finds that there has been a shift, since the 2016 memorandum was finalised, in the way in which Australian regulators, firms and the public perceive climate risk which 'elevate the standard of care that will be expected of a reasonable director'. The opinion goes on to say 'company directors who consider climate change risks actively, disclose them properly and respond appropriately will reduce exposure to liability. But as time passes, the benchmark is rising.'

Significant Developments since 2016

The opinion highlights a number of developments since the original opinion was finalised with potential impact for directors. These include the following.

The regulatory environment has changed since 2016 - Australian regulators are largely aligned on the economic/financial significance of climate risk: The opinion states that the regulatory environment has 'profoundly changed' since 2016, even if legislative and policy responses have not. 'Climate risk and disclosure have become a shared focus of Australian financial regulatory bodies. There is now a striking degree of alignment between the Reserve Bank of Australia (RBA), the Australian Securities and Investment Commission (ASIC) and the Australia Prudential Regulation Authority (APRA) as to the financial and economic significance of climate risks'.

New reporting/disclosure frameworks: There have been a number of developments with respect to disclosure/reporting of climate risk since the original opinion was released, which mean, the Opinion suggests, that 'directors should expect that the content of climate disclosures, particularly as part of the statutory financial reporting framework, will attract increasing scrutiny'.  These developments include:

  • the release of the Taskforce for Climate-related Financial Disclosures Recommendations (TCFD recommendations) which have been 'endorsed' by Australian regulators (APRA, RBA) and also supported by ASIC
  • the release of joint guidance on the relevant of climate related risks for financial statement accounting estimates released by the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB). Though voluntary, the authors suggest that it is likely to be adopted by accountants and audits as a benchmark for materiality assessments relating to climate risk
  • updated guidance for listed companies in the ASX Corporate Governance Council which highlights that 'environmental or social risk' (including climate change) should be disclosed pursuant to recommendation 7.4 of its Principles and Recommendations. The guidance to the 4th edition of the Principles and Recommendations states that 'many listed entities will be exposed' to transitional and physical risks associated with climate change and encourages entities to review and disclose exposures, where relevant, as recommended by the TCFD.  

'Investor pressure represents a subcategory of risk to which directors should be alert': The opinion gives a number of examples illustrating that investor and community pressures concerning climate risk 'are becoming more acute'. For example, since 2016 there have been a number of prominent climate-related shareholder resolutions being moved at company meetings (eg at QBE Insurance Group, Origin Energy and Whitehaven Coal).  More recently, there has been public scrutiny of an announcement by the Swiss mining company Glencore (which has accepted the TCFD Recommendations) that it will move to limit the amount of coal that it will extract from the earth to current levels following discussions with the Climate 100+ initiative (see: Governance News 27/02/2019). Looking further afield, the Governor of the Bank of England has recently expressed the view that, in future, climate, environmental, social and governance considerations 'will likely be at the heart of mainstream investing'.

There have been developments in the state of scientific knowledge, and more particularly greater insight into the timeframes which 'inevitably bear upon the gravity and probability of climate risks which directors need to consider' eg modelling in the Intergovernmental Panel on Climate Change (IPCC) report which indicates, among other things, a consensus that global warming is likely to reach 1.5ºC with various adverse consequences, between 2030 and 2052 if it continues to increase at the current rate.  Given that adverse outcomes may occur within 10 years unless 'unprecedented' change occurs before then, the authors advise that 'diligent' company directors ought now to be assessing:

  • the impact on their business if concerted decarbonisation efforts (of the kind envisaged by the IPCC Report) do not occur. That is, what steps are necessary or appropriate to adapt to global warming of 1.5ºC (possibly within 5 years)
  • the impact on their business if concerted decarbonisation efforts do occur. That is, what steps are necessary or appropriate to seek to predict, influence and respond in the short to medium-term to the “unprecedented” transitions which will be required in order to avoid global warming of 1.5ºC, most particularly in the resource, energy, transport and industrial sectors
  • the impact on their business as a result of the escalating physical changes, which appear to be likely under either scenario

Developments relevant to litigation risks: The authors highlight two developments: 1) scientific/technological advances that enable the causality of weather events to be identified with more certainty (as flagged above); and 2) a recent decision in the NSW Land and Environment Court in Gloucester Resources Limited v Minister for Planning [2019] NSWLEC 7 (which is under appeal). The decision rejected the 'market substitution assumption' ie the assumption that the in this case, the greenhouse gas emissions relating to the mining project would occur regardless of whether it was approved or not because of market substitution and carbon leakage.

[Sources: Supplementary Memorandum of Opinion: Climate Change and Directors' Duties, Mr Noel Hutley SC and Mr Sebastian Hartford Davis 26/03/2019; [registration required] The AFR 29/03/2019]


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