Supplementary memorandum of opinion

This report summarises a supplementary legal opinion by Noel Hutley SC and Sebastian Hartford Davis for the Centre for Policy Development, issued in March 2019. It builds on the 2016 memorandum examining company directors’ duties under section 180(1) of the Corporations Act 2001 (Cth) in relation to climate change risks. The authors reaffirm that directors can, and in many cases should, consider and act on climate risks as part of their duty of care and diligence. They note significant regulatory, legal, and market developments that heighten expectations for directors to address such risks.

Developments since 2016

Five major developments since the 2016 opinion are outlined. First, Australian financial regulators now share a coordinated focus on climate risk. The Reserve Bank of Australia, the Australian Securities and Investments Commission (ASIC), and the Australian Prudential Regulation Authority (APRA) each recognise climate change as a material financial and economic risk. For example, ASIC’s 2018 report stated that directors must “understand and continually reassess existing and emerging risks (including climate risk)” across short- and long-term horizons.

Second, reporting frameworks have evolved substantially. The 2017 Task Force on Climate-related Financial Disclosures (TCFD) introduced a consistent framework for climate risk reporting. By 2020, TCFD-aligned reporting became mandatory for signatories to the UN Principles for Responsible Investment, representing over US$80 trillion in assets. Australian regulators, including APRA and ASIC, have endorsed the TCFD framework. Additionally, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board issued joint guidance in 2018 highlighting the materiality of climate risk in financial statements. This guidance applies to both financial and non-financial sectors and affects assessments such as asset valuation, credit losses, and impairment.

Third, investor and community pressure has intensified. Shareholder resolutions at companies such as QBE Insurance, Origin Energy, and Whitehaven Coal demonstrate growing investor scrutiny of climate performance and industry association memberships. Internationally, Glencore’s decision to cap coal production after investor engagement via the Climate Action 100+ initiative illustrates this pressure. The Governor of the Bank of England noted that environmental, social, and governance factors are becoming central to mainstream investment decisions.

Fourth, scientific evidence has advanced, confirming the materiality of climate-related physical risks. The Intergovernmental Panel on Climate Change’s 2018 report projects that global warming will likely reach 1.5°C between 2030 and 2052, with significant implications for health, food, water, and economic systems. Australia’s Bureau of Meteorology reported that 2018’s national mean temperature was 1.14°C above average, with record-breaking heatwaves in 2019.

Fifth, litigation risk has increased. Advances in event attribution science now allow clearer links between extreme weather events and climate change, strengthening the potential for legal claims. The Gloucester Resources Limited v Minister for Planning (2019) case, where a coal mine application was rejected partly on climate grounds, marked a shift in judicial reasoning around greenhouse gas emissions and corporate responsibility.

Directors’ duties and legal implications

The opinion concludes that climate change poses foreseeable, significant risks to businesses, particularly in sectors such as banking, insurance, asset management, energy, transport, and agriculture. Courts are increasingly likely to view failure to assess or disclose climate risks as a breach of directors’ statutory duties.

Regulators and investors now expect companies to integrate climate considerations into governance, financial analysis, and disclosures. Directors should assess impacts under both transition and physical risk scenarios—whether decarbonisation efforts succeed or fail—and consider effects on business models, supply chains, and asset values.

Directors are urged to conduct scenario analysis, disclose risks transparently, and establish clear governance mechanisms. Those who act proactively to inform themselves, disclose relevant information, and respond appropriately can mitigate liability exposure. However, as standards rise, inaction may increasingly be seen as negligence.

Conclusion

The authors conclude that climate change now constitutes a mainstream financial and legal issue. Directors who disregard foreseeable climate risks face growing exposure to claims of breach of duty. The evolving expectations from regulators, investors, and the scientific community elevate the standard of care required. Directors must treat climate risk management and disclosure as integral to corporate governance and long-term financial performance.