A. Introduction

The report assesses how the International Court of Justice (ICJ) advisory opinion on climate change influences directors’ duties under Australian law. Although non-binding, the opinion carries significant weight and is expected to shape regulation, litigation and policy, particularly by prompting stricter controls on emissions-intensive activities and increasing exposure to climate-related risks.

B. Climate-related risks and directors’ duties

Climate change presents foreseeable risks to most Australian corporations, including physical risks (e.g. extreme weather, supply chain disruption) and transition risks (e.g. regulatory change, market shifts). These risks have financial and reputational implications and must be considered under directors’ duty of care.

Directors are expected to meet an evolving standard of care, informed by sustainability reporting obligations under the Corporations Act 2001 (Cth). These require disclosure of material climate-related risks, emissions metrics and governance practices. Directors must form their own informed opinions, ensure accuracy of disclosures and cannot delegate these responsibilities.

The report highlights that liability risks arise where directors fail to consider climate risks, approve misleading disclosures, or act unreasonably. Courts assess whether directors balanced foreseeable risks against potential benefits using an objective, fact-specific standard. Directors are expected to remain informed, apply an enquiring mind and ensure adequate systems for monitoring climate risks.

C. How, if at all, does the opinion inform climate-related risks for Australian corporations?

C.1 Summary of the opinion

The ICJ concluded that states have a duty under customary international law to prevent significant harm to the climate system, requiring use of all available means to reduce emissions. It emphasised alignment with the 1.5°C goal, stringent due diligence, and regulation of private actors. Fossil fuel production, subsidies and licensing may constitute internationally wrongful acts.

The opinion also recognises the right to a clean, healthy and sustainable environment and confirms that breaches of climate obligations can trigger legal consequences, including cessation and compensation. These findings broaden the scope of climate-related risks affecting corporations indirectly through state actions.

C.2 Regulatory developments

The opinion has already influenced policy and regulation. Australia updated its emissions targets to a 62–70% reduction by 2035, informed partly by the opinion. At COP30, 80 countries endorsed a transition away from fossil fuels, while domestic actions include New South Wales ceasing consideration of new greenfield coal mines.

These developments increase transition risks, particularly for fossil fuel sectors. Corporations may face higher costs, reduced demand or stranded assets, while low-emission sectors may benefit from increased demand. Directors should account for these evolving regulatory pressures in decision-making.

C.3 Litigation risks

The opinion increases litigation risks across multiple fronts. States may face inter-state claims for breaching climate obligations, potentially leading to stricter domestic regulation. Investor-state disputes may also be affected, with states better able to justify environmental regulations under international law.

Domestic litigation is also expanding. The opinion has been cited in Australian cases challenging fossil fuel projects and may influence statutory interpretation. There is growing risk of claims against corporations for misleading disclosures or climate-related harms, including potential tort liability. International precedents indicate increasing acceptance of such claims.

D. What should directors do?

Directors should ensure robust systems to identify and monitor climate-related risks, particularly for emissions-intensive businesses. They must remain informed of regulatory and legal developments, consider risks in decision-making, and seek advice where necessary.

To minimise liability, directors should ensure accurate and complete disclosure of climate risks in sustainability reports, comply with reporting obligations, and base decisions on rational, informed assessments of the corporation’s best interests. Failure to consider foreseeable risks or disclose them appropriately increases exposure to legal claims.

E. Conclusion

Climate change is a pervasive source of risk for Australian corporations. The ICJ opinion is accelerating regulatory, legal and market developments that heighten these risks, particularly for high-emitting sectors. As risk magnitude increases, so does the expected standard of care for directors, reinforcing the need for proactive risk management and disclosure.