On 21 November, CPD convened a business roundtable on climate and sustainability which brought together senior executives and directors from Australia’s biggest banks, insurers, investors, businesses and superannuation funds, senior representatives from Australia’s leading financial regulators and key policy departments, and a number of special local and international guests.
Participants included Dr Guy Debelle (Reserve Bank of Australia), Sarah Breeden (Bank of England), John Price (ASIC), Geoff Summerhayes (APRA), Emma Herd (IGCC), Don Russell (AustralianSuper), Martin Parkinson (former Secretary of the Department of Prime Minister and Cabinet and Treasury), Sarah Barker (Minter Ellison), Greg Combet (IFM Investors) and former High Court Justice and Royal Commissioner the Hon Kenneth Hayne AC QC.
CPD convened the roundtable to consider what Australia needs to prioritise next in its climate risk responses, amidst mounting climate impacts and growing scrutiny of Australia’s climate credentials. This was the latest in a long-running series of CPD research, events and thought leadership on the economic and financial dimensions of climate change, including the legal opinions by Noel Hutley SC on directors’ duties and climate risk, and landmark public statements on climate by APRA, ASIC and the Reserve Bank hosted by CPD since 2017.
The discussion highlighted that the bar on climate risks continues to rise for Australian company directors, investors and regulators. It also found strong support for accelerated action on climate change and a new national mission to address climate risk and opportunity across Australia’s economy and financial system.
A summary of the main conclusions from the discussion is available below along with other key documents. Please note that this summary has been prepared by the roundtable organisers and does not necessarily reflect official policy or the position of any of the individuals or organisations present at the roundtable.
Dr Don Russell
The Hon Greg Combet AM
Dr Guy Debelle
The Hon Kenneth Hayne AC QC
Dr Martin Parkinson AC PSM
Terry Moran AC
Associate Professor Tim Nelson
Professor Tom Heller
Dr Travers McLeod
Dr. Tom Gole
Director – ESG and Stewardship, AustralianSuper
Asia Pacific Head of Natural Resources, UBS
Managing Director, Loans and Specialised Finance, ANZ
Banque de France and NGFS Secretariat
Europe Head of Green Investment Group, Macquarie
CEO, Investor Group on Climate Change
Executive Board Member, APRA
Chair, IFM Investors
Deputy Governor, Reserve Bank of Australia
First Assistant Secretary, Department of Prime Minister & Cabinet
Non Executive Director, Coles
Deputy Secretary, Department of Environment and Energy
Executive Manager, Suncorp
Professorial Fellow, Melbourne Law School
Global Head of Green Investment Group, Macquarie
Chairperson, QBE Australia & New Zealand
Former Secretary, Department of the Prime Minister and Cabinet
Head of Performance and Corporate Relations, RBNZ
Senior Executive Leader – Corporations, ASIC
Special Counsel, MinterEllison
Executive Director, Bank of England
Chair, Centre for Policy Development
Executive General Manager, Australian Energy Market Commission
Stanford University and Climate Policy Initiative
CEO, Centre for Policy Development
Deputy Secretary, Fiscal Group, Department of the Treasury
Head of ESG Research, Citi
Fellow, Centre for Policy Development / Stanford University
Head of Regulation and Policy, Allianz Australia
Managing Director, Aurora Energy Research
Principal, Climate Policy Initiative
Program Manager, Centre for Policy Development
Partner, Boston Consulting Group / CPD, Board Member
“Previous speakers have emphasised the need for system‑wide response. Systemic response is essential. But for the moment, I want to stand the issue on its head and look at it from the individual entity’s point of view.
Three things are clear.
First, I think the relevant law is clear.
Directors must act in the best interests of the company. “Best interests” is not one‑dimensional – it is not determined only by share price movement or “total shareholder return” over a period.
“Best interests” does not present a binary choice between the interests of shareholders and the interests of others (whether customers, employees or society more generally).
The longer the period of reference, the more the interests of all affected by a company’s actions will converge in pursuit of the long‑term financial advantage of the enterprise.
Second, international opinion is also clear.
International opinion is now firmly behind the need for all entities with public debt or equity to respond to climate change issues in their Governance, their Strategy, their Risk Management and their Metrics and Targets and, importantly, to record their responses to the issues in their financial reports. The work of the Bank of England and the FSB’s Taskforce on Climate‑related Financial Disclosures both forms and reflects that opinion.
Third, the position of Australian regulators is clear.
ASIC, APRA and the Reserve Bank have all recently made plain the significance each of those bodies attaches to climate‑related issues.
The inevitable consequence of the three points I have made about the law, international opinion and domestic regulators is that, in Australia, a director acting in the best interests of the company must take account of, and the board must report publicly on, climate‑related risks and issues relevant to the entity.
As the 2019 TCFD Status Report shows, the speed at which changes are needed to limit the rise in the global average temperature obliges more companies to consider the potential impact of climate change and disclose their material findings than are now doing so. The entities, and their boards must ask at least two questions:
All this being so, what is the issue? Directors have their duties; there are clear statements of what those duties require; regulators have said plainly that they expect the duties to be performed. What is there left to debate?
I wonder whether there may be two related points to consider – learned helplessness and entrenched short‑termism.
The issue, of course, is global. What we are now considering is individual response by entities and by their directors (separately and collectively).
A response often seen in Australian political discourse is that “The issue is large; Australia is comparatively small; nothing we do will affect the outcome if the big emitters do not act.” That is, the response is “We can do nothing that will help”. By making that response, we are persuading ourselves that we are helpless.
Boards will reinforce that sense of helplessness if they put climate risk into a bucket marked “non‑financial risks”. And boards might think that they can do that if they see the risk as not being immediately realised in the next financial period. But as recent events in the financial services industry should have shown, the notion of “non‑financial” risks can be very misleading. The distinction between financial and non‑financial risk to the entity is anything but clear. Conduct and regulatory risk were seen by some financial services entities as non‑financial risks less important than other risks to the financial performance of the entity. But the realisation of conduct and regulatory risks has had large and continuing effects on, not only the reputation of the entities, but also their profitability.
Helplessness is then coupled with short‑termism. At the national level short‑termism is expressed as: “Doing something now will have adverse effects on employment in some part or parts of the country. That would be bad for the national economy. Therefore, we will do nothing.”
Both learned helplessness and short‑termism yield a result that fits comfortably with those who still see climate‑change as a matter of belief or ideology. Framing the most recent debates provoked by the bushfire emergencies as part of the “culture wars” reinforces the notion that climate science is a matter of belief, not scientific observation and extrapolation. No less importantly, because the debate remains framed as a debate about belief, learned helplessness and short‑termism can be translated into the nativist‑populist terms that now have such currency in many political systems.
But neither helplessness (whether that is learned or real) nor short‑termism provides any answer to the director’s duty to act in the best interests of the company. Indeed, each points plainly towards the need for boards
I say that any sense of helplessness points to those results because the choice for a board is between responding or having a response thrust upon the company. And boards simply cannot confine their attention to the short-term. As I have said, entities which did not look beyond short‑term profit have recently suffered very large financial and non‑financial losses.
Learned helplessness and short‑termism may explain how our political debates are being framed. If they do, we must be careful that the framing of the political debates does not distract from what is clear: that directors have a duty to respond to climate‑related risks and that the continuing work of TCFD shows directors what they should do.”
November’s event was held three years on from a similar CPD roundtable in 2016 which culminated in the release of the landmark Hutley SC legal opinion on climate change and directors’ duties (updated in 2019). Over the past three years, Australia’s financial regulators have stepped up their leadership on the financial and economic impacts of climate change through coordinated statements and responses by APRA, ASIC and the Reserve Bank. Many Australian companies and investors have now adopted more ambitious and detailed climate-related disclosures, targets and strategies. However, despite recent progress, Australia remains well behind global best practice, even as the physical impacts of climate change mount and the risks and opportunities associated with a zero carbon transition become more urgent and apparent.
At this critical juncture, our roundtable brought together a group of influential leaders to take stock of Australian approaches to climate risk to date and to consider the next set of crucial interventions and opportunities to deliver more far-reaching responses. The discussion was held under the Chatham House Rule.
Bank of England Executive Director Sarah Breeden provided opening remarks for the discussion. Sarah provided a snapshot of global trends and regulatory responses on climate risk, including new initiatives being undertaken by the Bank of England and the Central Banks and Supervisors Network for Greening the Financial System.
The Hon Kenneth Hayne AC QC also addressed the group, and has provided the text of his remarks for publication by CPD. He said that the law, international opinion and Australian regulatory developments make the position for company directors clear: “directors have a duty to respond to climate-related risks and…the continuing work of the TCFD shows directors what they should do.”
Participants then shared their perspectives on how climate-related risks are being managed in Australia, and discussed opportunities and priorities for taking this response to the next level. The discussion highlighted three key conclusions:
CPD CEO Travers McLeod said that the roundtable highlighted broad support and consensus around a more ambitious, co-ordinated response to climate risk.
CPD would like to thank roundtable participants for their time and for being part of a candid and constructive discussion. We would also like to thank ANZ for hosting the event.
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