Post on 17-Sep-2020
Corporate Law driving Clean Energy Transition?
Dr Anita FoersterMelbourne Law School, University of Melbourne
Prepared for Melbourne Energy Institute Symposium, 12 Dec 2018
Acknowledgements
Research funded by ARC, DP160100225, Devising a Legal Blueprint for Corporate Energy Transition – Prof. Jacqueline Peel, Melbourne Law School
International collaborators: Prof. Hari Osofsky, Penn State Law and School of International Affairs; Prof. Brett McDonnell, University of Minnesota Law School
Research Questions
Framing of climate change as a financial risk for business & investorsHow does this enliven obligations within corporations law to disclose and manage these risks? ‐ Business Risk Disclosure‐ Directors’ Duties (due care & diligence,
best interests of company)‐ Shareholder ResolutionsPotential to influence decision‐making by listed companies? > shift capital & resources away from carbon‐intensive assets or operations & into clean energy practices
Pathways to corporate energy transition
DisclosureDuties
SH resolutions
Internal decision‐making
(companies)
Asset divestment& re‐allocation
DisclosureDuties
SH resolutions
External decision‐making (investors)
Capital divestment & re‐allocation
Regulators
Civil Society
Research Approach
Understand legal obligations, duties and rights as they apply to climate risk
Empirical work (document review & qualitative interviews) ‐ how companies & investors approach climate risk & the impact of corporate law tools in shaping decision‐making
Assessment of potential & limitations > law & governance reform recommendations
InterviewsCorporate & Financial Sector Regulators (2)
Companies (7) – ASX50 (energy, utilities, materials)
Asset Owners (7) – industry superfunds
Asset Managers (2)
Civil Society Advocacy Groups (2)
Investor Groups / Associations – climate change focus (2)
Investor Service Providers ‐ ESG analysis, proxy voting, engagement (2)
Source: TCFD Final Report 2017, p10.
Source: Bank of England, ‘The Bank of England’s Response to Climate Change’ (2017)
Business Risk Disclosure‐ legal obligations to disclose where CC poses material risks to company interests –annual reports (financial statements & director’s report)‐TCFD –emerging best practice (scenario analysis including 2⁰ or lower temp. goal, quantification of risks)
Highly variable & inadequate practice
Materiality assessment focused on short‐term
Transition risks feature more prominently than physical risks – tendency to focus narrowly on
policy risks
Weak enforcement, lack of regulatory guidance
Practice is shifting as a result of TCFD (& focus from regulators) – best practice still evolving
Litigation –misleading disclosure
Photo Credit: https://oilprice.com/Energy/Energy‐General/Exxon‐To‐Disclose‐The‐Real‐Risk‐Of‐Climate‐Change.htmlhttps://www.abc.net.au/news/2017‐08‐08/david‐barnden,‐guy‐abrahams‐(right)/8786474
Directors’ duties‐Hutley legal opinion (2016): directors have duties to inform themselves about climate risks and take steps to manage these risks where they pose material risks to company interests (duty of due care and diligence)
Increasing understanding of how
directors’ duties apply to climate change
Increasing understanding of how
directors’ duties apply to climate change
Different approaches ‐nature of company, sector, as well as
personal characteristics of directors
Different approaches ‐nature of company, sector, as well as
personal characteristics of directors
Focus on short‐term objective & risks
outweighs longer term considerations
Focus on short‐term objective & risks
outweighs longer term considerations
Threat of liability is significant driverThreat of liability is significant driver
Litigation – directors’ duties
Photo Credit: https://www.marketforces.org.au/world‐first‐legal‐case‐alleges‐rest‐breached‐duties‐over‐climate‐risk/https://vaaju.com/poland/ostroleka‐a‐shareholder‐agrees‐with‐energe‐for‐the‐construction‐of‐a‐new‐carbon‐block/
Shareholder resolutions‐member’s resolution (100 members / 5% of vote)‐ increasing use in practice in Australia (via constitutional change resolutions)
Shifting approaches to investor/company
engagement in Australia
Resolutions increasingly viewed as important escalation tool by
investors
Partnerships between investors & civil society,
as well as investor coalitions are influential
Evidence of meaningful impact on company decision‐making
Climate change resolutions in Australia
Conclusions ‐ internal pathwaysMounting pressure on companies to identify, assess & disclose climate risks
Impact on internal decision‐making?
Limits ‐ legal obligations are process‐focused / principles‐based not outcome‐focused
Contingent on materiality determinations & evolution of climate risks ‐ business as usual still makes financial sense for many companies over medium term
Increased enforcement activity (public & private) – important to crystallise understandings around the financial materiality of climate risks & associated legal obligations
Identifying, assessing, disclosing & managing climate risks does not automatically translate to changed internal decision‐making on energy transition (asset divestment and re‐allocation) along the timeframes required to meet the goals of the Paris Agreement.
Conclusions ‐ External PathwaysInvestors > understanding risk exposure, engagement strategies to influence companies (SH resolutions)
Impact on external decision‐making?
Not yet resulting in broader shifts in investment strategy / strategic allocation of funds? – business as usual still profitable; short‐term considerations dominate.
Shifts around the margins (targeted divestment; fossil free options).
Ongoing debate about effectiveness of divestment versus engagement.
Potential for investment decision‐making to shift progress on energy transition by companies is limited without other more substantive regulatory drivers.
More Information: http://law.unimelb.edu.au/centres/creel/research/current‐research‐projects/corporate‐energy‐transition
Osofsky, Peel, McDonnell & Foerster ‘Energy Re‐Investment’ (forthcoming 2019, Indiana Law Journal)Anita Foerster and Jacqueline Peel, ‘Liability for Misleading Disclosure of Climate Risk: could US‐style claims happen in Australia?’ (2017) 32(3) Australian Environment Review.Anita Foerster, Jacqueline Peel, Hari Osofsky, Brett McDonnell, ‘Keeping Good Company in the Transition to a Low Carbon Economy? An Evaluation of Climate Risk Disclosure Practices in Australia’ (2017) 35(3) Company and Securities Law Journal.Anita Foerster and Jacqueline Peel, ‘Rio Tinto’s climate change resolution marks a significant shift in investor culture’ The Conversation (3 May 2018).Anita Foerster and Jacqueline Peel, ‘Climate Change is a financial risk, according to a lawsuit against the CBA’ The Conversation (16 August 2017).Anita Foerster and Jacqueline Peel, ‘Carbon Risk Disclosure: The risk for Australian companies’ Pursuit (29 August 2016).