How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.
On 29 March 2019, the Centre for Policy Development released an update of a 2016 legal opinion by Noel Hutley SC and Sebastian Hartford Davis on how Australian law requires company directors to consider, disclose and respond to climate change (2019 Legal Opinion).
The earlier opinion had concluded that it was ‘likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose or take steps in relation to a foreseeable climate-related risk.’
In recent climate change litigation updates (2019 update and 2018 update), we highlighted a number of recent examples of legal action being brought against businesses for failure to consider and disclose climate change-related financial risks.
The 2019 Legal Opinion emphasises five material developments since 2016 that have elevated the need for directors to consider climate risks and opportunities and reinforced the urgency of improved board level governance of this issue. The five developments are:
The 2019 Legal Opinion finds that climate change risks are now so established that diligent company directors in affected industries ought to be assessing the impact of climate change on their business, whether significant decarbonisation efforts occur or not. That is because climate change-related risks to business now arise in both an increased regulation scenario (through transition risks such as policy change), and a low decarbonisation scenario (through increased physical risks).
“The regulatory environment has profoundly changed since our 2016 Memorandum, even if the legislative and policy responses have not.”
The 2019 Legal Opinion highlights that there is now a 'striking degree of alignment' among Australian financial regulatory bodies as to the financial and economic significance of climate risks.
Key interventions highlighted in the 2019 Legal Opinion include:
These developments are, according to the 2019 Legal Opinion, ‘indicative of a rapidly developing benchmark against which a director’s conduct would be measured in any proceedings alleging negligence against him or her.’
“directors should expect that the content of climate disclosures, particularly as part of the statutory financial reporting framework, will attract increasing scrutiny.”
The 2019 Legal Opinion outlines three major developments in reporting frameworks relevant to the disclosure of climate risk.
“Investor pressure represents a subcategory of risk to which directors should be alert.”
The 2019 Legal Opinion notes that ‘investor and community pressures concerning climate risk are becoming more acute‘, and points to a number of prominent climate-related shareholder resolutions aiming to set or improve climate-related risk targets and disclosures, including
The 2019 Legal Opinion also points to public scrutiny of Glencore’s announcement that it will move to limit the amount of coal that it will extract to current levels following discussions with Climate 100+ initiative, and a statement by the Governor of the Bank of England that climate considerations ‘will likely be at the heart of mainstream investment.’
“there have been some notable developments in the state of scientific knowledge, which inevitably bear upon the gravity and probability of climate risks which directors need to consider.”
The 2019 Legal Opinion notes the following developments in scientific literature:
The 2019 Legal Opinion further notes that the modelled pathways in the IPCC report require ‘rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems.’
The 2019 Legal Opinion notes that the ‘inexact causality’ of weather events probably tends to limit the likelihood of climate change litigation against company directors for causing climate change impacts. However, the 2019 Legal Opinion also notes the recent decision of the NSW Land and Environment Court in Gloucester Resources Limited v Minister for Planning  NSWLEC 7, in which a development application for a new open-cut coal mine was rejected on climate change grounds, among others. We recently summarised the Gloucester decision in another update.
The 2019 Legal Opinion has identified ‘significant and well-publicised risks associated with climate change and global warming that would be regarded by a Court as foreseeable’. Those risks are likely to materialise regardless of whether significant decarbonisation efforts occur or not. In response, diligent company directors should be assessing the impact of climate change on their business.
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