Company directors face crucial considerations on climate

As an 18-year-old school striker vies for a place on AGL’s board, David Ritter reflects on the responsibilities that fall to board directors when it comes to the climate crisis and why they need to do more than just look to their peers.

This month, shareholders get to decide on the composition of the board of Australia’s worst domestic climate polluter and all-round troubled company, AGL. 

It is a critical opportunity for everyday shareholders and institutions alike to send the strongest possible message that burning through shareholder value, failing to anticipate industry trends, being the worst in-sector offender against environmental licence conditions – and sticking with a business plan consistent with catastrophic climate damage – is wholly unacceptable.

In what is believed to be a world first, 18-year-old school striker Ashjayeen Sharif has nominated for the AGL board, on a platform of closing down AGL’s dirty, polluting coal-burning power stations before 2030, to become a business that produces electricity solely from renewable energy.

Read more: Meet the Melbourne student getting ready to address the AGL board

As one institutional investor privately commented to me last week, Sharif’s candidature has really opened up the question about the performance of AGL’s board. On Friday night, the Australian Stock Exchange announced that AGL would be delisted from the ASX-50 – a direct consequence of the multi-billion dollar losses and collapsing share price of Australia’s biggest climate polluter.

In this context, the launch of the Australian Institute of Company Directors’ Climate Risk Governance Guide could not be more timely. The guide has been published as part of the global Climate Governance Initiative, of which the AICD is host of the Australian Chapter.

Virtually every company director in Australia faces crucial considerations on climate, with profound implications for the discharge of their duties, the performance of their institution (and of course, ultimately, the state of their personal conscience). As the guide advises:

Where climate change is a material and foreseeable risk to an organisation, directors will have obligations to seek to address it as part of their risk oversight role. 

When the Australian Corporations Act was passed in 2001, carbon dioxide concentrations in the atmosphere were at around 370ppm. Twenty years later, in May, the figure reached almost 420ppm. Average global temperature has increased by almost 0.5 degrees celsius in the same period.

According to the world’s top scientific body, the IPCC, the BAU emissions scenario will result in systemically catastrophic global climate impacts within our current lifetimes. Fortunately, there remains a slender window of opportunity to swerve to a different future – but this requires systemic action to slash emissions this decade. Leading studies, including from the IEA, have said that all Australian coal-burning power stations must close by 2030 at the latest, to “do our bit” to achieve the internationally agreed Paris Climate Goal. AGL currently plans to keep burning coal until 2048. 

On the other hand, there is enormous opportunity to be embraced – for Australia to become a clean energy superpower, generating massive business and investment opportunities, with positive consequences for job creation, rural revitalisation, ecological restoration and nation building. 

This is entirely technologically feasible, but requires the right decisions to be made by politicians and business leaders – with specific obligations falling on boards of directors.

Importantly, a high standard of care applies to directors in this context. The comments of leading lawyer Sarah Barker, made at the guide’s launch event, are highly pertinent. Barker noted that the relevant question to ask is:

What would a reasonable director in these circumstances do? And it is important to note that reasonable doesn’t mean ‘average’… 

It is not ‘what would an average director do’. It’s quite a proactive obligation. It’s not about applying the information that you know. It’s about what should you know. What would a reasonable director do? What interrogation would a reasonable director give to a particular issue? And so when we think about climate change there is an obligation to have a working understanding of this issue. It is a very high profile issue. You can’t open a newspaper without some discussion of it. You don’t need to be an expert, but you need to have a degree of alarm-bell knowledge that allows you to interrogate the issue and to ask questions of management and of independent experts in the area. 

For many company directors, the challenge may be to get beyond the group-think that got us to the precipice in the first place. What is clear is that merely stopping at the question, “what are my peers doing?”, will not be sufficient – and indeed may be an indication that the director in question is failing to adhere to the standard described by Barker.

Questions of this kind may be uppermost in mind for AGL shareholders. At such a troubled company that has so evidently failed in its forward thinking, the diversity of perspective and clarity of vision brought by Sharif, is just what the business needs.