As corporations deal with the fallout from a year of extraordinary revelations of business failings, bad behaviour and even charges that a bank was ‘indifferent’ to money laundering , along comes former High Court Judge and financial services Royal Commissioner, Kenneth Hayne, with a dire warning; business must act on climate change or risk legal action.
His timing was spot on. In drought-stricken NSW, hundreds of bush fires rage at a level experts claim is unprecedented, prompting a leading audit firm to warn the insurance industry that catastrophic events from climate change were now the ‘new normal’. Yet, a statement by a Liberal government environment minister that it is time to listen to scientists and act on climate change was so ‘normal’ that it made front page news.
In his statement, Mr Hayne accused company directors of negligence and ‘learned helplessness’ about climate change risks, prompting prominent business leaders to label him ‘alarmist’. Not so, say corporate and environment lawyers. They backed Mr Hayne and said board directors should plan to mitigate climate change risks or face commercial litigation.
Indeed, there has been a rise in the number of law suits against companies perceived to have not acted on climate change threats, or that have invested funds in companies and industries deemed to be risking environmental and climate security. Lawyers report the trend in such actions has resulted in more mature and sophisticated cases landing in the courts, often achieving early settlements and judgements. Court watchers are gearing up for next year’s so called ‘landmark’ case brought against a superannuation fund by an activist member who claims the Fund’s trustees have not adequately considered climate change risks when investing on his behalf.
Similar litigation from shareholders of leading oil and gas companies is underway in European and American courts.
This rise in climate change related legal action comes after a proliferation of class actions from shareholders, employees and customers demanding those who lead companies pay penalties for ill considered decisions and questionable corporate behaviour. Indeed, this year a string of appalling corporate transgressions were revealed in Mr Hayne’s financial services Royal Commission. Examples of senior executives confidently disregarding any notion of decency, let alone acting within the law, were detailed at an extraordinary rate. Mr Hayne not only called out the behaviour of these executives and board members, he was also critical of regulators, like the Australian Security Investments Commission (ASIC) and the Prudential Regulation Authority (APRA,) such that they now appear to have woken from a slumber. ‘Post Hayne’, as this period is known, we learn almost daily of investigations of corporations and pending prosecutions. Other corporate police, like the competition and consumer regulator, the ACCC , and AUSTRAC – which revealed a leading bank’s apparent blindness to money laundering – are increasingly vigilant.
What does this all portend?
Corporate leaders, including board members, will spend more of their time explaining their actions – or lack of action – in shareholder meetings, the public arena and now, court rooms. Board tenure is no longer secure, as shareholders demand action and greater scrutiny of decision makers.
Communication advisers who surround under-fire business leaders and shield them from providing explanations that meet the ‘pub test’, need to rethink such strategies. Timelines have changed in this volatile environment. A CEO simply cannot wait to respond to accusations of corporate malfeasance, or even a simple mistake. And they certainly can’t downplay charges of money laundering that emboldens paedophiles and terrorists, as has been suggested recently. The life span of negative publicity has lengthened. Bad news lingers longer in this ‘always on’ world where unflattering reports appear prominently in any Google research.
No matter how big they puff, it simply will not ‘blow over’.