APRA warns company directors about personal liability on climate change

APRA warns company directors about personal liability on climate change. Politicians should also take note.

APRA, the Australian Prudential Regulation Authority, has warned company directors and other decision-makers that they may be held personally responsible for dumb investment decisions in relation to a transition to a low emissions economy. If a coal-fired power station with or without CCS becomes a stranded asset, whoever approved the funds could be in the gun.

So even if the government changes the legislation to allow CEFC to lend to new coal-powered electricity generators, responsibility still lies with the directors of the Clean Energy Finance Corporation (CEFC).

There’s more in the AFR in Malcolm Turnbull is on a ‘clean coal’ collision course with APRA:

    Prime Minister Malcolm Turnbull is on a collision course with the Australian Prudential Regulation Authority over his government’s crusade for Australia’s $10 billion green bank to invest in “clean coal” power stations, experts say.

    The independent banking regulator entered the climate policy debate 10 days ago with a speech by APRA member Geoff Summerhayes warning that banks and their directors could be legally liable if they fail to consider the increasing risk of carbon-intensive assets such as power stations becoming “stranded’.

Also:

    a top adviser to APRA on the climate risk has warned that this [changing the CEFC rules] would be in “complete conflict” with Mr Summerhayes’ warning that climate risks are “foreseeable, material and actionable now” and that directors are on the hook for climate and carbon risks.

The advisor was Karl Mellon, who advised APRA’s Geoff Summerhayes on the speech, and who stress tests climate risk for insurance companies for a living.

The CEFC’s “clean energy” definition is currently a 50 per cent of the grid average of 840 kilograms of carbon dioxide per megawatt hour. The cleanest coal technology available emits 750kg/MWh.

Politics sucking power from energy solutions

On the same page of the AFR Ben Potter has an article Politics sucking power from energy solutions.

Back in the 1990s, he says, when we set up the National Energy Market it seemed that we were leading the world. However, now:

    We’ve turned what should have been a dry debate about how to keep the lights on while we shift from fossil fuels to low carbon into a huge ideological struggle.

    Now solar-battery owning Malcolm Turnbull is embracing “clean coal” to stem the tide of Pauline Hanson’s One Nation in the bush.

    And while all the navel-gazing has been going on, we’ve missed big developments and experiments in market design and “smart grid” technology in other countries that also have large renewable energy shares – not to mention some promising homegrown innovations.

We, on the other hand, are producing arguably the costliest, dirtiest electricity in the world.

Potter then talks about developments like the US using demand management to cover 8-10 per cent of peak load (we use one per cent), the Mira Loma battery pack in California to supply 15,000 homes for 4 hours, distributed networks and stuff.

Regrettably, he then talks about Chief Scientist Alan Finkel going to Ireland to study how they have limited ‘asynchronous’ power to 50%, as though that would have kept the lights on in South Australia. They should all take a stroll to the ANU to talk to Andrew Blakers, Bin Lu and Matthew Stocks who’ve come up with a study showing how we can have 100% renewables, cheaper than coal and gas, mainly through wind, solar and pumped storage.

I’ve detailed the Ben Potter article in part to show that information is getting through to the mainstream media that the captains of industry and finance might be reading. Certainly there is no excuse for ignorance on the part of pollies and their staffers. Turnbull’s personal actions indicate he knows which way is up.

Unfortunately the bottom of the AFR page is sullied with an article entitled Peter Beattie: Qld ‘crazy’ not to back clean coal:

    While the current Palaszczuk government in Queensland has committed to moving away from coal towards renewable power, Mr Beattie said carbon capture and storage projects as well as “clean coal” technologies such as super critical power stations had to be part of the mix.

    “The reality of all this is there is going to be a transitional period, it just makes sense to clean up coal while in that transition,” Mr Beattie said in an interview with The Australian Financial Review.

    “All the stuff that the Greens argue is bullshit, you’re not going to have renewables tomorrow that are going to provide all we need in terms of base load power.”

Beattie is currently chair of the Gold Coast Commonwealth Games organising committee, and should stick to stuff he knows about. The AFR should know better than to waste their time asking him.

8 thoughts on “APRA warns company directors about personal liability on climate change”

  1. Soon after I posted this one last night Ootz posted an extensive comment about the same subject on another thread. I’ve taken the liberty of copying it here.

    …………………………………………………………………….

    I wish Josh and Malcolm good luck in peddling their clean carbon crap. Specially now that it has a financial liability attached to it as outlined by APRA’s Geoff Summerhayes speech on Friday climate change risk at the Insurance Council of Australia conference on Friday. It’s the first time any of Australia’s financial authorities have so clearly addressed this topic (although many of their international peers have been doing so almost two years).

    it’s not just about insurers (although reading The Australian’s report on the speech, you could be forgiving for getting that impression). Summerhayes clearly mentioned banks, asset managers and asset owners in his speech. In fact, he noted that while the “early focus” on climate risks tended to focus on catastrophe losses to insurers, there are now “a variety of other potential issues”.

    These include the potential exposure of bank’s and insurers’ balance sheets to real estate impacted by climate change and to re-pricing (or even ‘stranding’) of carbon-intensive assets in other parts of their loan books. They also include exposure of asset owners and managers – an important consideration given the size of Australia’s superannuation sector and its heavy weighting towards carbon-intensive equities and a relatively resource-intensive domestic economy.
    Importantly, Summerhayes addressed all key types of climate risk as identified by the Bank of England in late 2015. They are:
    – physical risk around the effects of climate change;
    transition risk around the risks associated with shifting towards a zero net emissions economy- liabililty risk which can arise from either of the above risks and has particular importance to company directors, trustees, and insurers (but also can affect others).

    (here comes the pointy bit, particularly to the just above mentioned)
    So what can you expect to see from us (APRA)? Firstly, something you would already be aware of is a greater emphasis on stress testing for organisational and systemic resilience in the face of adverse shocks. It could be the case that, just as we would expect to see more sophisticated scenario-based analysis of climate risks at the firm level, we look at these risks as part of our system-wide stress testing.

    This effectively puts financial institutions on notice: if you haven’t already been asked about how you’re dealing with climate risk, you will be. And you’ll need a solid answer. It’s not like climate change is going away.

    “”

  2. Ootz, thanks for this. The link you had is better than the two that I was working from.

    It also had a link to Summerhayes’ speech.

    At the end of the speech he says APRA as prudential regulator will be on the front foot on climate change.

    Financial institutions have been warned. Politicians please note.

  3. It would be good if at least super funds, insurance companies and banks had to state publicly how exposed they are to the fossil industries and what they are doing to reduce this exposure.
    It is more difficult to do but something on their exposure to the effects of climate change might also be helpful.

  4. I would hope that at some point APRA made the main players do an audit and make the results public.

  5. Brian, re audit you’ll find in Summnerhayes speech a reference to this:

    “”2. FSB Taskforce on Climate-related Financial Disclosures

    The second development I want to mention is vital to this adjustment, because it relates to financial markets and investors need to assess risk and make investment decisions. This is the release of an influential new report in December by the Financial Stability Board’s “Taskforce on Climate-related Financial Disclosures”.3 Several years ago, G20 Finance Ministers and Central Bank Governors perceived that a lack of company transparency on climate risks was impeding investment, credit and underwriting decisions and obscuring potentially systemic climate-related risks. This is the response – a business-led report recommending a voluntary, practical, global framework for improving a wide spectrum of climate-related disclosures. It aims to improve information for investors, lenders and insurance underwriters – and to ensure these financial entities are doing a better job on disclosure, too. The last consultation phase on the recommendations has just wrapped up and the framework, which we expect to be influential, will be finalised toward the middle of this year. “”

    He makes the point that APRA will make system wide stress test which means they have to rely on individual firms own risk assessments, thus they have an obligation to report to get a coherent picture of the overall risk exposure, see below.

    “”From a regulatory perspective, one key to getting a better handle on potential system-wide exposures is better information on risk and strategy at the firm level. We are keenly aware of potential systemic implications. But in simple terms, a comprehensive understanding that will help to identify and avert potential vulnerabilities is not possible unless entities and regulators are systematically monitoring, disclosing and talking about these risks. This is the key rationale for the FSB’s focus on disclosure practices in the first instance.””

    And then he waves the stick 🙂

    “In November, the Centre for Policy Development and the Future Business Council released an influential legal opinion on company directors’ legal obligations to consider the impacts of climate change. The opinion was authored by barrister Noel Hutley SC.4

    The opinion found that company directors who fail to properly consider and disclose foreseeable climate-related risks to their business could be held personally liable for breaching their statutory duty of due care and diligence under the Corporations Act. The author warned it is “only a matter of time” before we see this sort of litigation against a director”

  6. …and I think only a little more time after that, Ootz before the public extract accountability on politicians who have belligerently defined environmental policy from a greed driven ideological platform, ignoring all contrary scientific evidence in the so doing.

    These politicians should all end up in jail with orange and black striped suits and chains.

  7. Lol BilB, let’s set up a Guantanamo style resort for the climate change terrorists.

    This is about the best take on the effect of recent changes in APRA and broader pressure on the insurance sector.

    In THE HEAT IS ON, National Insurance Brokers Association CEO Dallas Booth says

    “What this advice does is really draw attention to the much higher risk of loss… It doesn’t really matter whether you put it down to climate change or something else, whether you agree with the science or not, whether you are a denier of man-made climate change or not, the reality is that the risk of loss is real and is increasing.”

    From the article it would appear that some companies are already hedging for potential litigation.

    “In terms of insurance, “D&O insurance will look to defend directors against actions in respect of defence costs and compensation awards,” he adds. “However, appropriate risk management, mitigation and understanding of the risks faced by the company is the best defence in avoiding D&O litigation.

    “While a D&O policy will assist with dealing with litigation it will not protect the ultimate reputational damage that may be suffered… This can only be done by proactively managing the risks in question and anticipating concerns before they become an issue. Insurance is only a small part of the overall risk management and needs to be looked at in the wider context.”

    About the likelihood of litigation.

    “I think litigation against directors for climate change is very likely. Companies that are not taking steps to protect themselves from related events could potentially face class actions. The advice is out there, it has been widely publicised. The risk is there, the law has been stated through the opinion, it hasn’t been challenged, so the class action financiers will no doubt support this if they get a chance to do so.”

  8. A resort, hmm,..good thinking. On a particularly dead part of the Barrier Reef where they can enjoy the brilliance and variety of dead bleached white coral for the rest of their lives while swimming packed in with the jelly fish.

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