Directors' Duty to Act in the Best Interests of the Corporation Concerning Climate-Related Disclosures for Corporate Sustainability: The Australian Reform to Prevent the Worst

Climate-related risks have now been a household name across the globe contributed by increasingly unprecedented natural calamities witnessed through extreme droughts, floods, melting icebergs surrounding Antarctica, rising sea levels, damaging biodiversity, and so on. The UN climate report has issued a “Red Alert” about global warming and the UN Climate Chief has warned that the world community has only two years to take action to prevent far worse risks caused by climate change. A recent study estimates that 23 percent of 12.6 million deaths globally were attributable to modifiable environmental factors, and 26 percent of these deaths were children under five years old. Alongside this human catastrophe, financial loss is also frightening. A 2015 study considered that the value risk linked with climate change to all global stock of manageable assets would be a staggering figure spanning from $4.2 trillion to $43 trillion (USD) between the time of the study and the end of the 21st century. Large corporations are major greenhouse emitters. This article critically analyses the directors’ duty to “act in good faith in the best interests of the company and for proper purpose” connecting with the Climate-related Financial Disclosures (CFD) to be introduced in Australia from early 2025. Discussion of various corporate law theories and their implications for the duty at issue suggests that corporations are obliged to make such disclosures in the best interests of the company. The main provisions of the proposed CFD amendments to the Australian Corporations Act 2001 impose obligations on relevant corporations to include a “sustainability report” as an integral part of their annual reports. Directors must provide a declaration confirming the accuracy of such reports, whilst auditors must provide a report containing their opinions on companies’ sustainability reports. Failure in discharging their responsibilities properly may expose directors and auditors to both civil and criminal liabilities. It draws a conclusion that the proposed amendments would be helpful to reduce toxic gas emissions, protect all stakeholders, stimulate sustainability of emitters themselves, and finally prevent the worst. This endeavor, therefore, has as its aim to usher in an extension of the concept of mandatory CFD worldwide.