Environmental and corporate lawyers will see an increase in work, following the ninth review of the Corporate Law Economic Reform Program (CLERP 9), as the environment becomes a key financial issue for companies around Australia.
The CLERP 9 Bill requires public companies to provide information so that investors can assess business strategies and future prospects. “This will require businesses to provide information about the implications that climate change [and other big ticket environmental issues] have for them,” said senior associate Sean Lucy, an expert on climate change at Phillips Fox.
The Australian Securities and Investments Commission (ASIC) has said it wants to “ensure that the people affected by the CLERP 9 Bill can stay up-to-date with this implementation plan”, so it will be consulting directly with stakeholders in the coming months, seeking their comments through the formal policy process.
The need to deliver sustainable environmental, social and financial performance is becoming a key concern for businesses and their shareholders, and in turn creating new risks and opportunities, according to Lucy.
The Organisation for Economic Co-operation and Development estimates the global market for environmental goods and services was worth about $700 billion in 2003 and expects the market to grow by 3 to 5 per cent annually in developed countries.
Speaking to Lawyers Weekly about the ramifications of the new requirements, Lucy said the law may cause problems for companies that do not have a sophisticated understanding of what climate change means for them.
Traditionally, environmental issues have not featured in mainstream financial reporting due to the difficulty of quantifying their effect. This means that many companies will not be in a position to provide easily the information that the CLERP 9 bill will require of them.
“People often see environmental issues as being about keeping people happy, as a soft issue, but now there are financial analysts who are apparently able to quantify the financial implications of climate change reporting,” Lucy said.
“This means the environment is being turned into dollars.”
Climate change is no longer something that can be passed onto a company’s environmental officers. Rather, it is a key corporate governance issue that will affect companies’ financial situation, and which warrants board attention, Lucy said.
CLERP 9 demands that companies report information in order to give investors an idea of where the company is going.
Freehills partner Quentin Digby also acknowledged the continuous disclosure and said that in this respect lawyers may see an increase of work. He said that on occasions ASIC will think that a company is ready for disclosure before a company believes it is, and that under CLERP 9 ASIC can issue an infringement notice if it believes a company has wrongly held information. “Lawyers will have to help companies through how to react,” Digby said.
Lucy said that helping companies through the requirements will mean an increase of work for lawyers. “Climate change is emerging now because there are some regulatory risks, such as what happens if greenhouse gases are restricted and your company is unable to meet those restrictions,” said Lucy.
“If a company finds ways to meet these restrictions and manages to reduce these emissions, then it is able to sell those emissions to others who can’t reduce them,” he said.
It is for law firms to explain such things to companies and ensure that they are fully aware of the environmental limitations they must adhere to, and what the financial ramifications of the Bill will mean to them, Lucy said.