The directors’ duty of care diligence and skill under the Public Administration Act 2004 requires consideration of risk, including climate change-related risks. (Climate change-related risks will be referred to as ‘climate-related risks’ in this guide.)
With over 3000 public sector boards in Victoria, board members play a critical role in overseeing management of climate-related risks to the delivery of services relied on by the Victorian community.
This guidance material is intended to provide general information only, current at the time of publication. It does not constitute legal advice, is not intended to be a substitute for legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.
The Public Administration Act 2004 (Vic) (PAA) is the primary source of duties for directors of public entities.
The PAA defines public entities in section 5. The definition of public entities is broad. Note, public entities that are established under the Corporations Act 2001 (Cth), that are not exempt public authorities, must also comply with the duties contained in the Corporations Act. Sections 180 and 181 of the Corporations Act contain similar duties to those in sections 79(1)(b) and (e) of the PAA.
The PAA contains a duty of care, diligence, and skill:
Section 79 (1) A director of a public entity must at all times in the exercise of the functions of his or her office act — (b) in good faith in the best interests of the entity and (e) with a reasonable degree of care, diligence and skill.
This means that public entity directors have a responsibility to consider foreseeable risks of harm to the interests of their entity and to exercise care, diligence and skill while addressing their oversight, risk management and strategic functions.
Climate-related risks are likely to present foreseeable risks of harm to the interests of Victorian public entities in the vast majority of cases. Foreseeable risks of harm may arise from adverse impacts to assets, service delivery and financials as well as reputational losses or other consequences.
If you do not consider climate-related risks when considering risks to your entity, you may be exposed to liability for breach of your directors’ duty of care, diligence, and skill, among other obligations.
In addition to the requirements of the PAA, the Code of Conduct for Directors of Victorian Public Entities 2016 requires that your decisions be formulated on ‘the best information available at the time’, and upon the basis of advice where necessary. (Public entity directors are bound by the Code pursuant to ss.40(b), 61 and 62 of the PAA. The Code reiterates and expands upon the duty of care, diligence and skill in s.79 of the PAA.)
Ignorance and inaction are not defences for breach of your duty of care. This is because you have a positive obligation to consider knowledge you ought to have reasonably known.
This guidance note provides an overview of how Victorian public entity directors may consider climate change in discharging their general duty of care, diligence and skill. It does not cover other climate change-related obligations or legislative duties, such as those found in in the Climate Change Act 2017 (Vic) or elsewhere.
Victoria’s Climate Change Act 2017 (the Act) provides the framework for the Victorian Government’s climate change response, including emissions reduction and adaptation to the impacts of climate change.
The Act establishes a long-term target of net zero greenhouse gas emissions by 2050. It also requires the Victorian Government to set interim emissions reduction targets for five-year periods until 2050 in order to reach net zero. The first interim targets are to reduce the state’s greenhouse gas emissions from 2005 levels by:
In addition, the Act requires:
The first government pledge is set out in Cutting Victoria’s Emissions 2021 to 2025: Whole of Victorian Government emissions reduction pledge (PDF, 2.19KB) (2021).
The Act requires publication of a Climate Change Strategy every 5 years. The first of these, Victoria’s Climate Change Strategy, was published in 2021 and sets out the Victorian Government’s current action on climate change (including the emissions reduction pledges) and next steps.
Under the Act, Adaptation Action Plans will be published every 5 years for 7 key systems:
These plans will set out roles and responsibilities of the Victorian Government in relation to adaptation planning in Victoria, including the government’s own adaptation efforts.
For an overview of climate science for Victoria, start by consulting Victoria’s Climate Science Report 2019.
For information on Victoria’s greenhouse gas emissions, refer to Victoria’s latest annual greenhouse gas emissions report.
For more information on Victorian Government action on climate change, refer to the Victorian Government’s climate change website.
At minimum, you must:
The dynamic, forward-looking nature of climate change risks means the standard of care to which public entity directors will be held continues to increase. Consideration of climate risks must be proactive and ongoing as opposed to a static, singular review.
The particular standard of care owed by you as a director of an entity and the reasonableness of your conduct will be assessed against:
So, for example:
In this example, it is likely that a board member of Entity A would be held to a very high standard of care, whereas a board member of Entity B would be held to a comparatively lower standard of care as is reasonable to expect of directors in this context.
Your appointment as a board member may be for a period of between 1 to 5 years. However, for risk management purposes, you need to consider long-term risks to your entity that extend beyond the period of your appointment. Many climate risks will exceed your period of appointment.
It is recommended that you follow the 6Es framework to help you discharge your duty: Educate, Enquire, Examine, Evaluate, Express, Execute. This is a high-level, principles-based framework that seeks to guide the questions that directors ask.
This guide should be considered as a starting point only. You should obtain specific advice as to any additional obligations or considerations that may apply in your entity's unique context.
The indicative questions that relate to Educate and Enquire can be used to gather the necessary information required to understand the risks to the entity presented by climate change.
The indicative questions for Examine, Evaluate, Express and Execute relate to the individual director's assessment and management of climate-related risks to which the entity is exposed.
Maintain a core of contemporary knowledge of the entity’s operations, financial position, regulatory environment and broader industry context.
Examples of indicative questions to ask at a board meeting:
Enquire of management or independent experts (with appropriate experience and expertise) where warranted.
Where climate change is clearly relevant to the sector, further inquiries will likely be warranted.
Examples of indicative questions to ask at a board meeting:
Examine information provided (which should be in a form that is comprehensive, but relevant and digestible).
Examples of indicative questions to ask at a board meeting:
Critically evaluate and apply independent judgment to the issue.
First, consider any obligations that legislation applicable to your entity may impose on you. Then, balance the size and probability of risks associated with climate change, against the costs of any risk treatments and conflicting responsibilities.
Examples of indicative questions to ask at a board meeting:
Express your views constructively.
Ensure that your entity incorporates relevant material climate-related risks and assumptions into statutory disclosures and reports.
Examples of indicative questions to ask at a board meeting:
Provide ongoing supervision and oversight.
Ensure your entity's progress towards strategies, plans and targets are monitored and assessed regularly by management and reported to the Board.
Examples of indicative questions to ask at a board meeting:
This duty under the PAA is substantively similar to the duty of care and diligence which applies to private sector directors under section 180(1) of the Corporations Act 2001 (Cth) (the Corporations Act).
In 2016, the influential Hutley Opinion (PDF, 3.3MB) found that the duty of care and diligence owed by directors of corporations under the Corporations Act should include consideration of climate change risks.
In March 2019, the Hutley Opinion was updated, with the conclusions of the previous opinion being reinforced and strengthened.
In April 2021, the Hutley Opinion was again updated, this time observing for the first time that the conclusions of the opinion are equally applicable to public entity directors (PDF, 224KB).
These expectations are likely to apply more strongly to directors of Victorian public entities than to directors of ordinary corporations with respect to climate risk.
While not law, the Hutley Opinions provide a strong indication both of how the courts are likely to treat consideration of climate risk by boards, and of stakeholder and community expectations.
For more information on climate change and climate science, refer to the Victorian Government’s climate change website.
You can also contact the Climate Change Policy branch in the Department of Environment, Land, Water and Planning via email: [email protected]
The Victorian Managed Insurance Authority offers guidance and training on climate risk management targeted to Victorian Government risk professionals.
Should you require further advice on the application of the duty of care, diligence and skill with respect to climate risk to your entity, contact your department’s governance and legal branch in the first instance.
Good practice resources on climate risk governance generally include:
Victorian Government Financial Reporting Direction 24 provides an avenue for public entities to report their potential exposure and planned responses to climate-related risks.
Victorian Government Financial Reporting Direction 100A states that Financial Reporting Directions shall be read and used in conjunction with pronouncements issued by the Australian Accounting Standards Board.
The Australian Accounting Standards Board and Auditing and Assurance Standards Board document, Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB/IASB Practice Statement 2 (PDF, 992KB) (2019), provides guidance on assessing which climate-related risks should be disclosed in financial statements.