Directors’ duties with respect to climate risk

A guide to help you oversee the management of climate-related risks in your entity.

About this guide

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(opens in a new window), 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)(opens in a new window) (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)(opens in a new window), that are not exempt public authorities, must also comply with the duties contained in the Corporations Act(opens in a new window). Sections 180 and 181 of the Corporations Act(opens in a new window) 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)(opens in a new window) or elsewhere.

What you need to know about climate risk

  • Victoria’s climate has changed in recent decades – in general becoming warmer and drier with an increase in extreme weather events. These changes are expected to continue into the future.
  • Climate change poses physical and transition (including liability) risks.
  • Physical risks from climate change can be event-driven (acute), such as increased severity of extreme weather events. They can also relate to longer-term (chronic) impacts (for example, sea level rise).
  • Transition risks of climate change are risks associated with the shift to a low-carbon economy. They comprise policy, legal, reputational, technology and market risks.
  • Climate-related risks (both physical and transitional) are likely to represent a foreseeable risk of harm (and/or an opportunity) to the interests of public entities.
  • Climate-related risks are likely to comprise not only a foreseeable but material and significant risk for Victorian public entities. ‘Material’ refers to that information which if omitted, misstated or obscured could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports: refer Australian Accounting Standards Board, ‘AASB Practice Statement 2: Making Materiality Judgements’ (2020)(opens in a new window). The Sustainability Accounting Standards Board issued a Technical Bulletin on Climate Risk in April 2021(opens in a new window) which identified that climate-related risks are likely to be material for 69 out of 79 industry sectors.

What is the Victorian Government's position on climate change?

Victoria’s Climate Change Act 2017(opens in a new window) (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:

  • 28 to 33% by 2025 and
  • 45 to 50% by 2030.

In addition, the Act requires:

  • sector pledges (5-yearly), and
  • a whole of Victorian Government emissions reduction pledge (5-yearly).

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)(opens in a new window) (2021).

The Act requires publication of a Climate Change Strategy every 5 years. The first of these, Victoria’s Climate Change Strategy(opens in a new window), 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(opens in a new window) will be published every 5 years for 7 key systems:

  • the built environment
  • the natural environment
  • the water cycle
  • primary production
  • transport
  • health and human services; and
  • education and training.

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(opens in a new window).

For information on Victoria’s greenhouse gas emissions, refer to Victoria’s latest annual greenhouse gas emissions report(opens in a new window).

For more information on Victorian Government action on climate change, refer to the Victorian Government’s climate change website(opens in a new window).

What you need to do to discharge your duty of care, diligence and skill with respect to climate risk

At minimum, you must:

  • be proactive and inquisitive in considering foreseeable risks, including climate risks
  • obtain advice from management or independent experts where required
  • actively monitor the entity’s affairs and critically evaluate the matters for which you are responsible; identify and understand relevant issues to ensure that your consideration is properly informed, and
  • actively apply independent judgment to the issue, weighing all relevant facts and fair criteria, in good faith and for proper purposes.

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 proportionality of standard of care

The particular standard of care owed by you as a director of an entity and the reasonableness of your conduct will be assessed against:

  • the particular legislation applicable to your entity (in essence, whether this imposes specific responsibilities with respect to climate change)
  • the magnitude of the physical and transitional risks applicable to your entity’s industry sector (scope, scale, probability of relevant risks)
  • the size and nature of your entity
  • your actual responsibilities as a director within the organisation, and
  • the circumstances in which relevant decisions arise.

So, for example:

  • Entity A is an independent statutory authority, with almost 1000 staff members, an annual budget of about $200 million, and a net worth of approximately $150 million. It has a seven-person professional board with extensive industry experience. Its enabling legislation contains climate change-related obligations that the entity is required to implement. The entity is significantly exposed to both physical and transition risks of climate change.
  • Entity B is a volunteer committee of management. It has twelve volunteer members, each of whom has minimal board experience. The entity has annual income of less than $10,000. The entity’s enabling legislation does not refer to climate change. The entity manages a small parcel of land which is somewhat exposed to the physical risks of climate change.

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.

Relevant timeframes

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.

The 6 Es Framework

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:

  • What are the relevant physical and transitional risks for the entity across the short-, medium- and long-term?
  • What are the current state government legislation, policies and guidance related to climate change?
  • What are the trends in global policy, markets and community expectations related to climate change?
  • How is climate change likely to affect our sector?


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:

  • Are we confident that climate-related risk issues are being identified and managed, in the context of our entity's functions and statutory obligations?
  • Do we understand the role of stress-testing and scenario analysis to assist in strategic planning?
  • What expertise do our own advisors (management or external) have in relation to climate change?
  • Are we satisfied that the information and advice on which our decisions are based are robust and comprehensive? Where uncertainties remain:
    • what proxies could be applied to address information gaps?
    • is it appropriate for us to commission independent advice?


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:

  • Are our board papers comprehensive, relevant, and digestible?
  • Is this issue receiving adequate time and focus within the board/committee agenda?
  • How does management determine the materiality and priority of relevant climate risks/opportunities? Is this appropriately included in the board papers?


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:

  • Do we understand what effective climate-related risk management would look like for our entity?
  • Are we satisfied that the issue is being considered through a forward-looking lens, rather than one based solely on historical experience?
  • Have we applied our independent judgment to the matters placed before us, weighing all relevant facts and fair criteria, in good faith and for proper purposes?


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:

  • Are our discussions of climate-related risks well-informed?
  • Do we have processes in place to facilitate robust discussion of issues?
  • Have we documented our discussions appropriately?
  • Have we considered incorporating relevant material climate-related risks and assumptions into statutory disclosures and reports?


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:

  • Do we have a process to ensure appropriate accountability for operationalising our entity’s climate-related strategies, plans and targets?
  • What reports do we require from management on this issue, and how often?
  • How do we, and relevant senior staff, stay up to date in this dynamic area?

Further information

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(opens in a new window) (Cth) (the Corporations Act).

In 2016, the influential Hutley Opinion (PDF(opens in a new window), 3.3MB) found that the duty of care and diligence owed by directors of corporations under the Corporations Act(opens in a new window) 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(opens in a new window).

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)(opens in a new window).

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(opens in a new window).

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.

Climate change and climate science information

For more information on climate change and climate science, refer to the Victorian Government’s climate change website(opens in a new window).

You can also contact the Climate Change Policy branch in the Department of Environment, Land, Water and Planning via email:

The Victorian Managed Insurance Authority(opens in a new window) offers guidance and training on climate risk management targeted to Victorian Government risk professionals.

Governance advice

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(opens in a new window) provides an avenue for public entities to report their potential exposure and planned responses to climate-related risks.

Victorian Government Financial Reporting Direction 100A(opens in a new window) 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)(opens in a new window) (2019), provides guidance on assessing which climate-related risks should be disclosed in financial statements.