Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. Here's a stat that might surprise you. Over the last 30 years, Australia has experienced the second highest number of climate litigation claims globally, behind only the United States. It's a risk that Australian businesses need to be aware of, particularly as regulations change to help achieve our climate goals. As always, we're not an investment podcast and we're not a legal advice podcast either, so this information is general in nature. Persia Navidi is a partner at Hicksons Lawyers, specializing in climate and cyber risk. Persia, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. Here's a stat that might surprise you. Over the last 30 years, Australia has experienced the second highest number of climate litigation claims globally, behind only the United States. It's a risk that Australian businesses need to be aware of, particularly as regulations change to help achieve our climate goals. As always, we're not an investment podcast and we're not a legal advice podcast either, so this information is general in nature. Persia Navidi is a partner at Hicksons Lawyers, specializing in climate and cyber risk. Persia, welcome to Fear and Greed.

Thank you for having me, Sean.

Thank you for having me, Sean.

(inaudible) , what are we talking about when we speak of climate litigation? What are the types of things that I could identify with when we're talking about this subject?

(inaudible) , what are we talking about when we speak of climate litigation? What are the types of things that I could identify with when we're talking about this subject?

Great place to start, Sean. Climate litigation is effectively litigation that is aimed at seeking to achieve climate outcomes or climate justice through the courts, whether that be by an administrative law avenue or a corporations law avenue or a human rights law avenue, so it's fairly broad. What we are starting to see in recent times is a bit of a trend over the past few years in the human rights type claims being brought, so we're seeing these cases being brought by shareholders or investors or environmental activists who are interested in seeking these sorts of outcomes or trying to seek these outcomes through the courts. An example is in 2020, we had the case of Sharma and the Minister for the Environment. In that case we had eight children bring an action against the Federal Environment Minister, arguing that the Minister had a duty of care to protect young people from the future harm that will be caused by climate change. A ruling in the children's favor was overturned earlier this year, but it does still demonstrate the types of cases that we're seeing in the courts.

Great place to start, Sean. Climate litigation is effectively litigation that is aimed at seeking to achieve climate outcomes or climate justice through the courts, whether that be by an administrative law avenue or a corporations law avenue or a human rights law avenue, so it's fairly broad. What we are starting to see in recent times is a bit of a trend over the past few years in the human rights type claims being brought, so we're seeing these cases being brought by shareholders or investors or environmental activists who are interested in seeking these sorts of outcomes or trying to seek these outcomes through the courts. An example is in 2020, we had the case of Sharma and the Minister for the Environment. In that case we had eight children bring an action against the Federal Environment Minister, arguing that the Minister had a duty of care to protect young people from the future harm that will be caused by climate change. A ruling in the children's favor was overturned earlier this year, but it does still demonstrate the types of cases that we're seeing in the courts.

Okay. You're talking about human rights legislation. Is there much environmental legislation where climate litigation evolves or emerges?

Okay. You're talking about human rights legislation. Is there much environmental legislation where climate litigation evolves or emerges?

Well, the climate litigation falls under... it's environmental law.

Well, the climate litigation falls under... it's environmental law.

Right.

Right.

It's a section of environmental law, and the term climate change litigation, it reflects the types of cases that we're seeing that are trying to achieve outcomes through the judicial system so far as they relate to the climate.

It's a section of environmental law, and the term climate change litigation, it reflects the types of cases that we're seeing that are trying to achieve outcomes through the judicial system so far as they relate to the climate.

Yeah, okay.

Yeah, okay.

There are some cases, we're seeing the cases against corporates as well, so the court cases against corporations, which are focusing on consumer protections. We're seeing those sorts of cases too at the moment and that's an important one for businesses and it's an important one at the moment because we're hearing a lot about this term greenwashing, and greenwashing is being targeted a fair bit. That's where companies are making disclosures, statements, commitments that address climate change when potentially those statements aren't substantiated, and that makes them potentially misleading or deceptive. We're seeing cases of greenwashing over in the US. We've had a case of securities class actions commenced against Oatly, the oat milk company over in the US, which alleged potential greenwashing for statements that were made about the company's climate commitments, and we're also seeing there's a case in the courts right now here in Australia. That's the Australian Centre for Corporate Responsibility against Santos, one of Australia's largest gas companies. In summary, in August of last year the Australian Centre for Corporate Responsibility commenced these proceedings against Santos over its claims that it provides clean energy natural gas and it plans for net zero emissions by 2040, so there are allegations there of greenwashing. It's going be interesting what happens in that case should it go to a judgment. We might see a bit more of the court's opinion on what greenwashing is as well, so we're very keen to watch that one.

There are some cases, we're seeing the cases against corporates as well, so the court cases against corporations, which are focusing on consumer protections. We're seeing those sorts of cases too at the moment and that's an important one for businesses and it's an important one at the moment because we're hearing a lot about this term greenwashing, and greenwashing is being targeted a fair bit. That's where companies are making disclosures, statements, commitments that address climate change when potentially those statements aren't substantiated, and that makes them potentially misleading or deceptive. We're seeing cases of greenwashing over in the US. We've had a case of securities class actions commenced against Oatly, the oat milk company over in the US, which alleged potential greenwashing for statements that were made about the company's climate commitments, and we're also seeing there's a case in the courts right now here in Australia. That's the Australian Centre for Corporate Responsibility against Santos, one of Australia's largest gas companies. In summary, in August of last year the Australian Centre for Corporate Responsibility commenced these proceedings against Santos over its claims that it provides clean energy natural gas and it plans for net zero emissions by 2040, so there are allegations there of greenwashing. It's going be interesting what happens in that case should it go to a judgment. We might see a bit more of the court's opinion on what greenwashing is as well, so we're very keen to watch that one.

I presume that sort of litigation, greenwashing particularly, that's going to be a growth area, because many companies talk about their environmental credentials, though I'm not sure how many have very hard and fast tangible evidence of doing it.

I presume that sort of litigation, greenwashing particularly, that's going to be a growth area, because many companies talk about their environmental credentials, though I'm not sure how many have very hard and fast tangible evidence of doing it.

Well that's exactly it, and that's one of the risks that needs to be managed, and that's one of the risks that needs to be considered. If there is a policy that is out there that has been put on the website, that's been released to the market about your sustainability policy, your climate policy, what you are doing to achieve certain goals, are the steps being taken behind the scenes to actually achieve those goals and meet those commitments? There needs to be evidence of that, otherwise exactly as you said, Sean, that's a very serious risk of potential litigation for greenwashing, and yes, I do think that there is potential for that to increase for that exact reason. Everyone has one of these policies, but what's being done to actually try and meet those targets?

Well that's exactly it, and that's one of the risks that needs to be managed, and that's one of the risks that needs to be considered. If there is a policy that is out there that has been put on the website, that's been released to the market about your sustainability policy, your climate policy, what you are doing to achieve certain goals, are the steps being taken behind the scenes to actually achieve those goals and meet those commitments? There needs to be evidence of that, otherwise exactly as you said, Sean, that's a very serious risk of potential litigation for greenwashing, and yes, I do think that there is potential for that to increase for that exact reason. Everyone has one of these policies, but what's being done to actually try and meet those targets?

Are there many rules and regulations governing this? Are there mandatory disclosure requirements from the Government, from Regulators, that a business can follow on this?

Are there many rules and regulations governing this? Are there mandatory disclosure requirements from the Government, from Regulators, that a business can follow on this?

Well, that's one of the difficulties and the challenges at the moment. We're trying to manage climate related risks. There is no mandatory disclosure of financial risks as they relate to climate, so any climate related financial risks, it's optional at this stage for the business to be disclosing those risks. Over in the UK we have mandatory disclosure. That was introduced and in effect from April of this year. Over in the United States their Securities and Exchange Commission, they've confirmed in March of this year that they've got a proposal to mandate climate risk disclosure by public companies, so it is happening overseas. Our neighbors in New Zealand have also instituted it for banks and insurers. It's a matter of time, I would say, before it (inaudible) introduced here in Australia, but at the moment there are best practice guidelines out there. APRA's released Guide CPG 229 for APRA regulated entities as to what best practice is when it comes to managing climate related risk. It includes a section on disclosure, but like you've raised, there's no mandatory disclosure at this time and that is one of the challenges at the moment.

Well, that's one of the difficulties and the challenges at the moment. We're trying to manage climate related risks. There is no mandatory disclosure of financial risks as they relate to climate, so any climate related financial risks, it's optional at this stage for the business to be disclosing those risks. Over in the UK we have mandatory disclosure. That was introduced and in effect from April of this year. Over in the United States their Securities and Exchange Commission, they've confirmed in March of this year that they've got a proposal to mandate climate risk disclosure by public companies, so it is happening overseas. Our neighbors in New Zealand have also instituted it for banks and insurers. It's a matter of time, I would say, before it (inaudible) introduced here in Australia, but at the moment there are best practice guidelines out there. APRA's released Guide CPG 229 for APRA regulated entities as to what best practice is when it comes to managing climate related risk. It includes a section on disclosure, but like you've raised, there's no mandatory disclosure at this time and that is one of the challenges at the moment.

It must be hard for business to get their head around it though, because it's a new area and perhaps there's not a lot of expertise in it and regulations are still forming, shall we say. It must be difficult for business to manage it?

It must be hard for business to get their head around it though, because it's a new area and perhaps there's not a lot of expertise in it and regulations are still forming, shall we say. It must be difficult for business to manage it?

Absolutely. That is one of the challenges at the moment, and I think that one thing I would say in relation to this is knowledge is power, and adapt, don't ignore these changes. Have a good understanding of what is happening out there. Have a good understanding of what the Regulator's asking. We have ASIC who's released an information sheet 271 on greenwashing and how to avoid it for certain entities. We have the ACCC who said this year that greenwashing is a target for them and a focus for them. We have APRA who's released the guide on best practice for entities that are in its control as well, so there is information out there from Regulators. Even if it's not legislated and it's not mandatory at this time, there are some best practices, depending on the type of business it is, that can be taken at this time, and when in doubt, obviously seek the advice and the assistance of an expert.

Absolutely. That is one of the challenges at the moment, and I think that one thing I would say in relation to this is knowledge is power, and adapt, don't ignore these changes. Have a good understanding of what is happening out there. Have a good understanding of what the Regulator's asking. We have ASIC who's released an information sheet 271 on greenwashing and how to avoid it for certain entities. We have the ACCC who said this year that greenwashing is a target for them and a focus for them. We have APRA who's released the guide on best practice for entities that are in its control as well, so there is information out there from Regulators. Even if it's not legislated and it's not mandatory at this time, there are some best practices, depending on the type of business it is, that can be taken at this time, and when in doubt, obviously seek the advice and the assistance of an expert.

Stay with me Persia, we'll be back in a minute. I'm speaking to Persia Navidi, partner at Hicksons Lawyers. Where does the responsibility lie in this? Is it with the Executive? Is it with the Board?

Stay with me Persia, we'll be back in a minute. I'm speaking to Persia Navidi, partner at Hicksons Lawyers. Where does the responsibility lie in this? Is it with the Executive? Is it with the Board?

I think it's a combination of the two. I think it would be both at this stage, but certainly this is a board issue. It's not just an issue for the Executives. It's an issue for everyone across the company and you don't even have to be at board level. Put your hand up and say something if you read something and you think it's going to impact your business, but certainly directors have a responsibility. It's not new. It's their duties under the Corporations Act, Section 180 and Section 181, to act in the best interests of the company and with due diligence and care so that is not new. That duty of directors has always been there, but climate risks are now a very real risk and they have the potential to impact business, and this is why it's part of their duties. It formulates part of their duties now to consider these risks and decide, " How is this going to impact our business? Is it going to impact our business at all? If not, okay, we don't need to do anything, but at least we've considered it. If it is going to impact our business, what steps can we take to mitigate that risk?" So it's certainly an issue that's to be considered at board level.

I think it's a combination of the two. I think it would be both at this stage, but certainly this is a board issue. It's not just an issue for the Executives. It's an issue for everyone across the company and you don't even have to be at board level. Put your hand up and say something if you read something and you think it's going to impact your business, but certainly directors have a responsibility. It's not new. It's their duties under the Corporations Act, Section 180 and Section 181, to act in the best interests of the company and with due diligence and care so that is not new. That duty of directors has always been there, but climate risks are now a very real risk and they have the potential to impact business, and this is why it's part of their duties. It formulates part of their duties now to consider these risks and decide, " How is this going to impact our business? Is it going to impact our business at all? If not, okay, we don't need to do anything, but at least we've considered it. If it is going to impact our business, what steps can we take to mitigate that risk?" So it's certainly an issue that's to be considered at board level.

Okay. It seems that the boardrooms and executives around the place are just getting their heads around cyber risk, and now we're putting climate litigation risk on top. I'm just interested because Persia, you're an expert in cyber risk as well, what would you say, where's Australian business at in terms of managing cyber risk at the moment?

Okay. It seems that the boardrooms and executives around the place are just getting their heads around cyber risk, and now we're putting climate litigation risk on top. I'm just interested because Persia, you're an expert in cyber risk as well, what would you say, where's Australian business at in terms of managing cyber risk at the moment?

That's a great question. I think... Cyber risk, it's now established. Maybe 10 years ago when we heard rumblings of it and rumblings of cyber insurance out there, things like that, and now it's very much ingrained. We hear about it all the time. We have the Australian Cyber Security Centre, we've got legislation around it, so it's very much established. I think that it still is a board issue. It's no longer the case that cybersecurity is an IT issue or a technology issue only. It is certainly an issue that needs to be looked at at board level, and it is. It is being looked at at board level but we are still seeing instances where there are some issues with the cybersecurity obligations and requirements to have adequate risk management in place is not being met. An example of that is there was a case earlier this year commenced by ASIC against RI Advice, and that was a first for ASIC. It's the first time litigation had been initiated by ASIC alleging deficient cybersecurity practices. The outcome has provided a little bit of judicial guidance about cybersecurity standards required of, in this case it was an Australian financial services license holder, and again it's nothing new that's come out of that. Ultimately the terms were settled before it went to any sort of final hearing or proceeding, but in the judgment it was not anything new, any new cybersecurity standard that was imposed on financial services holders or boards or anything like that. It simply reinforced what's already under their Corporations Act, and that is that a financial services licensee must do all things necessary to ensure that the financial services covered by the license are provided efficiently, honestly and fairly, and to have adequate risk management systems.

That's a great question. I think... Cyber risk, it's now established. Maybe 10 years ago when we heard rumblings of it and rumblings of cyber insurance out there, things like that, and now it's very much ingrained. We hear about it all the time. We have the Australian Cyber Security Centre, we've got legislation around it, so it's very much established. I think that it still is a board issue. It's no longer the case that cybersecurity is an IT issue or a technology issue only. It is certainly an issue that needs to be looked at at board level, and it is. It is being looked at at board level but we are still seeing instances where there are some issues with the cybersecurity obligations and requirements to have adequate risk management in place is not being met. An example of that is there was a case earlier this year commenced by ASIC against RI Advice, and that was a first for ASIC. It's the first time litigation had been initiated by ASIC alleging deficient cybersecurity practices. The outcome has provided a little bit of judicial guidance about cybersecurity standards required of, in this case it was an Australian financial services license holder, and again it's nothing new that's come out of that. Ultimately the terms were settled before it went to any sort of final hearing or proceeding, but in the judgment it was not anything new, any new cybersecurity standard that was imposed on financial services holders or boards or anything like that. It simply reinforced what's already under their Corporations Act, and that is that a financial services licensee must do all things necessary to ensure that the financial services covered by the license are provided efficiently, honestly and fairly, and to have adequate risk management systems.

So if the Regulator's jumping in there... I mean, it's always been there, but they're obviously taking it pretty seriously now and there are going to be some firms who are a bit scared by that sort of outcome.

So if the Regulator's jumping in there... I mean, it's always been there, but they're obviously taking it pretty seriously now and there are going to be some firms who are a bit scared by that sort of outcome.

Yes, and I think that it's not all doom and gloom. Certainly there are things that need to be done, and that's why I'm saying what I said earlier as well about adapt, don't ignore. These things are happening. They, the changes, they're here. Cyber is a risk to business and it just needs to be considered. You need to make sure that there are cybersecurity protocols in place, that they're robust, that you're positioning yourself as a business to be resilient in that space and also to respond efficiently to any incidents should they arise, and again, when in doubt, seek help. There are people out there who can help with bolstering policies or provide guidance when it comes to the regulatory framework at this point in time, the mandatory reporting requirements, but it's about knowledge and understanding what the risk is, and then what steps you can take to try and mitigate it, and hopefully that will alleviate some of the fear that's out there.

Yes, and I think that it's not all doom and gloom. Certainly there are things that need to be done, and that's why I'm saying what I said earlier as well about adapt, don't ignore. These things are happening. They, the changes, they're here. Cyber is a risk to business and it just needs to be considered. You need to make sure that there are cybersecurity protocols in place, that they're robust, that you're positioning yourself as a business to be resilient in that space and also to respond efficiently to any incidents should they arise, and again, when in doubt, seek help. There are people out there who can help with bolstering policies or provide guidance when it comes to the regulatory framework at this point in time, the mandatory reporting requirements, but it's about knowledge and understanding what the risk is, and then what steps you can take to try and mitigate it, and hopefully that will alleviate some of the fear that's out there.

Persia, thank you for talking to Fear and Greed.

Persia, thank you for talking to Fear and Greed.

Thank you very much for your time. Have a great day.

Thank you very much for your time. Have a great day.

That was Persia Navidi, partner at Hicksons Lawyers. This is a Fear and Greed Daily Interview. Remember you should get professional advice before making any investment decision. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.

That was Persia Navidi, partner at Hicksons Lawyers. This is a Fear and Greed Daily Interview. Remember you should get professional advice before making any investment decision. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.