In 2018, the UN Secretary General António Guterres noted that “We face a direct existential threat” from climate change as “we career towards the edge of the abyss”. It is a stark warning to all governments.
The first duty of a government is to “protect the people”, their safety and well-being. A government derives its legitimacy and hence its authority from the people, and so has a fiduciary duty: a responsibility to take reasonable care and act in accordance with the interests of all the people of the nation with integrity, fairness and accountability.
Internationally, private-sector company directors are facing legal action and personal liability for having refused to understand, assess and act upon climate risk, or for misrepresenting that risk. Compensation is being sought from carbon polluters for damage incurred from climate impacts. Legal opinion suggests similar action in Australia would be firmly based, and this duty has been recognised in several quarters, including by some public sector financial system regulators.
As a general principle, officials in the public sector should not be held to a lower standard of account than employees of publicly listed companies. This duty of care includes not only ministers and senior public servants, but regulators and board members of statutory authorities. That duty in the public sector has already been successfully tested in the courts in The Netherlands and elsewhere.
This duty has a particular sharpness in the new era of climate disruption and existential risks that will manifest as a consequence of the global failure to act. It is a pressing question as to whether the Australian Public Service (APS) is properly exercising those fiduciary responsibilities given the existential threat.
Questions also arise as to the duty of care of financial regulators to act in the face of imminent and severe risks to the Australian economy, regardless of the political inclinations or policies of the government of the day. A good example was the response of central banks to the 2007-08 Global Financial Crisis, but are such regulators equally ready to act in the face of the much more catastrophic impacts of climate change?
At the heart of the liberal-democratic project is the concept of responsibility: responsibility for oneself, for the community, and for protection of those who need care.
A fiduciary is a person to whom power is entrusted for the benefit of another. In legal terms, a failure to exercise a duty of care (a fiduciary duty) is an act of negligence where a person suffers loss or injury as the result of an act of omission by another, and should be compensated for the loss and damage. Examples include negligence in a wide range of fields, from medicine to engineering, from product design to care of minors and the vulnerable.
In the corporate world, directors have a duty of care or fiduciary duty to act in good faith, avoid conflicts of interest, and display a high standard of care and diligence, including understanding, assessing and acting upon risks, and not misrepresenting risks, that may be materially relevant to the company’s performance.
A number of recent initiatives have drawn focus to fiduciary responsibilities in the private sector. In Australia, the legal opinion initiated by the Centre for Policy Development and The Future Business Council on director’s duties in relation to climate change, has been equally important, along with the increasing involvement of regulators such as APRA, ASIC and the RBA.
The 2016 legal opinion on “Climate Change and Director’s Duties” by Noel Hutley SC and Sebastian Hartford-Davis, and its 2019 update, quite rightly focused upon the director’s “duty of care and diligence“. The opinions make it clear that, in the light of the overwhelming scientific knowledge of human-induced climate change, and escalating evidence of its impact, climate impact is now a foreseeable and material risk. Thus, directors have an obligation to understand that risk, identify its potential impact on their operations and ensure their risk exposure is adequately managed.
In earlier eras, a broad concept of these duties and responsibilities was favoured. In 1964, Sir John Dunlop, doyen of Australian directors at that time expressed it thus:
“I put it to you that the directors are responsible to the shareholders for profit in perpetuity, and that this general expression of a principle permits, indeed requires, directors to pay full regard to their employees, to labour relations generally, to the community, to the country, in all their decisions for and on behalf of shareholders”.
This wider expression of duties and responsibilities has fallen from favour as pay-for-performance and short-termism has come to dominate the corporate agenda, but it is even more appropriate given the existential threats posed by climate change and related challenges. The emphasis “in perpetuity” has a particular resonance for climate risks, where there is great inertia in the both physical climate system and in policy-making, meaning that there may be a large gap in time between awareness of a risk, and its material impact. This requires public sector leaders to look a long way into the future in exercising their duty of care on climate risks.
In a broader, political sense, the duty of care a government is to protect the people. Professor Justice Paul Finn says that:
“A government derives its legitimacy and therefore its authority from people. Accordingly, it has a fiduciary duty to act in accordance with the interests of all the people. It accepts that government exercises a trust in which its members’ only proper interests are those in which they act on behalf of the people.”
Government, said Abraham Lincoln, is “government of the people, by the people, for the people”. The duty of government is to act in the interests of the people, to protect them and enhance their lives.
The eminent jurist and former Chief Justice of the High Court, Sir Gerard Brennan AC, KBE, QC argued this duty to protect cannot be subordinated to political interests:
“Power is reposed in members of Parliament by the public for exercise in the interests of the public and not primarily for the interests of members or the parties to which they belong. The cry ‘whatever it takes’ is not consistent with the performance of fiduciary duty”. Thus “all decisions and exercises of power should be taken in the interests of the public”, and that duty cannot be subordinated to, or qualified by, the interests of the cabinet minister or parliamentarian.
Thus personal attitudes do not absolve ministers and parliamentarians of the fiduciary responsibility to set aside personal prejudice and act in the public interest.
Section 25 of the Public Governance Performance and Accountability Act 2013 is the public sector equivalent of corporate directors’ duty of care and diligence under section 180(1) Corporations Act 2001. It says an official of a Commonwealth entity must exercise his or her powers, perform his or her functions and discharge his or her duties with a high standard of care and diligence. An explanatory memorandum says as a general principle, officials in the public sector should not be held to a lower standard of account than employees of publicly listed companies. If anything, they should be held to a higher standard.
This responsibility extends beyond cabinet ministers and senior bureaucrats to government authorities and instrumentalities, such as the Reserve Bank and other financial regulators, the Future Fund, scientific research organisations and authorities.
In addition, the Australian Public Service Impartiality Value requires advice given to government to be “apolitical, frank, honest, timely and based on the best available evidence”.
Is that what is happening today?
The duty of care has a particular sharpness in the new era of disruption and existential risks that will manifest as a consequence of the global failure, and the failure of successive Australian governments, to rein in global warming.
