What you need to know about directors’ duties and ESG

Authors: Mark Smyth, Partner; Timothy Stutt, Partner

This article is also featured on our dedicated Mining ESG hub, along with a range of other insights and resources to help you navigate the ESG landscape.

ESG presents complex and multifaceted issues for energy and resources companies. While the nature of the challenges is evolving and changes may be uncertain, it is clear that climate change, human rights and indigenous heritage risks will be important factors in many short, medium and long-term decisions for mining companies.

Boards in the energy and resources sector face heightened scrutiny on the standard of care to be exercised with respect to issues arising from ESG impacts – and this will only continue as market expectations and institutional shareholder positions evolve.

In this article we break down the key things you need to consider from an ESG perspective when discharging directors’ duties.

How ESG has changed the landscape for directors

In Australia, directors have a duty to act with due care, skill and diligence and in the best interests of the company. There have been significant regulatory and judicial developments and activist action in the last 12 months that has resulted in heightened scrutiny on the exercise of directors’ duties in an ESG context.

Discharging directors’ duties in a climate change context

To discharge duties in relation to climate risks, it is not enough to consider and disclose such risks – directors also need to ensure they have taken reasonable steps to determine the climate change strategy of the business, and that this strategy is supported by the appropriate systems and processes within the business.

Further, although companies are increasingly facing pressure from institutional shareholders and activists to make bold statements on climate change, care should be taken in formulating climate strategies. Over-promising on climate-related statements may give rise to claims of “greenwashing”.

Beyond formulating climate policies, boards need to assess climate change risks in making investment and project approvals decisions or entering into new long term contracts. Consideration of climate risks needs to be balanced against the business’ core objectives, including the need to realise shareholder value. Directors should be aware of, and continue to monitor, novel claims that are being brought by activist groups in relation to project approvals for emission-intensive projects (read more about novel claims here). And when making investment decisions, any action should be aligned with the business’ climate strategy.

Discharging directors’ duties in a human rights context

Human rights violations, including in offshore subsidiaries and supply chains, presents key risks to directors. Directors should be aware of their obligations under modern slavery laws and ensure that companies have a robust governance framework in place to identify, assess and appropriately respond to human rights risks. Further, directors may consider standards beyond those imposed by directors’ duties – as markets and shareholders have an increased focus on corporate social responsibility, directors should be aware of the potential reputational damage to the business which may arise from the handling of human rights risks.

Key takeaways

Navigating directors’ duties in an ESG context is becoming increasingly difficult and the landscape is continually evolving. Climate change and human rights will continue to be at the forefront of social consciousness, and we will continue to see novel claims being brought in relation to these issues that will impact how directors should consider their duties. Directors need to be alive to these risks and ensure positive actions are being taken, while understanding the evolving standards in relation to ESG issues.

Mark Smyth
Mark Smyth
+61 2 9225 5440
Timothy Stutt
Timothy Stutt
+61 2 9225 5794

COP26: What can we expect for the mining sector?

Author: Jay Leary, Partner and Global Head of Mining

This article is also featured on our dedicated Mining ESG hub, along with a range of other insights and resources to help you navigate the ESG landscape. To learn more about COP26, visit our COP26 hub.

Few industries have as much at stake at the UN’s climate conference as mining. We size up the risks, rewards and key issues.

The mining sector is well versed in both the pressure to achieve meaningful emissions reduction and the opportunities to contribute to the clean energy transition. In the past year, there has been a proliferation of government, corporate and project-level net zero commitments by 2050, or more ambitious timeframes.

The United Nations Climate Change Conference (COP26) will further drive ambitious net zero commitments and the focus on delivering emissions reductions sooner with firmer outcomes, rather than aspirational targets. With mining at the sharp end of this global debate, we assess the pressure points and key issues for the extractive industries.


COP26, along with the broader global push for a cleaner and greener mining sector, creates challenges and opportunities across the industry. Some important issues for mining participants to consider include:

  • Investment in greener operating methods and emissions reduction technologies to meet emissions targets and decarbonise, such as electrification and use of hydrogen-powered technologies, with support from public and private finance.
  • Shifting demand for critical minerals arising from the acceleration towards electric vehicles and the uptake of renewables.
  • Continued focus of shareholders and financiers on emissions reduction targets, climate reporting, climate change policies and commitments and any new actions from COP26.
  • Agreement regarding the carbon pricing mechanisms under Article 6 of the Paris Agreement and potential associated compliance costs.

COP26 goals and implications for the mining sector

COP26 welcomes world leaders to make commitments to align with the target of achieving net zero carbon dioxide emissions by 2050 in accordance with the Intergovernmental Panel on Climate Change special report Global Warming of 1.5 ºC. The conference will focus on four key goals: mitigation, adaption, finance and collaboration. Below are key areas where COP26 may impact the mining sector.

  • Greener operations: The call for ambitious emissions reduction targets and the focus on energy efficiency means a renewed focus on the emissions intensity of mining operations. Therefore, there will need to be a continued focus on greener mining operations, including cleaner energy sources, projects for the deployment of technology and joint ventures to investigate cleaner operating methods. Electrification and use of hydrogen in mining operations, as well as other carbon abatement technologies, will continue to be increasingly important across the sector.
  • New coal commitments: COP26 refers to the phasing-out of thermal coal and scaling up of clean power among the actions that countries should take to achieve net zero. Mining companies should monitor and consider any new commitments on coal energy generation and investment in coal projects made by governments and businesses. These commitments may impact future project approvals and access to capital, finance and insurance for existing and future coal projects.
  • Shifting demand for critical minerals: Another action to achieve net zero that has been flagged for discussion at COP26 is the acceleration towards electric vehicles and renewables. This has implications for demand for critical minerals, which are components of these technologies, including copper, lithium, aluminium, nickel and rare earths.
  • The role of financiers: The COP26 goals recognise the importance of governments and financial institutions in funding the energy transition. The goals emphasise that these parties have a key role to play in facilitating investment in emissions reduction technologies and may extend to those with applications in the mining sector. (For further detail on climate finance, refer to our legal briefing).
  • Collaboration: The conference’s objective of collaboration underscores the opportunities for global, cross-sectoral partnerships to address the challenges of climate change. COP26 may create further opportunities for mining sector participants to work with governments, industry peers, supply chain stakeholders and broader society to address climate change in new ways (and potentially in light of new global goals).

Carbon pricing mechanisms

One of the goals of COP26 is to finalise the rulebook setting out the operational framework for the Paris Agreement, which includes agreeing the carbon pricing mechanisms under Article 6. Agreement regarding carbon pricing may increase compliance costs for mining companies in jurisdictions with low levels of reporting or no carbon pricing. Any new carbon pricing regimes should be examined in detail to determine their impact.

For in-depth analysis on carbon market mechanisms and COP26, refer to our legal briefing.

Mobilising action and opportunities

COP26 is likely to reinforce trends in the mining sector, including increased regulation aimed at emissions reduction and accelerating the energy transition, climate change litigation, investor expectations and activism on climate, climate disclosures and sustainable financing. The conference will provide challenges and opportunities for the mining sector to mobilise and lead on climate change and ESG issues more broadly.

Jay Leary
Jay Leary
+61 8 9211 7877 / +61 7 3258 6619