Higgins 2026 – What has changed for directors?

On 26 March 2026, Ruth Higgins SC, Zoe Bush and Jennifer Robinson published a joint opinion on the implications of the advisory opinion[1] of the International Court of Justice (ICJ) on the Obligations of States in Respect of Climate Change for directors’ duties in relation to climate-related risks.

For Australian directors and those advising them, the warnings may feel familiar.  The opinion comes some five years after a series of opinions published by Noel Hutley SC and Sebastian Hartford-Davis on the extent to which the duty of care and diligence imposed upon directors required them to respond to climate change risks.   

Both share a common thesis: that climate-related risks are material to the discharge of directors’ duties.  But the landscape in which those duties fall to be discharged has shifted materially since 2021. 

So, has anything really changed for Australian directors in 2026?

The standard of care is continuing to rise

Directors continue to face a “core, irreducible requirement”[2] to remain abreast of climate-related risks and to factor them into strategic decision-making. The standard of care required of directors may rise if the magnitude and probability of those risks increases.

Those risks have not directly increased as a result of the ICJ’s opinion.  Opinions of the ICJ only apply domestically if adopted into domestic law.  It is the indirect effect of the ICJ’s opinion, and similar opinions, through their influence on regulatory and policy developments, that has the potential to increase risk for Australian companies.  Australia has already set a net greenhouse gas emissions reduction target of 62-70% by 2035.  In order for Australia to achieve that target, corporations in high-emitting sectors may be exposed to legislative or regulatory action that increases the costs of business or limits or even prohibits certain profit-generating activities.[3]

The so-called “third wave” of climate litigation foreshadowed by Hutley and Hartford-Davis in 2021 is certainly playing out in Australia.  Although greenwashing cases are certainly being run (where ASIC seems to have had more success than private claimants), challenges to environmental approvals have provided the easiest way in, particularly for activist claimants.  Tortious liability for climate-related harms has so far gained more traction in foreign jurisdictions than in Australia (see: Climate obligations in Australia and abroad are oceans apart – what does it mean?).  It remains to be seen what use Australian courts will make of the ICJ’s opinion in future cases, but it has been relied upon by litigants in informing what the NSW Independent Planning Commission was required to take into account in its decision to grant development consent for the construction and operation of a coal mine in the Hunter Valley.[4]

Perhaps the most significant development since 2021 is the advent of mandatory climate reporting, which has led to greater scrutiny on the proper identification of climate risks.  In 2021, no mandatory climate reporting existed, although directors needed to consider voluntary disclosures.  Mandatory climate reporting is now in force under Pt 2M.3 of the Corporations Act, which requires directors of certain companies to approve annual sustainability reports including information on climate-related risks and opportunities (see: Mandatory Sustainability Reporting in Practice).  If those reports are inaccurate or lack a reasonable basis, directors who approve sustainability reports containing climate-related targets and metrics may be liable under ss 180(1) or 344 of the Corporations Act and other statutory provisions prohibiting misleading and deceptive conduct.

The “regulatory chill” of international investment agreements may not be so chilly

In 2021, the prospect of States needing to pay out significant damages awards to foreign investors was a deterrent against environmental regulation.  For example, in October 2012, Ecuador was ordered to pay US$2.3 billion to US-based Occidental Petroleum in an ICSID arbitral award.  That is why international investment agreements have typically posed a “regulatory chill”[5] for States.

The principal basis for a claim under an international investment agreement is that a foreign investor has not received fair and equitable treatment.  Though it will depend on the exact wording of the treaty, two key tenets of what that means are the protection of legitimate expectations and protection against arbitrary, unreasonable, or disproportionate conduct lacking good faith.

Legitimate expectations

In 2026, all new investors can reasonably be expected to be aware of the possibility of more stringent environmental regulations, and the reduction or phasing out of fossil fuels.  That has already occurred in Australia: in March 2026, the NSW Government announced that it will no longer consider applications for new “greenfield” coal mines.[6]

Proportionality

Australia undoubtedly remains dependent on fossil fuels, and relies on exports of fossil fuels for national fuel security.  That dependency was confirmed by the recent oil supply crisis and the government’s commitment to fund the extended life of coal-fired generators.  At the same time, in the hands of a skilled litigant, the point may well be made that more stringent regulatory action, including moratoriums on new fossil fuel projects or regulations affecting existing projects, could now be considered proportionate to – and even required by – the scale of threat posed by climate change.[7]

So for foreign investors, or local investors investing in high-emitting foreign assets, an international investment agreement may not mitigate the risks of financial harm to a company caused by regulatory changes as it once did.  A corporation with assets associated with fossil fuel extraction, production and/or supply is exposed to the risk that those assets will become stranded and give rise to significant decommissioning liabilities.

What is expected of directors?

Against that background, what should directors do on a practical level?  At a general level, the answer to that has not changed much since 2021. 

Higgins, Bush and Robinson helpfully summarise the actions that directors can take to minimise the risk of being found to have breached their duty of care under s 180(1).[8]  A director should:

1. apprise themselves of the corporation’s climate-related risks;
2. take a diligent and intelligent interest in information about the corporation’s climate-related risks, ensure they understand that information, and apply an enquiring mind to their responsibilities;
3. decide to act or decline to act based upon a rational and informed assessment of the corporation’s best interests, having considered and sought advice on the corporation’s climate-related risks;
4. take all reasonable steps to ensure those risks are disclosed in accordance with the corporation’s disclosure obligations, particularly those imposed by Pt 2M.3 of the Corporations Act; and
5. take all reasonable steps to ensure that statements they approve, especially statements contained in annual sustainability reports under Pt 2M.3 of the Corporations Act, are accurate and do not omit any material climate-related risks.

In an ever-changing risk environment, the critical point is to seek advice and ensure that decisions are grounded in facts.  After all, directors are still expected to take calculated risks, and the very nature of commercial activity necessarily involves uncertainty and risk-taking.[9]  It remains the case that a director will not breach their duty of care merely because they took a course of action that a potential claimant considers was not ideal.[10]  What has changed is the environment in which decisions are being made, and the global nature of emerging risks.  

The opinion follows the Federal Court’s decision in Australasian Centre for Corporate Responsibility v Santos Limited [2026] FCA 96. Our takeouts from that case observed that companies making future-focused, climate-related commitments can take into account future uncertainties which may impact the achievement of their objectives. However, they should be able to demonstrate (with evidence) a reasonable process of considering the operational, market and regulatory uncertainties impacting long-term objectives, and how, despite these uncertainties, those objectives are based on reasonable grounds. Companies should also ensure the uncertainties and assumptions are clear in their disclosure.