By: Raisa Conchin, Jacques Jacobs, Amanda Beattie and Zoe Jones

At a glance

• In 2026, climate‑related statements entered the mainstream of directors’ and officers’ liability. This fourth article in our climate series focusses upon the personal liability landscape for D&O arising from climate-related statements and disclosures, including the new statutory sustainability reporting obligations under Chapter 2M of the Corporations Act 2001 (Cth).
• This article considers the three main pathways through which personal exposure for D&Os can arise from climate‑related statements and provides practical guidance for boards seeking to manage and mitigate those risks.

Introduction

Since 1 January 2025, Australia’s largest entities have been required to prepare sustainability reports under Chapter 2M of the Corporations Act 2001 (Cth). Directors of those entities must declare that, in their opinion, the substantive provisions of the sustainability report are in accordance with the Act, and must take all reasonable steps to comply with, or secure compliance with, those reporting obligations. That declaration cannot be delegated. As a result, the Act has placed ultimate responsibility for climate‑related disclosures squarely on the board.

The reporting obligations are being phased in over three years according to entity size:

• Group 1 entities¹ commenced reporting for financial years beginning on or after 1 January 2025.
• Group 2 entities² will commence reporting for financial years beginning on or after 1 July 2026.
• Group 3 entities³ will commence reporting for financial years beginning on or after 1 July 2027.

Given the infancy of the reporting regime, ASIC has issued early observations to assist entities that had to report as at 30 June 2026. These observations are directly relevant to D&Os and give some insight into the key areas for potential D&O liability for climate-related statements. Further guidance and insights from ASIC is expected shortly.

Directors and Officers are increasingly in the spotlight. A March 2026 joint opinion by senior counsel⁴ analysed the implications of the International Court of Justice’s July 2025 advisory opinion on climate change for Australian directors’ duties. The joint opinion concludes that climate change now poses foreseeable risks to most, if not all, Australian corporations, and that the standard of care expected of directors under s 180(1) of the Corporations Act in managing those risks continues to rise. The opinion reflects the continuing evolution of expectations regarding the management of climate-related risks by Australian directors.

The legal framework

The three main pathways through which personal exposure for D&Os can arise from climate‑related statements are:

1. The duty of care and diligence under s 180(1);
2. Misleading or deceptive conduct under s 1041H of the Corporations Act and ss 12DA to 12DB of the ASIC Act; and
3. The continuous disclosure obligations imposed on corporations by the Corporations Act and ASX Listing Rules.

Understanding where potential exposure arises requires a clear view of how these potential liability pathways operate and interact.

The duty of care and diligence

Section 180(1) of the Corporations Act requires directors and officers to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in the corporation’s circumstances, occupying the same office and responsibilities. The standard is objective, contextual and forward‑looking, assessed by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue from the conduct in question.

The joint opinion explains that foreseeable risk of harm is not confined to financial harm. It extends to reputational, regulatory investigation and litigation risk. Even if a climate‑related misstatement does not directly cause financial loss, it can engage s 180(1) if it exposes the company to these broader harms.

Importantly, s 180(1) does not impose a standard of perfection. Directors are expected to take calculated commercial risks, and a failed decision does not of itself establish a breach. However, the statutory sustainability reporting obligations under Part 2M.3 now form part of a director’s responsibilities for the purposes of s 180(1)(b), meaning the standard of care is informed by what the regime demands, including the obligation to independently assess expert advice and personally form the opinion required by the directors’ declaration.

The directors’ declaration required under s296A(6) (discussed further below) is a personal attestation that the substantive provisions of the sustainability report comply with the Act (or, during the transitional period, that reasonable steps have been taken to ensure this). Where that declaration proves to be incorrect, the relevant director faces exposure under s 180(1) for having failed to take reasonable steps to satisfy themselves of the report’s compliance before signing the declaration, particularly if the director did not independently assess the underlying assumptions, data and expert advice. In addition, a false or misleading declaration could form part of the evidentiary basis for an accessorial liability claim under the misleading or deceptive conduct provisions, where the director had the requisite knowledge.

Misleading or deceptive conduct

Directors and officers can face personal exposure under the misleading or deceptive conduct provisions where they are knowingly concerned in, or have aided and abetted, a corporate contravention. Climate-related statements that give a false overall impression, omit material qualifiers or lack reasonable grounds can contravene both s 1041H of the Corporations Act and ss 12DA-12DB of the ASIC Act. The first-instance decision in Australasian Centre for Corporate Responsibility v Santos Limited [2024] FCA 1267 (currently subject to appeal) illustrates the types of statements open to challenge. ACCR alleged that Santos’s statements concerning its net zero target and characterisation of natural gas as ‘clean fuel’ were misleading. The Court dismissed all claims, but the case demonstrates that forward-looking climate commitments are capable of being tested under these provisions. That said, the requirement to establish that a person is ‘involved in’ a contravention requires something more than mere participation.

The most common articulation of accessorial liability is where the D&O is ‘knowingly concerned in’ the contravention, requiring knowledge of all the essential matters constituting the offence. By way of illustration, a director who knew that internal modelling showed net zero targets were unachievable would likely have the requisite knowledge, even if they did not turn their mind to whether the claims breached the law. Conversely, a director who genuinely believed the commitments were well-founded (with no contrary information) would lack the necessary knowledge, even if the claims were ultimately found to be misleading.⁵

As our third article in this series discussed, the ‘reasonable grounds’ requirement is a meaningful evidentiary burden. The quality and contemporaneity of the reasonable grounds file will be scrutinised, including scenario design, reliance on offsets or CCS, technology feasibility, capital commitments and the prominence of contingencies. From a D&O perspective, the question is whether the board took reasonable steps to satisfy itself of the adequacy of those grounds before lending its authority to the claim.

These provisions operate alongside s 180(1): the misleading conduct provisions create accessorial liability for involvement in the contravention, whilst s 180(1) asks whether the director’s own conduct met the standard of care. The two pathways thus operate in tandem.

Continuous disclosure

Obligations of continuous disclosure attach to corporations, not individuals, arising primarily under the Corporations Act⁶ and the ASX Listing Rules. Listed entities must immediately notify the ASX of information that a reasonable person would expect to have a material effect on the price or value of securities, subject to the limited exceptions in Listing Rule 3.1A. Climate developments (such as material changes to emissions projections, the loss of a key offset or CCS pathway, or regulatory action in respect of climate disclosures) could trigger this obligation. ASIC’s Regulatory Guide 280 makes clear that the modified liability protections for forward‑looking climate statements apply only within the sustainability report itself. Statements made outside that report (in ASX announcements, investor presentations, websites or other communications) remain fully subject to the usual continuous disclosure and misleading or deceptive conduct obligations.

D&O liability for continuous disclosure breaches can arise through accessorial liability and, in some cases, directors and officers may be held personally liable if they are ‘involved in’ a contravention (such as by authorising or failing to prevent a misleading market announcement) provided they had knowledge that the information was material, that it had not been disclosed, and that no Listing Rule 3.1A exception applied.

In practice, D&Os must take active steps to ensure that climate-related developments affecting the business (such as material revisions to emissions pathways, loss of a key offset or CCS project, adverse findings in climate scenario analysis, supply chain disruptions from extreme weather, or the commencement of climate-related litigation) are identified, escalated and disclosed. Directors should satisfy themselves that: (a) the company has processes for identifying and escalating material climate-related information; (b) ASX announcements on climate matters are reviewed with appropriate rigour; and (c) voluntary climate communications are consistent with formal market disclosures.

Exposures flowing from liabilities

In practice, the most common personal exposure for directors and officers in this area will be regulatory rather than third party risk. Third parties (apart from the company itself) do not have an automatic right to pursue directors individually for breaches of s 180(1) without obtaining leave of the court, which significantly limits the scope for direct private claims against individual directors.

ASIC’s early review of first-wave sustainability reports identified several recurring issues, including unclear disclosure of judgements, deficiencies in cross-referencing, inappropriate disclaimers, and weaknesses in the identification and reporting of climate-related risks and targets. While ASIC has emphasised a pragmatic and proportionate approach during implementation, it also expects reporting standards to improve over time. For directors, these observations provide an early indication of the types of reporting deficiencies that could attract regulatory scrutiny.

Accessorial liability claims, on the other hand, can be brought by a third party (including ASIC), but for the reasons discussed above, the standard for establishing accessorial involvement requires actual knowledge of the essential elements constituting the contravention.

It is also worth noting that ASIC has, in other enforcement contexts, pursued personal liability against directors on a ‘stepping stone’ basis – that is, establishing the corporate contravention first and then seeking to hold individual directors liable as accessories to that contravention. While ASIC has signalled a supportive posture during the initial implementation of the sustainability reporting regime, directors should not assume that this approach will be maintained indefinitely. As reporting obligations become settled and market expectations crystallise, regulatory action against individual directors in respect of deficient climate disclosures remains a realistic possibility, particularly where the deficiency is egregious or where the director had clear knowledge of the relevant facts.

Modified liability provisions

The modified liability provisions commenced on 1 January 2025 and are scheduled to expire on 1 January 2028. During this three-year transitional window, reporting entities and their directors benefit from two key protections designed to facilitate the bedding-in of the sustainability reporting regime. These are:

1. First, the transitional provisions provide limited immunity from civil proceedings (other than those brought by ASIC) for certain “protected statements” made in sustainability reports during the modified liability period. Protected statements are defined by subject matter: for the remainder of the transitional period, the immunity covers statements about scope 3 emissions, scenario analysis and transition plans (a broader immunity covering all forward-looking climate-related statements applied during the first 12 months of the regime but has now expired). This protection recognises that sustainability reporting necessarily involves projections, estimates and scenario analysis that may not eventuate. Critically, however, the immunity applies only to statements made within the sustainability report itself. Equivalent statements made in ASX announcements, investor presentations, corporate websites or other communications remain fully subject to the usual misleading or deceptive conduct and continuous disclosure obligations.
2. Secondly, the modified liability provisions alter the terms of the directors’ declaration required under 296A during the transitional period. In its modified form, the declaration requires directors to state that, in their opinion, the entity has taken reasonable steps to ensure the substantive provisions of the sustainability report are in accordance with the Act, rather than positively attesting that those provisions are in accordance with the Act. This lower threshold acknowledges the practical challenges of first-time reporting under an evolving framework, including the limited availability of historical data, immature methodologies and developing assurance practices. However, once the modified liability period expires on 1 January 2028, the directors’ declaration will revert to its permanent form, requiring a positive attestation that the substantive provisions of the sustainability report are in accordance with the Act.

It is important to note that these modified liability provisions do not displace the overarching duty of care under s 180(1), nor do they protect directors from accessorial liability where they have actual knowledge of a misleading statement or a continuous disclosure breach.

What boards and officers should do now

The interaction between the duty of care, misleading or deceptive conduct provisions and continuous disclosure obligations means that boards must take a proactive, evidence-based approach to climate-related statements. The following may provide a practical framework for managing exposure:

1. Boards should appropriately consider and interrogate the basis for every forward-looking or climate-related statement approved by the board (including net-zero targets, transition pathways and technology deployment timelines). Ideally, they should be comfortable that such statements are made on reasonable grounds and are supported by contemporaneous evidence documenting assumptions, data sources and expert evidence.
2. Evidence of the board’s consideration of these matters will ultimately be critical in demonstrating that directors exercised appropriate diligence and that climate-related statements were based on reasonable grounds. That being the case, board and committee minutes should record the information placed before the board, questions asked, advice received, and reasoning behind decisions on climate statements, creating a clear and contemporaneous record of the board’s decision-making process.
3. Boards should engage with their insurers and brokers to review current D&O policy wordings, including conduct exclusions, notice provisions and coverage limit. This is to ensure that potential risks such as climate-related regulatory investigations, securities class actions and other potential actions as a result of climate-related statements and reporting are not inadvertently excluded or inadequately covered.

This article is intended as a general overview and does not constitute legal advice. If you would like advice on any of the issues discussed in this article specific to your circumstances, or on managing climate‑related disclosure risk more broadly, please contact a member of our team.

Key Contacts & Updates

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