Directors of the Northern Australia Infrastructure Facility are likely to be in breach of their duties if they approve a controversial $900 million government loan for a railway to serve the Adani coal mine, and face possible legal action, according to legal advice received by the Australian Conservation Foundation.
Lawyers at Environmental Justice Australia wrote to the directors of the NAIF on Tuesday sharing legal advice that the loan would put the directors personally in breach of duties to consider the financial risks associated with climate change if they make an investment decision in support of the Galilee Basin rail project.
Prime Minister Malcolm Turnbull has been lobbied over the funding by Adani chairman Gautam Adani in India this week.
But EJA's advice concludes that under the Public Governance Performance and Accountability Act 2013 NAIF directors must consider financial risks from climate change and that the requisite standard of care and diligence prohibits investment in the proposed Adani and Aurizon rail projects.
The legal advice from the conservation group reflects the issue of directors' fiduciary risks associated with climate change – and the subsequent risk of stranded assets – that is now affecting directors in the private sector, particularly the financial sector.
These risks have become more obvious in the wake of comments by Australian Prudential Regulatory Authority executive director Geoff Summerhayes in February in which he referred to a sub-2 degree climate change scenario analysis as the new normal for all APRA regulated entities.
ACF president Geoff Cousins said on Tuesday that the ACF will consider all avenues, including possible legal options, to halt the most destructive coal mine in Australian history and protect the Reef.
NAIF must consider climate risks, he said. These are assets that will be useless within a decade. Investment in coal infrastructure risks public money and in the meantime helps to drive dangerous global warming. NAIF directors who support it should be held liable.
The advice notes that the NAIF can only support projects that would not otherwise proceed or be significantly delayed.
So, in applying for NAIF support, both proposals at the outset must not be economically viable. The board must tread a thin line that, on the one hand, supports the expectation of full repayment and, on the other, assesses each project as non-viable without NAIF support and offers concessions favouring Commercial Financiers. A heightened, and precise, standard of diligence and care is therefore required.
By Laura Tingle
Published in the Australian Financial Review on 12 April 2017