In recent years it has been established that global corporations have contributed immensely to climate change and the sustainability of the planet. 1 Decisions made by corporations have impacted adversely on environmental resources2 through the production of greenhouse gases ('GHGs'), the unsustainable use of biodiversity, and by the production of toxic and hazardous substances and waste. 3 Since the early 1990s, it has been documented that multinational corporations generate more than 50 per cent of global GHG emissions.
4 However, over the past 45 years, since the actions of corporations were recognised as being potential threats to the environment, there has been a significant shift in thinking. Decisions made by companies, which are regulated by corporate law Governments worldwide are introducing stringent "climate laws" to curb further environmental damage. 5 It is now becoming evident that corporations need to bear the lion's share of responsibility in actively curtailing their emissions into the global atmosphere. 6
This essay focuses on the issues surrounding environmental sustainability and the impact it has on corporate governance. It will focus primarily on the changes that will occur for internal corporate governance in Australia once the new Carbon Pricing Scheme ('CPS') is implemented from 1 July 2012. A brief summary will be outlined regarding the emergence of international environmental law and ecological sustainability, the traditional ways corporations have been governed, and how the new CPS will affect corporate governance after 1 July 2012.
Environmental sustainability is one of the defining political challenges of the 21st century. 7 Water scarcity, climate change and threatened biodiversity have emerged because humans have, for far too long, overlooked environmental externalities as a variable in decision-making processes. 8 One of the challenges of sustainable development is for corporations to consider modes of industrial organisation, in addition to the internal organisation of a firm which will lead companies towards a future which promotes environmental protection and equity.
9 This has led to unremitting debate regarding the introduction of an environmental tax for corporations that produce an extensive amount of carbon emissions, which impact negatively on the environment. Corporations already have national greenhouse and energy reporting obligations and national renewable energy targets. 10 However, until recently, the obligations on corporations and the ramifications for failing to comply under the Australian Federal Government's proposed form of a national Carbon Pricing Scheme have remained somewhat elusive. 11
In July 2011, the Australian Federal Government finally proposed the introduction of a new carbon pricing mechanism to target GHG emissions. The objectives of the Clean Energy Act 2011 (Cth) is to give effect to Australia's obligations under the United Nations Framework Convention on Climate Change12 and the Kyoto Protocol13; to 'support the development of an effective global response to climate change; and to take action towards meeting Australia's long-term target of reducing net GHG emissions and to do so in a flexible and cost-effective way'.
14 While the Act15 has already been passed, the CPS that impacts corporations will be enforced from 1 July 2012. The CPS will price emissions of the six Kyoto Protocol16 GHGs17 which negatively affect the environment, and includes a number of new complementary measures and related governance designed to 'promote renewable energy, improve energy efficiency and conserve biodiversity and carbon stocks in the land sector'.
Corporate governance has been defined as 'the system by which companies are directed and controlled'19 and concerns issues such as the composition and structure of boards of directors and the accountability of boards to shareholders. Corporate governance limits the power and discretion of decision makers within corporations. These limitations upon directorial decision-making are found in various enforceable duties of directors. 20 The traditional primary role of a director, and one that is required by law under section 181 of the Corporations Act 2001 (Cth), is to always act in the best interests of the corporation.
That is to keep profits and share prices high, and to pass on these benefits to the shareholders of the company. 21 Due to directors being constrained to make decisions which further the corporations interest, that being profitability, they are precluded from making decisions which are primarily motivated by human moral values such as those relating to environmental concerns. 22 It has even been stated that '[b]usiness corporations are legally recognised collective organisations, which are primarily directed to the pursuit of profit and characterised by formal structures and rules that limit the moral autonomy of decision-makers.
'23 However there are indications that this role is changing. The opportunities for corporations to contribute to the global protection of the environment are increasingly in the spotlight. This is in light of the recognition that corporations are among 'the world's most influential institutions'. 24 It is evident that their role is essential in supporting government action to achieve environmental sustainability goals agreed at the international level, such as those outlined in the Kyoto Protocol.