By Monique Carroll, Partner and Visna Hemachandra, Lawyer

Whilst the Commonwealth has recently been found not liable under Australian law in respect of a claimed duty to protect the Torres Strait Islands from the impacts of climate change in the Pabai decision, the landmark ICJ advisory opinion handed down on 23 July 2025 has confirmed that according to international law, States are required to adopt all measures within their capability to protect the climate system from anthropogenic greenhouse gas emissions, protect and preserve the marine environment and not to cause environment or climate harm to other States and to do so by (amongst other things) conducting risk assessments, undertaking due diligence, implementing legislation, administrative procedures and enforcement mechanisms designed to achieve their obligations under international law.

On 15 September the Commonwealth Government[1] released “Australia’s National Climate Risk Assessment” (NCRA) analysing Australia’s climate hazards and the risks they present to infrastructure, supply chains, and the natural environment.

Below we summarise the key aspects of these developments and what they mean for body corporates and directors.

Key Takeaways

1. According to the NCRA, Australia currently faces a range of moderate climate change risks which are expected to increase significantly to a risk rating of between high and severe.
2. There is now a recognised obligation on States under international law to prevent harm to the environment by acting with due diligence, implementing effective regulatory regimes to manage public and private actors and co-operating with other States in order to protect the environment and to prevent adverse effects of climate change that may significantly impair the enjoyment of certain human rights. A breach of these obligations constitutes an “internationally wrongful act”.
3. The NCRA is a baseline assessment of the nature and extent of the climate change risks Australian entities are expected to report on and to mitigate as of 2025.
4. On 18 September 2025 the Commonwealth Government announced that it is taking strong action on climate change and set a national target to reduce emissions by 62-70% below 2005 levels by 2035.
5. A renewed focus on environment regulation by States is now expected, and body corporates and directors should commence reassessing their climate impacts and how they can be mitigated to be prepared for the increased regulatory focus.

The National Climate Risk Assessment Report

The NCRA is an adaptation planning mechanism for the purposes of the Paris Agreement Article 7(9)(c) which requires States to “engage in adaptation planning processes and the implementation of actions, including the development or enhancement of relevant plans, policies and contributions which may include…the assessment of climate change impacts and vulnerability, with a view to formulating nationally determined prioritised actions, taking into account vulnerable people, places and ecosystems”. “Adaptation” is the process of adjusting to actual or expected climate change and its impacts by moderating or avoiding harm or to exploit beneficial opportunities.[2]

The NCRA concludes amongst other matters that:

• Governance is a crucial enabler of climate change adaptation processes and outcomes;
• Governance in Australia will need to overcome several challenges including resourcing shortfalls, ambiguous roles, limited engagement and lack of co-ordination;
• There is currently an adaptation action shortfall across all systems, risks, jurisdictions and geographies in Australia.

The NCRA identifies 8 climate risks that can be expected to be the focus of the changes to the governance frameworks currently in place. A summary of the risk categories analysed, and the key findings are set out below. As the NCRA will serve as a baseline for assessing risk and indicates the considerations likely at play in the new regulations, it is important that you understand how each of these risks may impact your operations (including asset values) and assess any risk mitigation strategies and market disclosures required.

Risk category	Risk rating	Risk summary
Economy, trade and finance systems	Currently moderate[3], very high[4] by 2050	These systems face risks from extreme weather events which create risk for Agriculture, mining, construction, tourism, supply chains, coastal infrastructure, finance and markets, government resources for recovery, international trade and finance, outdoor workers and people and households. Particular vulnerabilities include ageing or unadapted infrastructure and land use planning that has not considered climate change, and reliance on climate sensitive industries and global markets. Extreme weather events are predicted to damage infrastructure and reduce asset values, and supply chains, particularly those dependent upon agriculture, fisheries and mining. These risks are in turn predicted to impact private and public equity markets including by introducing more frequent ‘Black Swan events’. As for international trade and finance, it is predicted that “significant risks and opportunities are likely to be driven by climate-change related impacts outside of Australia’s borders, as our biggest trading partners and nearest neighbours experience the impacts of climate change.”
Health and social support	Currently moderate to high[5], severe[6] by 2050	Climate change is predicted to put at risk ecosystems that underpin population health. In addition to resulting in increased heat-related illnesses, this is also predicted to increase vector borne disease and biosecurity risks (i.e. threats from pests, weeds and diseases that can harm human health, the environment, and economies by impacting crops, livestock and ecosystems) and result in a reduction in productivity and severe economic impacts.
Infrastructure and the built environment	Currently low to moderate, high to very high by 2050	Climate change is identified as a risk to critical infrastructure which will in turn impact access to essential goods and services and disrupt supply chains, capital and trade. It is predicted that climate change will disrupt energy supply, damage transport and communication networks and increase repair and rebuilding costs.
Primary industries and food	Currently moderate to high and high to very high by 2050	Climate change is considered to create priority risks to primary industries by decreasing productivity, quality and profitability and increasing biosecurity pressures from a reduced yield in crops, increased livestock heat stress, declining fisheries’ productivity, increasing water competition and reduction in workforce.

2035 Targets

Earlier this month, the Commonwealth Government released a national climate change target to reduce emissions by 62% to 70% below 2005 levels by 2035.

In its media release, the Commonwealth Government suggests that this climate change target range can be achieved through actions in five priority areas, including:

1. Clean electricity across the economy – for example, increased renewable electricity generation supported by new transmission and storage;
2. Lowering emissions by electrification and efficiency – for example, through the introduction of the New Vehicle Efficiency Standard, by supporting consumers to switch to electrical vehicles and improving energy efficiency;
3. Expanding clean fuel use – for example, by establishing a low carbon liquid fuels industry and supporting green hydrogen;
4. Accelerating new technologies – for example, through Future Made in Australia investments and innovation support through the Australian Renewable Energy Agency;
5. Net carbon removals scaled up – for example, enabling land holders to earn money for eligible carbon storage and a robust Australian Carbon Credit Unit Scheme.

This is a significant jump from Australia’s 2030 greenhouse gas emissions reduction target of 43% below 2005 levels and is a clear signal to body corporates and directors to take greater care in making decisions that have historically contributed large quantities of greenhouse gas emissions.

The Liability Framework

Australia

The Federal Court recently held in Pabai v Commonwealth of Australia (No 2) [2025] FCA 796 (Pabai) that the Commonwealth did not owe a duty of care to Torres Strait Islander peoples to protect them from the damaging impacts of human-induced climate changes. In particular, the Court held:

“It is, in all the circumstances, both inappropriate and impractical for the Court to pass judgment on the reasonableness of the Commonwealth’s actions concerning such issues, involving as they do matters of high or core government policy and political judgment.

….

If judgment is to be passed in respect of the actions of the government in respect of such matters, that judgment should be passed at the ballot box by those who are responsible for electing the government, not in the courts.” [865]

In reaching this conclusion, the Court considered that:

• the absence of any relevant control was regarded as a compelling consideration weighing against the recognition of a duty of care;
• other competing and countervailing governmental responsibilities may well reasonably justify a different target, rather than one based solely on the best available science;
• by applying a common sense approach, causation cannot be established in the circumstances – that is, any climate change impacts in the Torres Strait Islands that flowed from any breach of the targets duty by the Commonwealth of Australia could not, as a matter of common sense, be found to have played a part in any actual harm suffered by the Torres Strait Islanders in circumstances where those climate change impacts are small and cannot be measured or observed.

This decision reflects the way in which the common law pertaining to tortious duties of care has developed in Australia, in that there must be proof of the close connection between the reliant person and the entity exercising an element of control over management of risks for that person, and the harm suffered. For example, in Pabai it was not possible to prove that the Commonwealth was in a position of sufficient control or influence in respect of the impacts of anthropogenic climate change for the Torres Strait Islander peoples, as the impacts of climate change are caused by many actors and are difficult to isolate.

On the other hand, the legal framework governing corporate and directorial liability has developed such as to impose liability in respect of climate change risks and impacts in certain circumstances. This has been achieved by focusing on the actions which are within the control of the entity and the entity’s obligations to make disclosures to comply with common law and legislative obligations. In addition to specific environment protection legislation, body corporates and directors may have duties or legal obligations to act in the best interest of shareholders, to disclose material risks, to act with due care and diligence and not to mislead or deceive, including by failing to disclose relevant information, and to prepare sustainability reports[7].

This is illustrated by the recently introduced climate change reporting requirements,[8] and the Australian Investments and Securities Commission’s focus on prosecuting “greenwashing”. For example, in 2024 the Federal Court ordered Mercer Superannuation (Australia) Limited to pay a $11.3 million penalty after it was found that it had made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. superannuation investment options.[9]

Internationally

On 23 July 2025, the 15 judges on the International Court of Justice (ICJ) unanimously concluded that States have a duty to prevent environmental harm (ICJ Opinion).

The ICJ Opinion resulted from a group of 27 pacific island law students from the University of the South Pacific called the Pacific Islands Students Fighting Climate Change, supported by Vanuatu and a global coalition of nations, formally requesting the ICJ’s advisory opinion on the obligations of States to protect and prevent harm to the climate.

By considering international law as a whole, but applying the most directly relevant applicable law regarding climate change, the ICJ set out inter alia, the following key obligations of States:

1. a duty to prevent significant harm to the environment by acting with due diligence and to use all means at their disposal to prevent activities carried out within their jurisdiction or control from causing significant harm to the climate system and other parts of the environment in accordance with their common but differentiated responsibilities and respective capabilities under the Paris Agreement and in accordance with customary international law;
2. a duty to co-operate with each other in good faith to prevent significant harm to the climate system and other parts of the environment, which requires sustained and continuous forms of co-operation by States when taking measures to prevent such harm under the Paris Agreement and in accordance with customary international laws;
3. a duty to respect and ensure the effective enjoyment of human rights by taking necessary measures to protect the climate system and other parts of the environment under international human rights law. For example, preventing adverse effects of climate change that may significantly impair the enjoyment of certain human rights such as the right to life, the right to health, the right to an adequate standard of living, which encompasses access to food, water and housing, the right to privacy, family and home, and the rights of women, children and indigenous peoples;
4. an obligation to prepare, communicate and maintain successive and progressive nationally determined contributions which, inter alia, when taken together, are capable of achieving the temperature goal of limiting global warming to 1.5% above pre-industrial levels under the Paris Agreement;
5. an obligation to pursue measures which are capable of achieving the objectives set out in their successive nationally determined contributions under the Paris Agreement; and
6. an obligation to adopt measures to protect and preserve the marine environment, including from the adverse effects of climate change and to co-operate in good faith in accordance with the United Nations Convention of the Law of the Sea.

Importantly, the Court observed that States that are not party to any UN Climate treaties must still meet their equivalent obligations under customary international law, including in respect of their duty to:

1. prevent significant harm to the environment; and
2. co-operate for the protection of the environment.

The ICJ noted that the consequences of breaching these duties will be determined on a case-by-case basis and suggested that they may include:

1. cessation of the wrongful act(s) or omissions if they are continuing;
2. providing assurances and guarantees of non-repetition; and
3. full reparation in the form of compensation, restitution and satisfaction provided that the general conditions of the law of State’s responsibility are met, including that a sufficiently direct and certain causal nexus can be established.

The ICJ acknowledged that effects of climate change occur as a result of actions taken by all, but did not consider this to prevent a legal obligation from arising. This is because the duty arises “as a result of the general risk of significant harm to which States contribute, in markedly different ways, through the activities undertaken within their jurisdiction or control”[10] and nature of that duty was one of due diligence to take the best possible measures to prevent the impacts of climate change, including by meeting emission reduction targets. Whilst it did not pass judgement on any State in the ICJ Opinion, it is plain that it considers it is capable of assessing whether States have taken appropriate steps to mitigate climate change impacts.

The ICJ also confirmed that the internationally recognised principle of sustainable development is a principle by which States shall be guided in their actions to achieve their obligations to protect the environment.

Some of Australia’s largest trading partners have also implemented climate change reporting requirements or are in the process of doing so, such as the EU, China and Japan. These reporting requirements may result in obligations on Australian entities trading overseas to disclose greenhouse gas emissions as part of ‘Scope 3’ emission reporting.

ICJ’s Jurisdiction to Compel Australia

The ICJ’s jurisdiction comprises all cases which the parties refer to it all matters specifically provided for in the Charter of the United Nations 1945 or in treaties or conventions currently in force. For a State to be bound by ICJ’s decisions, it must first make a declaration pursuant to Article 36 of the Statute of the International Court of Justice. Australia has made such a declaration.

Accordingly, the ICJ has jurisdiction to determine Australia’s compliance with the international obligations identified in this article. As such, the ICJ has jurisdiction to order Australia to make reparations in the form of compensation and restitution for breaches of its international legal obligations. As a consequence, we expect to see greater regulation nationally across all sectors and industries by the Commonwealth and State governments in the coming years, in a collective effort to reduce exposure to claims commenced against it in the ICJ.

What This Means For You

All States are under a legal obligation to take effective regulatory measures to control negative impacts from greenhouse emissions and other sources of environmental harm by private actors. They face the risk of legal action brought by other States to enforce these obligations and being ordered to pay compensation and guarantee cessation of the damaging conduct. This decision, together with the NCRA suggest that further, more stringent regulation is on its way to address key climate risks and protection of the marine environment.

Additionally, entities in Australia and overseas are increasingly required to report on the greenhouse gas emissions in their supply chains, creating legal risk if they are unable to do so accurately.

In these circumstances key steps to mitigating risk and liability are:

• conducting a comprehensive risk assessment, including in light of the applicable reporting requirements, the NCRA and the best available scientific evidence;
• identification and implementation of risk mitigation strategies over time, including supply chain and legal due diligence and applicable reporting requirements;
• regular review of the risk assessment and mitigation strategies in place;
• meeting disclosure requirements as to the climate change risks and mitigation measures including their expected effectiveness.

Where to Next?

If you wish to discuss your climate change reporting or whether your risk mitigation strategies are likely to be considered sufficient, please contact Monique Carroll to arrange a time to discuss.

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[1] Developed by the Australian Climate Service, a partnership between the Bureau of Meteorology, CSIRO, ABS and Geoscience Australia. An explanation of the risk assessment methodology utilised is at https://www.dcceew.gov.au/climate-change/publications/national-climate-risk-assessment.

[2] NCRA, p.20.

[3] Meaning impacts are limited to a few local regions with minimal effects on a state or national level, moderate potential for loss of life and property damages and limited disruptions to community stability, livelihoods and natural systems.

[4] Meaning significant impacts expected across multiple states, affecting safety and security nationally, a very high risk of significant loss of life and property damage with major disruptions to community stability, livelihoods and natural systems.

[5] Meaning impacts to multiple regions within one or two states, noticeably impacting vulnerable communities with a high potential for loss of life and property damage with noticeable disruptions to community stability, livelihoods and natural systems

[6] Meaning impacts are widespread across multiple states, severely impacting vulnerable communities, major risk of significant loss of life and property damage, with sever disruptions to community stability, livelihoods and natural systems.

[7] Discussed in “2025 – A Litigation Risk Primer” at https://www.millsoakley.com.au/insights/2025-a-litigation-risk-primer/.

[8] Ibid.

[9] ASIC v Mercer Superannuation (Australia) Limited 2024 [FCA] 850. For example, certain investment options were marketed as suitable for members who are ‘deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal when this was not the case.

[10] At [279].