BTX3100 Take Home Assignment 1: Climate Change Regulations Impact

BTX3100 Assessment Task 1 - Take Home Assessment 2025, Written Advice Brief

This task assesses your understanding of international and Australian climate change regulation and its application to Australian businesses (topics 4 and 5). It tests your ability to identify relevant regulatory instruments and frameworks, explain their purpose and function, and apply them to a real-life business scenario. The task also develops your written communication competencie

BTX3100 Criteria For Marking

BTX3100 Contextual Information

Please note that this is a hypothetical fact scenario, which is loosely based on a real-world situation. While much of the contextual information is current and accurate, the company DatDox Ltd, and many other aspects of the problem are purely fictional.
DatDox Ltd ('DatDox') is a public company listed on the Australian Stock Exchange (ASX). DatDox is in the business of building and operating data centres, with sites in Australia and overseas. It has a consolidated revenue of more than $700 million and the value of its consolidated gross assets at the end of 2024 is more than $1 billion. While business has been going well over the last few years, sales have rapidly increased with demand from the internet, cloud and generative Al underpinning an increased need for data storage and computation capacity. DatDox is considering a significant expansion, doubling its data centre capacity in Australia.

The company's data centres are purpose built. They consist of large buildings with specifically engineered concrete floors and reinforced steel to hold the weight of equipment. The buildings need to be near high voltage electricity and communication hubs, especially major internet nodes. In Australia, this has meant most of DatDox's facilities are in coastal cities. Due to early experiments with placing servers in containers under the ocean to assist with cooling and to maintain constant temperatures, DatDox's facilities are adjacent to the sea.

Data centres have increasingly come to the attention of the public due to their power needs. In the United States, data centre energy needs have seen proposals for the use of small modular nuclear reactors, including reopening the infamous Three Mile Island facility. According to the International Energy Agency (IEA), data centres can have energy demand as high as 100MW per facility and collectively, the energy they use makes up 1% of global energy demand.?

DatDox has recently sought advice in relation to potential compliance obligations that may arise for the company following recent reforms to the Safeguard Mechanism in Australia. They have been advised that they are unlikely to become bound by the mandatory emissions reduction targets imposed on large greenhouse gas emitters. Yet investments in new data centres are multi- decade, and DatDox is concerned about future legislation that may be implemented in line with Australia's targets to reach net-zero emissions by 2050. As a result, they are investigating purchasing energy from only renewable sources and installing large on-site batteries to buy renewable energy when it is plentiful during the day and store it for nighttime use. They have not yet implemented or undertaken an investment decision, however the findings from the investigation will feed into a broader board review of the company's climate strategy.

In the company's most recent sustainability report for 2024, DatDox included the following paragraph on climate-related risks, with similar wording included on the company website. In keeping with their 'tech co' ethos, the wording used was generated by ChatGPT:

Data centre companies face several climate-related risks that can impact their operations and infrastructure. Rising temperatures and extreme weather events, such as heatwaves, floods, and storms, pose a significant threat to the physical integrity of data centres, potentially causing power outages, hardware damage, and service disruptions. Increased temperatures can also lead to higher cooling demands, raising energy consumption and operational costs. Additionally, flooding and other natural disasters 
could damage facilities located in vulnerable regions, leading to downtime and costly repairs.

Data centre companies also face climate-related risks due to their high carbon emissions. While we commit to aligning with the Paris Agreement's goal of limiting global warming to 1.5°C, our current emission levels expose us to regulatory scrutiny and investor concerns. Regulatory changes aimed at reducing carbon emissions may impose stricter sustainability requirements, forcing companies to invest in greener technologies. Transition risks, such as market shifts toward sustainable infrastructure and rising stakeholder expectations for transparency, further challenge us to accelerate our decarbonisation efforts through renewable energy adoption, energy efficiency upgrades, and credible carbon offset strategies. Failure to meet our climate targets could damage our reputation and competitiveness. Long-term climate patterns, including shifting precipitation and temperature levels, may also affect the reliability of local energy supplies, further impacting data centre operations. Addressing these risks requires proactive infrastructure planning, climate resilience strategies, and investments in sustainable technologies.

Following recent reforms to the Corporations Act 2001 (Cth) in Australia, the sustainability team is leading a project to ready the company for reporting more comprehensively on climate- related risks (noting mandatory climate change disclosures for some qualifying companies commenced on 1 January 2025). They have received the following feedback from two board members:

Ella Davies, Non-Executive Director, Datdox:

Hi-I've been reading our messaging on climate change for the website and sustainability report. Why are we being so defensive on climate? We are a technology company that is part of the solution! I get none of this from our report. We should be out there saying our data-centres are clean, green and will solve the climate crisis. Please work this into our messaging.

From Bill Bryers, Board of Directors, Dat Dox:

The climate risks section reads like it was written by Al. It is too general and does not demonstrate that the company and its directors have considered the real risks facing the company. We are concerned that this exposes not only the company to future claims but also directors for breach of their directors' duties.

The following question(s) relate to this fact scenario.

Question

The Board of Directors has asked for a letter of advice from you that addresses the following questions:

1. What obligations does the company have to disclose on climate change? What types of climate-related financial risks might be relevant to this company? Is the Al generated text sufficient? How should the board approach setting targets and outlining strategies to address climate-related risks?
2. Should DatDox include more positive statements on its climate performance on its website? What are the potential implications for DatDox of recent greenwashing action by ASIC and ACCC and related strategic litigation (e.g. Australasian Centre for Corporate Responsibility v Santos Ltd)?