Primer on Climate Change: Directors’ Duties and Disclosure Obligations
The evolution of our understanding of climate change from an ethical or environmental issue to one that presents foreseeable financial and systemic risks (and opportunities) over short, medium and long-term investment horizons has significantly changed its relevance to the governance of both corporations and investors. This evolution means there are serious implications for the duties of directors and officers, and potential disclosure obligations for companies.
This Primer provides an overview of contemporary evidence that climate change presents foreseeable, and in many cases material, financial and systemic risks that affect corporations and their investors. It then discusses:
- general climate obligations in the jurisdictions where The Climate Governance Initiative is present though its global network of national Chapters;
- how company law and directors’ duties in these jurisdictions require directors to incorporate climate change into their strategies, legal oversight, and supervision of the companies entrusted to their care;
- disclosure obligations; and then
- advice to directors.
Litigation challenging companies’ contributions to climate change is becoming a reality in many countries. Over fifteen hundred cases have been filed as of the end of 2020 to recoup some of the damage caused by climate change or the costs of adaptation, or to challenge governments’ or corporations’ actions or failure to act. Challenges to the actions—and inactions—of directors are starting to accumulate, evidenced in stark form by the judgment in the Netherlands on 26 May 2021, ordering Royal Dutch Shell to reduce its CO2 emissions by 45% from 2019 levels by the end of 2030. This Primer has been produced for board directors so they can be informed and prudent advocates, encouraging their boards to take up the issue of climate change in the development of their companies’ corporate strategy, oversight, and disclosure. This, alone, is the most effective thing directors can do to fulfil their obligation to their companies while steering well clear of any personal liability exposure from the potential increase of litigation.CGI-CCLI-Primer-on-climate-change pdf | 1766 kb