Breach of Duty or Business Judgment? Assessing Corporate Board Liability for Climate Action Failures

Abstract

The environmental threat of climate change presents both material financial and operational risks to companies across the globe, which bring up new issues concerning the responsibilities of corporate boards. The paper will discuss the question of whether the directors who neglect to put the climate action in the corporate strategy may be held legally liable or their decision may be defended by the business judgment rule. The paper compares statutory obligations (e.g. UK Companies Act, U.S. corporate law) and major cases in different jurisdictions with the help of a doctrinal, comparative approach. The Paper considers new climate litigation against boards (including Shell Hague and London), and generalize academic commentary (e.g. Williams; Hutley). The paper discovers that, so far, the majority of boards are insulated on traditional norms: in Delaware and other common-law jurisdictions, the business judgment rule protects informed and good-faith decision-making, and in the UK enlightened shareholder-value duties only need to be climate-sensitive provided it is in the best interests of the corporate. Suing is further obstructed by litigation obstacles (Foss v. Harbottle, Caremark thresholds). However, the tendencies show the increasing requirements: now, regulators and advisors threaten to violate the responsibilities of directors who deliberately ignore climate risks. It concludes that it will be hard to prove climate-related violations under the existing law without express statutory requirements. The paper proposes legislative change (e.g. mandatory climate risk statement requirements, better fiduciary advice) and best practice (improved disclosures, board skill) to bring corporate governance into line with sustainability requirements.