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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.

Since the publication of the first edition of the Primer on Climate Change: Directors’ Duties and Disclosure Obligations in June 2021, there have been substantial developments in the way in which climate risks, impacts and opportunities are perceived by governments, regulators and debt and equity investors. These have been catalysed by landmark political events such as COP26, but also the increasingly stark impacts of climate change, with floods, fires and heat waves disrupting infrastructure, supply chains and communities.

This second edition of the Primer on Climate Change: Directors’ Duties and Disclosure Obligations 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:

  1. General climate obligations in the jurisdictions where The Climate Governance Initiative is present though its global network of national Chapters;
  2. 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;
  3. Disclosure obligations; and
  4. Advice to directors.

Litigation challenging companies’ contributions to climate change is becoming a reality in many countries. Over 2,000 cases have been filed as of 31 May 2022, seeking 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 companies and their directors are starting to emerge, 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.

Published in collaboration with the Commonwealth Climate and Law Initiative covering 26 countries and the EU, this Primer is for board directors so they can be informed and prudent advocates, encouraging their boards to integrate the issue of climate change issues in the development of their companies’ corporate strategy, risk management oversight, governance and disclosure. This, alone, is the most effective thing directors can do to fulfil their obligations to their companies while steering well clear of any personal liability exposure from the potential increase of litigation.

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