Corporate directors have a legal obligation to address the risks and opportunities that climate change poses to the companies on whose board they serve, a corporate governance expert says in a new study.
Directors should recognize that the courts, regulators and investors accept that climate change poses real risks, veteran lawyer Carol Hansell wrote in a 25-page legal opinion released on June 25.
They expect that management teams and boards are alert to those risks and opportunities, and are reflecting their assessment of that risk in their strategic thinking and risk management practices.
Hansell is one of Canada’s top experts on corporate governance. In addition to her distinguished legal career, she has served on corporate boards, and as fellow with the Institute of Corporate Directors and adviser to the Corporate Laws Committee of the American Bar Association.
In her analysis, she states unequivocally that corporate directors have a duty to assess the degree to which climate change will impact a company over the long-term, not just its short-term profits or business plans. They must also ensure that, where risks and opportunities are material to the firm’s business, management must come up with strategies to address them.
Hansell prepared the legal opinion for the Canadian Climate Law Initiative, which is housed at University of British Columbia Allard School of Law and York University’s Osgoode Hall Law School. It is the first in-depth legal analysis of directors’ duties in a corporate governance context by a senior Canadian lawyer.
It comes as the global business community is focusing more closely on the climate crisis and its impacts, both in terms of physical impacts, such as extreme weather, drought and flooding, as well as government policy response and technological changes.
The Bank of England, for example, published its own climate-change disclosure report on June 18, in which it outlines how it will address the impact on the British economy and the financial institutions which it supervises.
Climate change creates financial risks that are far-reaching in breadth and scope, the Bank of England noted. They will affect all agents in the economy and arise through two primary channels: the physical effects of climate change and the impact of changes associated with the transition to a net zero emissions economy.
Corporate Knights Inc.