Legal liability risks from climate change for British, Australian, Canadian and South African company directors and pension fund trustees will be assessed under a new Commonwealth Climate & Law Initiative (CCLI) launched during the Commonwealth Heads of Government meeting in Malta today today.
The Commonwealth Climate & Law Initiative is a new research, education, and outreach project focused on four Commonwealth countries: Australia, Canada, South Africa, and the United Kingdom. CCLI will examine these issues in these countries and across other Commonwealth common law countries.
The initiative will examine the legal basis for directors and trustees to take account of physical climate change risk and societal responses to climate change. In addition, it will also assess the materiality of potential liabilities associated with inaction. CCLI is a joint initiative between the University of Oxford’s Smith School of Enterprise and the Environment, ClientEarth, and The Prince of Wales’s Accounting for Sustainability Project.
The unparalleled economic risks from climate change have led to rising concerns over the legal liability risks for individuals, companies, and investors in recent months. In September 2015 Bank of England Governor Mark Carney warned company directors could be held legally liable for failing to manage climate change risks. In early November 2015 the New York State Attorney General issued subpoenas to Exxon and Peabody Energy and began investigations over claims they misled the public and investors about the dangers and potential business risks associated with climate change.
These developments, and others, could potentially have significant implications for the insurance sector, but also for other parts of the financial system and for companies in carbon intensive sectors as well. Company directors and pension fund trustees, could be held liable for i) contributing to anthropogenic climate change, ii) not reasonably managing the risks associated with climate change, and/or iii) misleading investors about the business risks of climate change or failing to comply with legal reporting requirements.
Ben Caldecott, Programme Director at University of Oxford’s Smith School of Enterprise and the Environment, said: “Company directors could be at risk of litigation if they mislead investors and the public about climate change. They may also face litigation for having contributed to anthropogenic climate change. This is a very new area, but one with potentially significant consequences. This new initiative will help investors to assess the materiality of these potential liabilities and inform best practice across Commonwealth common law countries.”
Jessica Fries, Executive Chairman of The Prince’s Accounting for Sustainability Project, said: “Climate change poses significant risks for pension funds and companies, in addition to that faced by society as a whole. Trustees and company directors need to ensure that they respond appropriately. A proper understanding of the legal and fiduciary responsibilities is key. This new initiative will explore the issues faced and help to develop a response.”
James Thornton, CEO of ClientEarth, said: “The days of treating climate change as a fringe concern are over and the potential for climate change litigation against companies or individual directors is growing. They urgently need clarity on their responsibilities, so this initiative is timely.”
Katalaina Sapolu, Director, Rule of Law, Commonwealth Secretariat, said: “The Initiative addresses a key intersection between climate change and national law. Its findings will support Commonwealth countries in formulating fair, balanced and progressive legal responses to climate change risks and responsibilities.”
Sarah Barker, Special Counsel, Minter Ellison (a leading Australian-based corporate law firm), said: “The relationship between climate change and corporate wealth generation continues to rapidly evolve. The CCLI’s work to clarify the legal obligations of directors on point will address a significant gap in the governance and risk management literature. This will provide a critical foundation for directors and their advisors to remain assured that that risks and opportunities associated with climate change are being governed in accordance with their fiduciary duties.”
Ed Waitzer, Senior Partner, Stikeman Elliott LLP (a leading Canadian-based corporate law firm), said: “This timely initiative comes at (and will contribute to) an inflection point in the trajectory of the law. New regulation and expectations will touch the financial services and other sectors, as well as those directly responsible for the governance of issuers and investors in carbon-intensive industries. The implications will spread rapidly to other environmental and social issues. Mapping the trajectory of the law in this area is a societal imperative.”