The Commonwealth Climate and Law Initiative (CCLI), in collaboration with ClientEarth and Ceres, has produced a first-of-its-kind analysis of climate change as a risk within the purview of directors’ duties under Delaware law.
This report provides an overview of contemporary evidence that climate change and the transition to a net-zero emissions economy presents foreseeable, material, and systemic financial risks that will affect corporations. It considers that evidence in the context of directors’ and officers’ fiduciary duties under Delaware law, particularly in light of recent case law on the duty of oversight. In so doing, it sets out the practical circumstances in which a failure by directors or officers to have adequate regard to climate change-related issues could fail to satisfy the standard of conduct required to fulfil their duties and lead to potential litigation and liability exposures.
The analysis focuses on the apparent trend of shareholder derivative actions based on directors breaching their fiduciary duty of oversight (so called Caremark claims). The analysis finds that with the clear evolution of climate change as a financial risk issue, directors or officers of a corporation could be exposed to liability for breaches of their fiduciary duties for failures to adequately govern such climate-related risks – in the same way as they could for a failure to adequately govern other material risks to their corporation.