Directors of Hong Kong-incorporated companies are obliged to take climate risk into account in the discharge of their obligations to the company or face the potential for personal liability, warns a new legal opinion.

Commissioned by the Commonwealth Climate and Law Initiative (CCLI), the legal opinion, ‘Directors’ Duties and Disclosure Obligations under Hong Kong Law in the Context of Climate Change Risks and Considerations’ is authored by Mr Alex Stock SC and Ms Jennifer Fan at Temple Chambers.

Regulatory authorities, including the Hong Kong Monetary Authority (HKMA), have taken detailed and specific steps to bring climate change risks to the attention of banks and insurers and listed companies. Climate change has been placed at the forefront of Environmental, Social and Governance (ESG) considerations, and there is an increasing focus on the need for board level consideration of and responsibility for such matters.

The new legal analysis finds that Hong Kong directors of listed companies would find it very difficult to claim that they were unaware of various forms of climate change risks to their companies’ businesses, where those risks have been repeatedly drawn to their attention including during the ESG-disclosure process.

Mr Stock SC and Ms Fan recommend that boards of directors, whether listed or not, conduct thorough analyses of the risks and opportunities faced by their company in relation to climate change. Directors need to take active and genuine steps to address climate change risks which are material to their company’s interests.