Companies will be vital in driving the transition to Net Zero and in achieving the objectives of the Paris Agreement. They are being incentivised to consider the long-term risks that climate change may pose to the environment and their own profitability, alongside the potential liability and regulatory risks that may arise in the short term for them.
Company directors have a legal obligation under the Companies Act 2006 to have due regard to “the impact of the company’s operations on the community and the environment”. The Commonwealth Climate and Law Initiative has suggested that this may put directors at serious risk of breaching their fiduciary duties if they "consciously disregard, or wilfully ignore, material financial risks associated with climate change".
Company directors could face liability resulting from failing to:
- mitigate emissions;
- adapt to physical impacts of climate change;
- adapt investment strategies; or
- disclose climate related risks.
Ignoring climate change may also carry regulatory risks. Regulators are moving towards incorporating climate change considerations into corporate governance practices. For example, the FCA recently published proposals requiring companies to include climate change disclosure compliance statements in their company reports.
To mitigate these risks and prepare for the transition to Net Zero, companies need to push climate change up the corporate agenda and ensure that it is addressed at board level.
Clauses can assist in putting climate change at the forefront of companies' minds. The Paris Compliant Company Objects amend company articles to put climate change at the heart of company objectives; the Environmental Business Charter encourages lawyers to raise the issue of climate change with their clients; and the Climate Change Aligned Board Minutes encourage company boards to keep the issue at the forefront of board meetings.
Clyde & Co is proud to be assisting clients with this by drawing attention to the corporate risks associated with climate change and showing how these may be addressed by adopting the clauses referred to. Please reach out to me or one of our climate change experts if these clauses are of interest.
This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project. Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.