The Commonwealth Climate and Law Initiative issued an interesting opinion on 11 March 2024 that analyses the relevance of nature related risks to directors duties under English law.
The opinion is well thought through. It stretches to 115 pages long and comes at a time when there is increased focus on the role and responsibilities of directors for the negative impact that their companies may have on nature.
The opinion looks at three particular aspects of the director's role
- The duty to promote the success of the company for the benefit of its members as a whole (under S172 Companies Act 2006);
- The duty to act with reasonable skill care and diligence (under S174 CA2006); and
- The obligations on directors to disclose information about the company.
The opinion considers how these obligations apply specifically to nature related risks. It is noted that under S172 directors should have regard to the "impact of the company's operations on…. the environment" – as one of a number of expressly listed matters, when taking actions on behalf of the company or making decisions. A director who gives no consideration to such matters is at risk of breaching this duty and being held to a higher standard.
Last year, the UN reported that the number of climate change court cases had more than doubled since 2017. Typically, the targets have been corporations and governments, but we are now starting to see directors personally subject to legal action such as (i) ClientEarth's action against Shell's board of directors for breach of duties for failing to move away from fossil fuels fast enough; and (ii) action by pension scheme members against the pension scheme trustees directors for continuing investments in coal, natural gas and petroleum.
Ultimately, there is a sensible recommendation in the opinion for directors to consider the nature related risks that their company might face and to take appropriate action.
While the courts have not as yet issued a landmark judgment personally against the directors of a company, the court acknowledged in the ClientEarth judgement that, with the materiality of climate risk, directors should not be breathing a sigh of relief. Lord Sales, Justice of the Supreme Court, speaking extra-judicially in 2019, said that: "As things stand, there is much force in the view that directors may and, increasingly, must take into account and accord significant weight to climate change in their decision-making […] Under certain circumstances, however, their companies' interests may be so implicated by climate change effects that their general fiduciary and due care obligations actually require them to cause their companies to take action to reduce their contribution to climate changing activity".
As the world continues on its journey to net zero emissions, the number of climate change court cases, including those which are related to nature, will keep increasing. Therefore, directors must be aware and take accountability of the impacts their company is having on the environment. If you have any questions about this article, contact Sharon Ayres.