Climate Change: Directors Take Note...


Originally published in BLG's Directors' and Officers' Liability Review, Summer 2007

It is now accepted that the global climate is changing and that man-made carbon emissions are the cause. The February 2007 report of the Intergovernmental Panel on Climate Change has recently reinforced the already overwhelming evidence for this link.

With one or two exceptions, governments around the world are taking the climate change challenge seriously. In the UK, for instance, a Climate Change Bill has just been produced for public consultation. It sets out a framework for legislation that will tackle emissions of greenhouse gases.

The risks and opportunities

There are going to be significant opportunities for companies and individuals arising out of climate change in the coming years. Energy efficiency and renewable energy production are likely to be strong growth areas.

Equally, there will be significant risks:

The heightened risk of adverse weather events - a key feature of climate change - could leave certain geographical areas or business sectors exposed to severe disruption;

The increasing worldwide regulation of carbon in response to climate change could impose increasing financial burdens on industries with large carbon footprints;

Customers and investors could decide to shun carbon intensive businesses and/or businesses that are not "doing their bit" to address their carbon footprint;

Poor performance of suppliers or customers who have failed to manage climate change risks could have an impact on a company's results, as could the poor performance of investments affected by climate change; and

Actions against carbon intensive businesses by those who have suffered climate change-related damage could be brought. These will be difficult to prove, but this has not stopped the first such actions from being started in the US.

D&O liability

Traditionally, it has been environmental pressure groups which have targeted companies over their environmental performance. However, in relation to climate change, it is investors who are increasingly scrutinising corporate activity. Boards of directors need to be taking steps to ensure that climate change opportunities and, in particular, risks are properly factored into their decision-making processes. Directors need to remember that any failure in this regard could result in legal action.

Two important aspects of the Companies Act 2006 (the "Act") could increase directors' exposure to litigation of this type:


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