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Hansell LLP Legal Opinion: Corporate ...

Hansell LLP Legal Opinion: Corporate Directors are Obliged to Address Climate Change Risk

Climate change has been identified by the scientific community and accepted by world leaders as an existential threat. Governments and regulators in Canada and internationally have been engaged for many years in responding to the risks posed by climate change. The implications of climate change for the economy and individual businesses have been an important area of focus.

We have been asked whether directors of Canadian corporations are obliged to address climate change risk. The answer is clearly yes. Canadian courts have accepted climate change and the risks it presents as self-evident and uncontroversial, as has the investment community. It would be nearly impossible for a director to dismiss climate change risk out of hand. The obligation of directors to consider the implications of climate change risk is grounded in the duties each director owes to the corporation he or she serves. In managing or overseeing the management of risk, directors must meet the objective standard of what a reasonably prudent person would do in comparable circumstances. Among other things, directors must put aside their own preconceptions about the reality or imminence of climate change risk. They may not demure to management and simply wait for presentations to be made to them. Directors must put climate change on the board agenda. They must require reports and recommendations from management and external sources as necessary, and be satisfied that the corporation is addressing climate change risk appropriately.

Directors must act with a view to the best interests of the corporation. This can be complex in application. The issues may be long term or short term and must be evaluated in the context of a shifting landscape. While the corporation is responding to climate change risk, so too are the corporation’s customers, suppliers, employees and investors. Directors may take the interests of the corporation’s stakeholders into account, but those interests may be different from one another. It falls to the directors to determine whose interests should prevail, but a judicial determination of this nature in the context of climate change risk is largely untested.

The governance tools necessary to deal with risk are well developed and readily adaptable to deal with climate change risk. Many Canadian boards are deeply engaged in climate change risk and provide exemplary leadership for other boards, both in Canada and abroad. Others must now begin their engagement with these complex issues.

Read the Opinion: Putting Climate Change Risk on the Boardroom Table