Veteran lawyer Carol Hansell recently published a 25 paged legal opinion that concluded that corporate board are legally required to address how climate change and climate risk can impact the businesses they serve. Her primary reasoning is that directors owe information about significant risk to the companies they represent. Given that climate change is meant to cause extreme flooding, temperature increases, and eventually become catastrophic to humanity, it seems reasonable the a director would owe this information.

Proof of Climate Change

Hansell begins by noting that climate change is a legitimate imminent threat to businesses as a result of a significant amount of well-established evidence. While there are multiple pieces of evidence she uses to eliminate arguments made by climate change deniers, there are three notable pieces of evidence that she uses.

The first pieces of evidence are those based off of the International Panel of Climate Change that have established numerous times, most recently in the 2015 Paris Agreement that climate change poses significant environmental risks to humanity.

The second piece of evidence that Hansell uses to quash arguments made by climate change deniers are the economic impacts brought up by Former BOE governor, Mark Carney that climate change will have:

(i) physical consequences of climate change can damage financial assets such as floods, draughts and similar events;

(ii) businesses may be liable to compensate their clients if climate change causes significant damages to their livelihoods – such as rising temperatures negatively impacting harvesting season..

(iii) This is further supported by the Bank of Canada who highlights that not addressing climate change and risk will have catastrophic impact on economic activity. Statistics Canada reports that Canada pays an extra 2 billion a year as a result of climate change. This does not include air pollution costs, nor our polluted waters.

The third nail in the coffin are the decisions made by Canadian courts who have accepted climate change as “uncontroversial and beyond reusable dispute”. Recent reference cases such as those decided in appellant courts in Alberta, Ontario and Saskatchewan have all acknowledged the existence of climate change. The Ontario courts have described it for example as an existential threat to humanity.

It is clear from these pieces of evidence that climate change poses an undeniable catastrophic risk to humanity.

Accountability of Directors

Hansell reports that the board ought to be responsible for disclosing climate risk since it can impact the decisions of investors. Investors are more likely to invest in businesses that are well-prepared to deal with the impacts of climate change. By hiding the information, investors are acting based off of incomplete information, in which they had are more likely to impact decision making.

Luckily, there is already precedent for boards disclosing climate risk. For instance, the Ontario Teachers Pension Plan has already called out the accountability of boards with regard to climate change risk. They note that they will assess each board’s climate change risk plan, and will not support them if they do not have a plan (or insufficient planning) for climate change. Another example is that the British Columbia Investment Management Corporation puts forth that it will vote against “chair or all returning members of the relevant committee who, in its view, have not effectively performed this critical function environmental and social risk management and corporate performance has been unsatisfactory.”

It follows then that since climate change will have significant consequences on businesses, directors not only ought to have the responsibility to disclose climate risk to fulfill obligations to investors, but also, they have great incentive to mitigate climate risk if they are going to sustain investment in the long term. Further, Hansell puts forth that directors have the responsibility to act in Good Faith to disclose and address climate change risk.

Conclusion

Climate change is something that negatively impacts all of humanity. By noting the obligations that directors have to their investors about disclosing climate risk, and that climate risk is a significant factor for investors, it allows for a major culture shift in which sustainability is one of the largest drivers of business. The full report can be downloaded below. If you have any more questions, please comment below.

Investors, please share insights that you may have.

https://law-ccli-2019.sites.olt.ubc.ca/files/2020/06/Hansell-Climate-Change-Opinion-1.pdf