Changing nature of UK directors’ duties as climate change accelerates
Market Insight 14 March 2022 14 March 2022
UK & Europe
Climate Change Risk Practice
The fundamental nature of directors’ duties under the UK Companies Act 2006 is changing in line with the rapid escalation of climate change. Have you considered how this may impact you and your business?
In England, directors have an express statutory obligation under section 172 of the Companies Act 2006 to “have regard” to certain factors when acting in good faith to promote the success of the company. These factors include the “impact of the company’s operations on the community and environment” and the “likely consequences of any decision in the long term”. Directors are also required by s174 to “exercise reasonable care, skill and diligence” in this respect.
These duties are openly drafted and their interpretation and implementation are context specific, but as the climate crisis escalates and the regulatory, political and business landscape shifts around the transition to net zero, the scope of ‘having regard’ to the environment will inevitably change, along with directors’ duties and the potential for corporate and personal liability.
As financial incentives and penalties increasingly align with green behaviours and ethical business practices, the standard of care and consideration which UK directors must give to climate risks and environmental considerations is rapidly escalating. But what does ‘having regard’ to the environment really mean? Compliance with new statutory and regulatory climate-related obligations – such as climate-related financial disclosures and emissions reporting requirements – is bound to be caught by the duties, as is implementing net zero and emissions-reduction strategies in line with the UK government’s Net Zero target by 2050. But what about more nuanced considerations such as failing to adjust corporate strategy to take advantage of tax incentives? Or failing to navigate the company though transitional risk and supply chain disruptions that arise during the transition to net zero? Could directors be personally liable for corporate fines from failing to accurately calculate, mitigate or adapt to climate risk? What about the risk of climate litigation arising from a company’s failure to curb emissions?
These are questions that expert panellists from business, law and academia will be discussing at the upcoming conference ‘Turning aspirations into reality – go green, be ethical and protect your company’, hosted by Clyde & Co in partnership with Queen Mary University of London, on 23 March 2022.
Eminent arbitrators, businesspeople, investors and academics will be discussing, from their own perspectives, key topics related to climate change, finance, investment, policy, regulation and human rights – and how to navigate this landscape for the benefit of your company.
The event is free to attend and available to all. Please sign up at the link below.