Climate accountability lagging for directors

July 19, 2021

It may be “some time” before directors face charges for failings on climate risks despite the introduction of new reporting rules in this area, a leading expert has said. 

Luh Luh Lan, associate professor at the National University of Singapore’s Business School and Faculty of Law, said in a recent blog post that the legal consequences of falling short of environmental legislation would be hard to enforce, particularly if the company is not one of the world’s 100 largest ‘carbon majors’. 

“By what standard can we say a director should be faulted for taking too little consideration or acting too slowly when it comes to climate change issues, especially when the company is not a carbon major?” Lan wrote. 

She also questioned how the “standard of liability” could be measured to judge a director’s failure to fulfil their “duty of care”. 

Additionally, Lan highlighted the difficulties in pinpointing the “corporate decisions made by the directors that may have a long-term effect on the environment” as it was difficult to assess actions that resulted in direct environmental harm. 

She added that a plaintiff would face an “uphill challenge” in defining the correlation between a “particular source of emissions and individualised climate change harms”. 

The UN Environment Programme’s Global Climate Litigation Report, published in January, shows that relatively few cases involving private defendants resulted in litigation against a government or state. 

Lan also said that “personal liability for breach of director’s duties is very low”, citing litigation examples in the UK. However, a Federal Court ruling in Australia last year held financial advisory firm Storm Financial accountable for breaching their duty of care obligations in relation to a highly leveraged investment strategy that collapsed in 2008. Lan said it was “too early to tell” whether the ruling would “open a floodgate” for litigation relating to duty of care breaches more generally. 

“We may have to content ourselves with the reality that unless there is an overhaul in the enforcement regime of directors’ duties, we are unlikely to see a spike in the number of cases against directors solely on the ground of breach of duty of care for failure to consider climate change risks,” she wrote.