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.