Momentum grows to force corporate boards and pension-plan trustees to disclose climate risks and opportunities

There’s a common misconception that corporate directors have a legal duty to maximize profits for shareholders, even if this comes at the expense of the planet.

But according to UBC Peter A. Allard School of Law associate professor Carol Liao, that’s not true in Canada.

In fact, directors have a fiduciary duty to the corporation.

“Our Supreme Court has made it explicit that this includes a duty to treat individual stakeholders [including shareholders] affected by corporate actions equitably and fairly,” Liao explained by phone. “And the environment is a recognized stakeholder under the Canada Business Corporations Act.”

Liao, UBC law professor Janis Sarra, and Osgoode Hall law professor Cynthia Williams are principal investigators with the Canada Climate Law Initiative, which focuses on fiduciary obligations related to climate change.

“The wording of our statutes and common-law fiduciary obligations make it clear there is a duty on directors to address climate change when material climate-change litigation is a reality in Canada,” Liao said.

That point is driven home in a legal opinion on the CCLI’s website.

Written by corporate-governance expert Carol Hansell in June, it noted that Canadian courts “have accepted the existence of climate change risk without the need for litigants to prove the point”.

Moreover, Hansell stated that corporate directors “must put climate change on the board agenda”.

“They must then receive reports and recommendations from management and reports from external sources as necessary, to be satisfied that the corporation is addressing climate change risk appropriately,” Hansell added.

And if they don’t do these things, they can create legal liability, according to Liao. She described climate change as a “risk multiplier” because it’s interconnected with other systemic risks.

“So it’s really urgent for boards to be strategic in their deliberations as to how to enhance climate resilience,” Liao said.

New Zealand takes a major step forward

The Task Force on Climate-related Financial Disclosures (TFCD), chaired by former New York City mayor Michael Bloomberg, is trying to help corporations develop principles and guidelines to accomplish this.

It recommends that corporations produce disclosure statements describing climate-related risks and opportunities over the short, medium, and long term.

“The TFCD recommendations are being endorsed as the global benchmark for climate-related reporting, including the governance of climate issues,” Liao said.

Last month, New Zealand became the first country in the world to announce plans to require asset managers and financial institutions to publicly report on the climate risks to their businesses and portfolios.

“Australia, Canada, the U.K., France, Japan and the European Union are all working towards some form of climate risk reporting for companies, but New Zealand is moving ahead of them by making disclosures about climate risk mandatory across the financial system,” that country’s climate change minister, James Shaw, said in a September news release.

So could we soon see the Canadian government pass a law requiring corporations to issue these statements?

“I feel like climate disclosure is just around the corner,” Liao said. “As we saw in the last federal election, climate change is on all the politicians’ agendas.”