Climate Change, Fiduciary Duty, and Corporate Disclosure: Are Things Heating Up in the Boardroom?
By Perry E. Wallace
INTRODUCTION
What should American corporations and their fiduciaries do in the face of the rapidly emerging but still incomplete science, policy, and law on climate change? Considering the imposing global “carbon footprint” that they collectively leave, what duties apply to American corporations and their managers under U.S. corporate and securities laws?
As the state of knowledge about climate change evolves, so do the related discourse, debate, and responses. A dialogue about fundamental regulatory issues such as “standard setting,” “convergence,” monitoring, and enforcement has begun in earnest. These developments are all the more remarkable because consequential leaders and policymakers direct significant opposition towards proactive climate change policies. Further, this opposition (which appears to be diminishing almost daily) renders knowledge and consensus about the ultimate nature and reach of a full-blown global regulatory system both less discernible and less certain.
While most businesses' greenhouse gas (GHG) emissions are not regulated under any formal regime, the approaching climate change regulatory environment is considerably more discernable and certain than in the past. These two realities, taken together, raise certain significant questions for corporations and their managers: Do U.S. corporate and securities laws impose any duties on American corporations and their fiduciaries with respect to climate change? Or are there no such duties, since most corporate operations are not affected at present by any specific climate change regulations? Alternately, do duties exist requiring such actions as public disclosure, inventory assessment, risk assessment, and cost-benefit analysis? What if the pace of either scientific discovery or regulatory expansion continues, or even accelerates? To what degree would a failure to act promptly subject a company and its fiduciaries to liabilities or to other expressions of opprobrium by the capital markets and market actors? Do corporate and securities laws even matter, given that economic and political pressures drive corporate action and that the prospect of GHG regulation continues to emerge?
This Article takes up certain questions about climate change that are gaining attention in some boardrooms and, certainly should be in all others. Part I describes the current discourse and debate of climate change issues in the United States. Here, the American corporation is introduced as a principal actor. Part II views current and emerging climate change science, law, and policy through the prism of American corporate and securities law, the primary legal framework defining the duties and liabilities of corporations, directors, and officers to shareholders and other market actors.
The principal focus of this Article is on the corporate and securities law obligations, if any, of such actors during a period in which no comprehensive system of specific positive legal duties to control GHGs is present, and in which events and discoveries yield increasingly concerning evidence of climate change's potential negative effects. Further, this Article takes into account that such evidence may soon lead to an overall regulatory structure imposing significant legal duties. Put in the admittedly provocative language of environmental policy, is there anything approaching a “precautionary principle” effect in post-Enron era corporate and securities law?
What should American corporations and their fiduciaries do in the face of the rapidly emerging but still incomplete science, policy, and law on climate change? Considering the imposing global “carbon footprint” that they collectively leave, what duties apply to American corporations and their managers under U.S. corporate and securities laws?
As the state of knowledge about climate change evolves, so do the related discourse, debate, and responses. A dialogue about fundamental regulatory issues such as “standard setting,” “convergence,” monitoring, and enforcement has begun in earnest. These developments are all the more remarkable because consequential leaders and policymakers direct significant opposition towards proactive climate change policies. Further, this opposition (which appears to be diminishing almost daily) renders knowledge and consensus about the ultimate nature and reach of a full-blown global regulatory system both less discernible and less certain.
While most businesses' greenhouse gas (GHG) emissions are not regulated under any formal regime, the approaching climate change regulatory environment is considerably more discernable and certain than in the past. These two realities, taken together, raise certain significant questions for corporations and their managers: Do U.S. corporate and securities laws impose any duties on American corporations and their fiduciaries with respect to climate change? Or are there no such duties, since most corporate operations are not affected at present by any specific climate change regulations? Alternately, do duties exist requiring such actions as public disclosure, inventory assessment, risk assessment, and cost-benefit analysis? What if the pace of either scientific discovery or regulatory expansion continues, or even accelerates? To what degree would a failure to act promptly subject a company and its fiduciaries to liabilities or to other expressions of opprobrium by the capital markets and market actors? Do corporate and securities laws even matter, given that economic and political pressures drive corporate action and that the prospect of GHG regulation continues to emerge?
This Article takes up certain questions about climate change that are gaining attention in some boardrooms and, certainly should be in all others. Part I describes the current discourse and debate of climate change issues in the United States. Here, the American corporation is introduced as a principal actor. Part II views current and emerging climate change science, law, and policy through the prism of American corporate and securities law, the primary legal framework defining the duties and liabilities of corporations, directors, and officers to shareholders and other market actors.
The principal focus of this Article is on the corporate and securities law obligations, if any, of such actors during a period in which no comprehensive system of specific positive legal duties to control GHGs is present, and in which events and discoveries yield increasingly concerning evidence of climate change's potential negative effects. Further, this Article takes into account that such evidence may soon lead to an overall regulatory structure imposing significant legal duties. Put in the admittedly provocative language of environmental policy, is there anything approaching a “precautionary principle” effect in post-Enron era corporate and securities law?
