Climate Governance Initiative

United States

3 August 2023

Back to the contents page

Climate change has become a part of both U.S. foreign and domestic policy under the Biden administration. On his first day of office, 20 January 2021, President Biden declared support for the Paris Climate Agreement and its threefold goals of “a safe global temperature, increased climate resilience, and financial flows aligned with a pathway toward low greenhouse gas emissions and climate-resilient development.”1 His climate change Executive Order on 27 January 2021 established a process to embed climate risk mitigation in every executive agency of the federal government, including establishing an inter-agency coordinating process and appointing both a foreign and domestic policy lead in newly-established positions within the White House.2

In October 2021, the White House issued a roadmap to Build a Climate Resilient Economy, where it acknowledged that “Climate change poses serious and systemic risks to the U.S. economy and financial system”.3 The report presents a climate risk accountability framework that identifies core principles for addressing climate-related financial risk, following with a roadmap and implementation strategy for action. In December 2021, President Biden signed an Executive Order for federal sustainability, pledging to reduce emissions across all federal operations, invest in local clean energy industries and manufacturing, and create clean, healthy and resilient communities.4

Secretary of the Treasury Janet Yellen has stated that climate change will be a priority, creating a hub within Treasury that will focus on financial system-related risk posed by climate change, and tax policy incentives to effect change.5 In a speech on 21 April 2021, she vowed to build on President Biden’s ‘whole of government’ approach with a “whole of economy” approach6 and released a Climate Action Plan in July 2021.7 

On 20 May 2021, President Biden issued an Executive Order on Climate Change Financial Risk, with responsibilities for Treasury, the Office of Management and Budget (OMB), and the Financial Stability Oversight Council (FSOC) and its constituent agencies.8 Among its significant aspects are initiatives to: 

  1. require the development of a government-wide strategy to assess, measure, mitigate, and disclose climate change financial risk across the Federal Government; 
  2. request a financial analysis of the capital needed to move the American economy to net-zero by 2050; 
  3. require the Treasury to work with FSOC and its constituent agencies to identify actions within each agency to identify, measure, mitigate, and disclose climate change financial risk;
  4. identify financial risk from climate within the insurance industry;
  5. identify actions that can be taken by the Department of Labor to protect pension savings and Federal pension insurance from climate change financial risk; and
  6. identify how the Federal Government can incorporate climate change financial risk into its lending, risk underwriting, procurement, and budgeting.9

On 21 October 2021, the FSOC issued a report on climate-related financial risk, noting that “[t]he increasing economic effects of climate change imply that climate-related financial risks are an emerging threat to the financial stability of the United States”, and recommending that regulators of financial institutions to require increased climate change-related disclosures and the use of scenario analysis to identify climate-related risks.10

These actions are consistent with the conclusions of and actions by the Federal Reserve Bank Board of Governors (the FED), which for the first time identified climate change as a risk to the American financial system in its Financial Stability Report (Report) of November 2020.11 As part of its Report, the Federal Reserve stated that “Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks.12 In October 2021, the Federal Reserve Board issued its annual financial stability report, assessing the resilience of the U.S. financial system. It noted that climate change “poses significant challenges for the global economy and the financial system”.13 However, the direction of FED policy may be a little more uncertain in light of comments made by Chair Jerome Powell in January 2023, in which he stated that the FED’s role should be limited to the supervision of the management of climate change-related material financial risks by banks.14

A subcommittee of the U.S. Commodity Futures Trading Commission (CFTC) has recognised the “serious emerging risks” to the U.S. financial system posed by climate change and has urged U.S. financial regulators to “move urgently and decisively to measure, understand, and address these risks”.15 Commissioner Christy Goldsmith Romero of the CFTC at ISDA’s ESG Forum highlighted the need for CFTC to consider a more ‘thoughtful approach’ “by first categorizing products as environmental/climate-related, and then conducting oversight” similar to the approach for overseeing digital assets.  He also suggested “heightened review, targeted law enforcement, and increased market surveillance can ensure the integrity of these markets, so that they are resilient to set backs and contribute to a sustainable future”.16 

Additionally, the Federal Deposit Insurance Corporation (FDIC), which insures consumer deposits and supervises financial institutions for financial stability and consumer protection, has stated that addressing the financial risks posed by climate change is a top priority for 2022,17 and has produced draft principles for climate-related financial risk management for large financial institutions, which provide a framework for the management of exposures to climate-related financial risks consistent with existing FDIC rules and guidance.18

Directors' Duties and Climate Change 

Directors’ fiduciary duties are sourced in state corporate legislation and the common law, as developed by the courts. A majority of U.S. public companies are incorporated in the state of Delaware. Directors’ core fiduciary duties are the duty of loyalty, which includes a duty to act in good faith without conflicts of interests, and in the best interest of the company; and the duty of care, which means making decisions on an informed basis after reasonable inquiry and deliberation. The duty of loyalty also includes a duty to provide adequate oversight of legal compliance, including by ensuring that reasonable information and reporting systems are implemented and maintained to provide the board and senior management with timely, accurate information to support informed decision-making. This ancillary duty is often called the board’s Caremark duty based on the case that established it.19 

There has been an increasing focus on Caremark duties since the 2019 decision of in Marchand v. Barnhill,20 allowing a duty of oversight claim to go forward, giving guidance on directors’ responsibilities for oversight of “mission critical” operations and compliance risk. In Marchand, a case involving the Blue Bell ice cream manufacturerthe Court allowed the case to go forward because the plaintiff had provided enough facts to potentially prove a “dearth of any board-level effort at monitoring” to ensure board oversight of health, safety, and sanitation controls.21Marchand may signal a doctrinal development in oversight liability that both expands the scope of the doctrine to operational oversight over “mission critical” aspects of the business, and expresses higher expectations of board vigilance regarding such core operations. This conclusion is consistent with four other recent oversight decisions applying Marchand to allow cases to proceed.22 

These cases might provide scope for fiduciary liability if a board has not ever turned its collective attention to analysing the relevance of climate change risks to the company, its operations, long-term strategy, or disclosure. Directors and officers may be liable for a breach of their duty of oversight where they have utterly failed to implement any reporting or information system or controls or where they have consciously failed to monitor such a system or controls. In the context of climate-related risks, oversight liability related to climate change may arise where directors and officers: fail to consider or oversee the implementation of climate-related legal risk controls; fail to monitor mission-critical regulatory compliance (either specific climate change-related regulations or existing regulations which require consideration or disclosure of climate change risks, such as securities law); or fail to monitor climate-related mission-critical business risks (although liability for a failure to monitor business risks has not yet been imposed in a Delaware case).23

In exercising their fiduciary duties, directors are charged with maintaining a long-term focus. In a 2017 case involving a conflict between short-term and longer-term shareholder interests, the Delaware Chancery Court confirmed the “the fiduciary relationship requires that the directors act prudently, loyally, and in good faith to maximize the value of the corporation over the long-term …24 It added, “The fact that some holders of shares might be market participants who are eager to sell and would prefer a higher near-term market price likewise does not alter the presumptively long-term fiduciary focus.” 

While directors’ duties towards their companies with relation to climate change have received limited public or judicial scrutiny in the US, the fiduciary duty owed by asset owners and managers has been the topic of some discussion. A number of Attorneys General have written to high profile asset managers who are members of the Glasgow Financial Alliance for Net Zero (GFANZ) stating, among other things, that they risked breaching their fiduciary duties by investing for political reasons.25 A case has also been filed against three New York pension funds alleging the same.26 Importantly, these criticisms relate to whether incorporation of climate risks (among other ESG factors) into investment strategies for political reasons is a breach of duty; there is little doubt that integration of climate risks to the extent that they are material financial risks is consistent with fiduciary duty.27 In May 2023, an NGO and a number of individual members brought a claim against the New York City Employees’ Retirement System and two other pension funds, alleging that the funds have breached their fiduciary duties by divesting from fossil fuel assets allegedly for political motivations.28

Directors' Disclosure Obligations and Climate Change

Public companies’ disclosure obligations are governed by federal securities laws29 and regulations.30 In 2010, the U.S. Securities and Exchange Commission (SEC) issued specific guidance to public companies to clarify their climate change-related disclosure obligations pursuant to risk factors disclosure requirements, management discussion and analysis (MD&A) requirements, and general materiality principles. The guidance emphasised that every company should consider how climate change impacts their operations and financial statements, including both direct and indirect impacts, such as impacts on suppliers and customers. It stated that:

Legal, technological, political, and scientific developments regarding climate change may create new opportunities or risks for registrants. These developments may create demand for new products or services, or decrease demand for existing products or services… These business trends or risks may be required to be disclosed as risk factors or in MD&A.31

The SEC identified regulatory and legislative developments at a state, federal, and transnational level that could increase or decrease prices as issues to be evaluated for disclosure, such as cap-and-trade arrangements among various states and countries, or new fuel standards. It also discussed physical changes from climate change as similarly requiring analysis, such as increased frequency and intensity of storms having financial implications for insurance companies, property firms, and mortgage lenders, for instance.32

In early March 2021, the SEC announced an enforcement task force that will focus on problems with companies’ climate and ESG disclosure.33 In mid-March of 2021, the SEC published a request for public input on climate and ESG disclosure.34 On 21 March 2022, following this public consultation process, the SEC issued proposed rules requiring in-scope companies to report climate change-related information, including oversight and management of climate-related risks and impacts and the process for identifying these, the impact of climate-related events on the line items of financial statements, attested greenhouse gas emissions data for scope 1 and 2 emissions (and if material, scope 3 emissions, which would not be subject to attestation), and climate-related targets, metrics and transition plans, if any. The proposed rules would require climate-related disclosures in an issuer’s registration statements and annual reports. It is proposed that these rules would be phased in.35

Practical Implications for Directors

Given that regulators in the U.S. have become increasingly emphatic regarding the need for companies and their directors to adopt climate resilience measures in business practices and disclosure, and in particular the above-noted recognition of climate risk by the President, the Federal Reserve Bank Board of Governors, the U.S. Treasury, the FDIC and the SEC; obligations for the Office of Management and Budget and the Financial Stability Oversight Council to incorporate climate risk into their work across the Federal Government; and the likely coming into effect of expanded climate and ESG disclosure across the economy, particularly for financial institutions, including insurance companies, well-counselled boards will:

  1. delegate climate risk identification and evaluation to a clearly identified team in management which reports directly to the CEO and board;
  2. put on the agenda for the board within 3 or 6 months a process to start developing a climate transition roadmap to 2050 with transparent carbon neutrality or reduction targets, with clear interim targets to 2040, 2030, and within the current rolling multi-year strategic plan, and periodically thereafter report back to the board;
  3. delegate to the appropriate committee(s) of the board, such as risk, audit, legal and governance, scenarios/strategy, nominations/remuneration, or sustainability/corporate responsibility, the task of translating the long-term strategy into a clear decision-making process for each aspect that is relevant to each committee; and
  4. discuss with disclosure counsel, to develop an external engagement and communications plan and to oversee rigorous disclosure and accounting.

For Directors of Banks, Insurance Companies and Asset Managers

Given the special attention paid by the Treasury to the implications of climate risk for systemic financial stability, and the focus of FSOC on the insurance sector, well-counselled boards of companies in the banking, insurance, and fund management sectors will:

  1. Monitor closely the evolution of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), of which the U.S. Federal Reserve became a member in December 2020, as it develops specialized guidance for prudential regulators aimed at addressing climate-related systemic financial risk;
  2. Engage with their Chief Risk Officers to ensure the robustness of internal control systems to assess, mitigate, and monitor exposure to climate risk embedded in their portfolios of loans, insurance customers and investments, insofar as the exposure of these companies to climate risk may affect their credit quality, insurance risk profile, and market valuations;
  3. Incorporate climate climate-related scenario-modelling and stress-testing within their regular risk oversight responsibilities; 
  4. Oversee innovation and product development opportunities related to expansion of the low-carbon economy; and
  5. Monitor the emergence of new disclosure criteria affecting the finance sector.


  • Professor Cynthia Williams, Osgoode Hall Law School, York University, Canada Climate Law Initiative

End notes:

1:  The White House, ‘Paris Climate Agreement: Acceptance on Behalf of the United States of America’ (20 January 2021) <>.
2:  The White House, Executive Order on Tackling the Climate Crisis at Home and Abroad (27 January 2021), <>.
3:  The White House, ‘U.S. Climate-Related Financial Risk Executive Order 14030: A roadmap to build a climate-resilient economy’ (14 October 2021) <>
4:  The White House, ‘Fact Sheet: President Biden signs executive order catalyzing America’s clean energy economy through federal sustainability’ (8 December 2021) <>.
5:  Reuters, ‘Yellen says would appoint senior climate official at Treasury’ (19 January 2021), <>.
6:  U.S. Department of the Treasury, ‘Secretary of the Treasury Janet L. Yellen’s Remarks to the Institute of International Finance’ (21 April 2021) <>.
7:  U.S. Department of the Treasury, ‘Climate Action Plan’ (July 2021) <>
8:  The White House, Executive Order on Climate Related Financial Risk (20 May 2021) <>.
10:  Financial Stability Oversight Committee, ‘Report on Climate-Related Financial Risk‘ (21 October 2021) <>
11:  United States Federal Reserve Bank Board of Governors, Financial Stability Report (November 2020), 59-60, <>.
13:  Board of Governors of the Federal Reserve System, ‘Financial Stability Report’ (November 2021) <>.
14:  Board of Governors of the Federal Reserve System, Jerome H. Powell, Speech at Panel on “Central Bank Independence and the Mandate – Evolving Views” (10 January 2023) <>.
16:  CFTC, Remarks of Commissioner Christy Goldsmith Romero at ISDA’s ESG Forum on Promoting Market Resilience: A Thoughtful Approach to the Daunting Challenge of Climate Financial Risk, (07 March 2023), <h>.
17:  FDIC, Acting Chairman Martin J. Gruenberg Announces FDIC Priorities for 2022 (7 February 2022) <>.
18:  FDIC, Request for Comment on Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions (30 March 2022) <>.
19In re: Caremark Int’l Derivative Litigation, 698 A.2d 959 (Ch. Ct. Del. 1996). Caremark construed the duty of oversight as part of the board’s duty of care, but a later Delaware Supreme Court opinion reconceptualized it as an aspect of the duty of loyalty, not care. See Stone v. Ritter, 911 A.2d 362 (Del. 2006).
20Marchand v Barnhill, 212 A.3d 805 (Del. 2019). The board had exercised no oversight of operations or food safety in the company’s ice cream plants, leading to a listeria outbreak in which three people died, and the company’s entire inventory had to be recalled and destroyed. These facts were sufficient to allege a breach of the board’s duty of loyalty under Caremark. The parties agreed to a $60 million settlement less than a week prior to the scheduled commencement of the trial: Jennifer F Longhurst and Joseph DiPonio, 'Canada: Canadian Directors Should Heed Recent US Caremark Litigation', Mondaq (18 June 2020) <>.
21Marchand v Barnhill, 212 A.3d 805 (Del. 2019).
22In re Clovis Oncology Inc. Derivative Litigation, C.A. No. 2017-0222-JRS (2019) (failure of oversight of pharmaceutical company’s research protocols); Hughes v. Xiaoming Hu, C.A.No.2019-0112-JTL (Apr. 27, 2020) (failure of oversight over audited financial statements and internal accounting function); Teamsters Local 443 Health Servs. v. Chou, C.A. No. 2019-0816-SG (Del. Ch. Aug. 24, 2020) (failure of oversight over indirect subsidiary’s criminal activities regarding handling of pharmaceutical injections); In re The Boeing Co. Derivative Litig. No. 2019-0907-MTZ, 2021 WL 4059931 (Del. Ch. Sept. 7, 2021) (failure to establish a monitoring system regarding aircraft safety).
23:  See Commonwealth Climate and Law Initiative, Fiduciary Duties and Climate Change in the United States (October 2021) <>.
24Frederick Hsu Living Trust v. ODN Holding Corp., No. 12108-VCL, 2017 WL 1437308 (Del. Ch. Apr. 24, 2017).
25:  See Attorneys General M. Brnovich, D. Peterson, S. Marshall, L. Rutledge, C. Carr, L.G. Wasden, T. Rokita, D. Schmidt, D. Cameron, J. Landry, L. Fitch, E. Schmitt, A. Knusden, D. Yost, J. O’Connor, A. Wilson, K. Paxton, S. Reyes and P. Morrisey, Letter to BlackRock Inc. (4 August 2022) <>; Attorneys General S. Marshall, C. Carr, T. Rokita, D. Schmidt, D. Cameron, J. Landry, L. Fitch, A. Knusden, D. Yost, A. Wilson, K. Paxton, S. Reyes, T. Griffin, R. Labrador, B. Bird, K, Kobach, A. Bailey, J.M. Formella, B. Hill and P. Morrisey, Letter to Asset Managers (30 March 2023) <>.
26:  See Complaint, Wong & Ors. v New York City Employees’ Retirement System & Ors.
27:  See, e.g. Max M. Schanzenbach & Robert H. Sitkoff, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, 72 Stan. L. Rev. 381, 400-401 (2020). This paper is cited in the August 2022 letter issued by the Attorneys General, and states “a trustee who reasonably concludes that reliance on ESG factors will provide risk and return benefits, and is solely motivated by this possibility, should have no hesitation in using them”, although criticises the underlying evidence as to the materiality and profitability of ESG-related funds and therefore the circumstances in which a trustee could reasonably come to such a conclusion.
28Wong & Ors. v New York City Employees’ Retirement System & Ors., docket number 652297/2023.
29:  See generally Securities Act of 1933 and Securities Exchange Act 1934 (for public disclosures).
30:  See generally Regulation S-K, Standard Instructions for Filing Forms under Securities Act of 1933, Securities Exchange Act of 1934, and Energy Policy and Conservation Act of 1975, 17 C.F.R.§§ 229.10-229.1016 (2020).
31:  Securities and Exchange Commission, Commission Guidance Regarding Disclosure Related to Climate Change, Release No.33-9106; 34-61469; FR-82 (8 February 2010) <>.
33:  SEC, SEC Announces Enforcement Task Force Focussed on Climate and ESG Issues (4 March 2021) <>.
34:  SEC, Public Input Welcome on Climate Change Disclosures (15 March 2021) <>.
35:  SEC, ‘The Enhancement and Standardization of Climate-Related Disclosures for Investors’ (21 March 2022) <>.