Armenia is a mountainous country located in the South Caucasus region with a high concentration of land at high altitudes. This topography, combined with the country's landlocked status, makes it susceptible to a variety of hazardous hydrometeorological phenomena (HMP), such as droughts, landslides, mudslides, and forest fires. These HMP can cause significant damage to the Armenian population and economy. Armenia is particularly vulnerable to the adverse impact of Climate Change.
Cognizant of this, the Government of the Republic of Armenia (RA) has enacted policies to ensure the implementation of short- and long-term actions to mitigate these risks. Particularly, in 2021 the decision on approving the National Action Plan for Climate Change Adaptability and List of Activities for 2021-2025 (National Action Plan) was adopted.
This decision has highlighted tree main categories of obstacles to adaptability:
- Governance and institutional obstacles, which among others comprises obstacles in terms of institutional coordination in collection, analysis, and management of data. Moreover, the issues are not properly included in the functions of state administration bodies that have key roles.
- Informative, knowledge and technological obstacles, which diminish the process of adaptability. There is a lack of available information at all administrative levels.
- Financial obstacles, which hinder the implementation of adaptation steps
Finally, obstacles like the low income of the population, the relative distance of the country from the main economical centers, economic isolation further limit the ability of the country to adapt to the impact of climate change.
The National Action Plan includes implementation of two sets of actions. The first is aimed at implementing cross-sectoral activities to strengthen the capacity of country’s institutions to identify, prioritize, plan necessary actions as well as attract financing for these undertakings. The second set of actions is aimed at adaptability undertakings for six priority sectors: water management, agriculture, energy, settlements, health, and tourism for two regions (as a test period).
The specific set of actions indicated by the action plan are aimed at regulating the implications of the climate change risks in the policy development plans of the specific sectors. In the meantime, the policy does not indicate specific set of actions or recommendations for activity to the Central Bank of Armenia or the Central Depository of Armenia: currently the aim of the policy is to regulate the strengthen the policy of the government in the sectors that are of high priority. For the time being, the key corporate and financial regulators are not engaged in this set of actions.
Directors’ Duties and Climate Change
The RA Law on Limited Liability Companies and the Law on Joint Stock Companies determine a general obligation of fiduciary duty of directors towards the company. These fiduciary duties are not applicable to the actions of the directors related to the climate change or the potential harm caused to stakeholders (other than the company or the shareholders thereof). The directors of Armenian companies (whether public or private) are not legally required to ensure that their companies operate in a way that complies with the adverse impacts of climate change. This, by extension, applies to the companies themselves.
The policies that companies may choose to implement in order to proactively mitigate the prospective risks associated with climate change are predominantly subject to their autonomous decision-making processes. Certain (larger) companies do adopt certain policies within their corporate social responsibility initiatives, but these are fully dispositive.
In 2010, the Government of Armenia has approved the Corporate Governance Code of Armenia (Corporate Governance Code), which is dispositive and is advisory in nature: it is not obligatory for companies to adopt the policies indicated under this code; however, they are strongly encouraged and recommended to do so. This code advises companies to indicate the scope of their stakeholders in general and actively cooperate therewith to increase the welfare of society. Further, this code advises the boards of companies to define environmental policies, which among other things shall include waste management policies.
Therefore, the Corporate Governance Code does not explicitly encourage the companies to take actions or undertake obligations to tackle the impact of climate change, but advises on adopting environmentally aware policies and mechanisms. Yet, as mentioned above this is dispositive and the number of companies which have adopted the said code (if any) is not large.
On the other hand, the approach taken by the legislation of Armenia is setting sector specific obligations on the companies to protect the environment and diminish the harmful impact thereon. In a number of instances both the Criminal Code of Armenia and the Code of Administrative Offences indicates liability for the companies in case of certain actions that have harmed the environment or breached the regulations of environmental protection. This, among others, includes liability for air, subsoil and water pollution, illegal cutting of trees, breach of regimes in specially protected areas, etc.
Directors' Disclosure Obligations and Climate Change
Armenian legislation does not indicate specific (climate change related) disclosure related duties for the companies whether they are publicly listed or not. In the meantime, it is noteworthy, that within the Extractive Industry Transparency Initiative, the companies in Armenia are obliged to provide declarations on the ultimate beneficiaries of the companies. These requirements are specifically enhanced for the companies that hold licenses for extraction of mineral resources. Further, Armenian legislation provides both administrative and criminal liability for failure to reveal the beneficial owners of the companies.
Practical Implications for Directors
In light of the substantial influence of climate change on Armenia, encompassing its economic landscape, it is strongly recommended that companies establish internal procedures to enhance their capacity to navigate climate change impacts.
Among other things it is advised to:
- Ensure that the company's decision-makers are well-informed about environmental laws relevant to the company's operations, taking into consideration the specific industry focus of their respective companies;
- Perform annual comprehensive internal due diligence to ensure that the real beneficiaries of the companies are accurately identified and publicly disclosed;
- Implement internal policies aimed at ensuring the company's activities are conducted in accordance with environmental laws, with a focus on minimizing the potential adverse environmental impacts resulting from these activities;
- Implementing the Corporate Governance Code’s regulations and developing corporate governance guidelines, including policies related to Environmental, Social and Governance (ESG) matters in compliance with internationally recognised standards; and
- Companies within eco-sensitive sectors, including mining, energy, urban development, etc, may create specialised committees within the boards of directors for addressing climate and environment related issues.