This section has not been updated since the first edition of the Primer published in June 2021.
In 2018, Ukraine adopted the Low Emission Development Strategy 2050, which defines a potential pathway for economic development that takes due account of the goals set by state policy on emissions reduction and greenhouse gases emissions absorption. Implementation of this strategy will inevitably have a significant impact on the private sector. Therefore, substantial legislative and institutional developments envisaged by the strategy should be taken into account by company directors.
Ukrainian law1 imposes certain general duties on directors of companies. The fundamental duties of directors include, inter alia, the duty to act in the best interests of their company, to act diligently and in good faith, to act within their powers. A more detailed and comprehensive list of directors’ duties and authorities is set out in each company's charter.
Directors are liable for losses to their companies caused by their wilful misconduct or inaction. In such cases, the companies’ founders (shareholders) may submit a derivative claim on behalf of the company.
Although the law does not explicitly provide for directors’ duties to address the risk of the adverse impacts of climate change on the company, their failure to do so may lead to damage suffered by the company. In such cases, the court would decide if the damage has been caused to the company by the directors’ wilful misconduct, and if the loss was therefore the directors’ fault as a matter of law.
A. Climate change and environment
Directors are responsible for ensuring that their companies comply with all relevant statutory obligations, including environment-related disclosure. In Ukraine, environmental monitoring by the state is conducted by means of collecting and processing data on environmental matters as reported by companies. Such state statistical reporting is mandatory and covers, among others, air and water. The following discusses reporting obligations most relevant to climate change:
i. Greenhouse gas emissions
On 1 January 2021, the Law of Ukraine On Principles of Monitoring, Reporting and Verification of Greenhouse Gas Emissions entered into force. The law is deemed to be a step towards Ukrainian integration with the EU in terms of compliance with the EU acquis on environmental protection.
Companies operating equipment or facilities that produce greenhouse gases are obliged to prepare plans for monitoring their GHG emissions and submit them to the Ministry of Environment and Natural Resources of Ukraine for approval. They have to prepare annual reports on GHG emissions for verification by independent experts. The verified reports must then be further approved by the Ministry of Environment and Natural Resources of Ukraine.
According to the Ukrainian Law On Commercial Activities with Ozone-Depleting Substances and Fluorinated Greenhouse Gases, dated 12 December 2019, separate accounting and reporting must be made on imports, exports and use of the aforementioned substances and fluorinated greenhouse gases.
ii. Atmospheric air pollution
All companies operating stationary sources of air emissions must annually submit to the state statistical authorities a report on emissions of pollutants and greenhouse gases into the atmospheric air (according to form No.2-tp (air)).
The data on emissions of pollutants from mobile sources (industrial, agricultural and other machinery, automobile etc.) must be submitted separately.
B. Securities and stock exchange-related disclosures
Ukrainian companies issuing securities listed on the stock exchange are obliged to submit annual management reports containing both financial and non-financial information characterizing the company’s status and the prospects of its development. The report must include, inter alia, a description of the risks and uncertainties faced by the company in its business activities. In that context, we assume that any climate risk-related information may be considered by the company's management as relevant and should be disclosed in the annual management report.
Despite climate change attracting more attention from the Government, Ukrainian legislation does not explicitly include any regulations on specific climate resilience measures that companies must take to adapt to climate change and minimize related risks. However, as the risks related to climate change become more obvious each year, and damage resulting from climate change can be better anticipated and measured, the following best practices should be considered by companies and their boards:
- delegate climate risk identification and evaluation to a clearly-identified team in management that reports directly to the CEO and board;
- put on the agenda for the board within 3 or 6 months a process to initiate the development of a climate transition roadmap to 2050 with transparent carbon neutrality or reduction targets, with clear interim targets to 2040, 2030 and the current rolling multi-year strategic plan, and periodically thereafter report back to the board;
- 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
- initiate discussions with relevant sector associations and NGOs about the risks anticipated for the business and possible mitigation opportunities.
Contributors:
- Oleksandr Kurdydyk, DLA Piper Ukraine
- Kateryna Soroka, DLA Piper Ukraine
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