Executive Summary

Over time, our understanding of climate change – and its significance to corporations and investors – has significantly evolved. From being considered an ‘immaterial’, ‘ethical’ or ‘environmental issue’, climate change is now recognised as presenting foreseeable, material, financial and systemic risks (and opportunities) to corporations, investors and governments over short, medium and long-term investment horizons. As governments and regulators introduce new requirements for how corporations manage and report on climate-related risks, corporations – and their directors – must adapt.

This fourth edition of the Directors’ Duties Navigator: Climate Risk and Sustainability Disclosures (the Navigator) (previously titled the ‘Primer on Climate Change: Directors’ Duties and Disclosure Obligations’) provides an overview of contemporary evidence that climate change presents foreseeable, and in many cases material, financial and systemic risks that affect corporations and their investors. This year, the Navigator has been revamped to include new  information under an updated structure. This includes more detail on the country specific regulatory landscape, climate-related disclosures in financial statements, and directors’ duties concerning disclosures. Whilst the structure has been replicated throughout, the content has, to date, only been updated for 13 jurisdictions, being the 11 countries in which the Commonwealth Climate and Law Initiative (CCLI) has concentrated its work, including by commissioning in-depth legal analyses – Australia, Canada, Hong Kong, India, Japan, Malaysia, Philippines, Singapore, South Africa, United Kingdom and the United States - in addition to Belgium, which is a new addition to the Navigator, and Indonesia. We recognise that significant developments have taken place in most jurisdictions since August 2023 and will ensure that we capture these in the fifth edition of the Navigator in mid-2025. The start of each country section of the Navigator clearly states when the information was last updated. 

The Navigator is a comprehensive tool for directors and lawyers to understand the following jurisdiction-specific information that may impact their organisation, consumers, partners and/or clients:

1. Government and regulatory approaches to climate change, including climate-related legislation and guidance; 
2. directors’ duties in relation to climate change, specifically how these duties and company and securities law frameworks require directors and officers to incorporate climate risk in corporate strategy, governance and management; 
3. sustainability and climate-related disclosure requirements, both narrative and financial, and directors’ duties and responsibilities in relation to them; 
4. liability risks for companies, directors and officers who fail to comply with the above; and
5. practical tips for directors.

Although the Navigator focuses predominantly on climate-related risks to businesses, certain countries also include a ‘Biodiversity Risk’ box, which gives a high-level overview of biodiversity risks in that country. This reflects the growing awareness that, like climate change, the loss of nature and biodiversity represent material financial risks to corporations around the world, and therefore impact the discharge of directors’ duties. As companies begin to understand their impacts and dependencies on nature, they can start to manage, and in time take advantage of opportunities arising from, nature-related risks. To find out more about biodiversity and nature-related risks to businesses, see the CCLI's report Biodiversity Risk: Legal Implications for Companies and their Directors, Biodiversity as a Material Financial Risk: What Board Directors Need to Know, and the landmark March 2024 UK legal opinion Nature-related risks and directors’ duties under the law of England and Wales.

While legal frameworks vary between jurisdictions, it is generally the case that directors act as fiduciaries of the company in discharging their functions, and owe duties of loyalty and care and diligence to the company. The content of these duties varies as the factual context in which the directors act changes. A reasonable decision for a director 50, 10 or even five years ago might not look so reasonable today. Understanding these duties in the context of a changing external context is particularly relevant in the case of climate change, where the evidence of climate-related risks and opportunities is becoming ever more apparent and changes in regulation are gathering momentum.

As demonstrated throughout this Navigator, to discharge their duties, directors must integrate climate risks and opportunities into their governance roles.

Similarly, directors are generally subject to duties to disclose material risks facing the company to the company’s investors. Climate risks are now understood by regulators and investors as being potentially material financial risks to a company, and therefore directors need to consider whether they should be disclosed. Additionally, regulatory measures requiring mandatory disclosure of climate and other sustainability-related risks are increasingly being implemented by Governments and regulators. 

Litigation challenging companies’ contributions to climate change is becoming a reality in many countries. Over 2,666 cases have been filed as of June 2024, seeking to recoup some of the damage caused by climate change, the costs of adaptation, or to challenge governments’ or corporations’ actions or failure to act. The diversity of the types of claims, and the jurisdictions in which they are being brought, are increasing. Challenges to the actions and inactions of companies and their directors are starting to emerge, evidenced in stark form by the judgment in the Netherlands on 26 May 2021, ordering Royal Dutch Shell to reduce its CO2 emissions by 45% from 2019 levels by the end of 2030. 

Where directors fail to meet the standards of good governance, they may be exposed to litigation risks themselves. In the UK, an environmental NGO, ClientEarth, brought a claim as a shareholder against the board of Shell plc, alleging that the board has failed in its duties to act in the best interests of the company and to act with due care, skill and diligence by failing to develop and implement a climate strategy that aligns with the Paris Agreement goals, therefore increasing its risk of stranded assets and having to make write-downs (due to both physical and transition risks). Whilst this case was dismissed by the UK High Court in 2023, a former justice of the UK Supreme Court has written that the dismissal of the case without trial represents a “missed opportunity” to examine the reasonable care, skill and diligence duty in the face of a decision to align with the global objectives of the Paris Agreement (this case is discussed in detail in the UK section of the Navigator). This case is not a bar to future claims, and future claims might succeed. Boards should ensure that they have robust plans to identify and manage climate risks to ensure that they are appropriately protecting themselves from breach of duty allegations.  

We have produced this Navigator for board directors so they can be informed and prudent advocates, encouraging their boards to integrate the climate change risks and opportunities in the development of their companies’ corporate strategy, risk management oversight, governance and disclosure. This, alone, is the most effective thing directors can do to fulfil their obligations to their companies while steering well clear of any personal liability exposure from the potential increase of litigation.