(Originally published in Lawyer’s Daily, on June 4, 2021)
The past week we have seen companies, countries and corporate directors ordered to act on climate, by climate activists, shareholder activists and youth activists.
On May 26, the district court in The Hague, Netherlands, ordered Royal Dutch Shell to cut its carbon emissions by a net 45 per cent by 2030 compared with 2019 levels. Not only was the company held responsible for lowering its direct emissions from drilling and other operations, but also those of the oil, gas and fuels eventually burned by consumers.
The case was brought to the court by climate activism groups.
Later on May 26, Engine No. 1, an upstart hedge fund owning only about 0.02 per cent of Exxon Mobile’s stock, called for Exxon to gradually diversify its investments to be ready for a world that will need fewer fossil fuels in coming decades. In a shareholder vote, Engine No. 1 won at least two board seats with support from top investors such as BlackRock, State Street and Vanguard Group.
On May 27, the Australian court found that Australia’s Environment Minister, Susan Ley, owes a duty of care to younger children and vulnerable people and must not act in a way that causes harm — future harm — from climate change to younger people. The case was brought on by eight teenagers, along with an 86-year-old nun.
The case echoed a ruling in Germany in April — a month earlier. The German court said the government must set clear goals for reducing greenhouse gas emissions after 2030, arguing that existing legislation risks placing a burden for curbing climate change on younger generations.
While the Dutch court and the “proxy voting court” have ordered corporations to act, the impact on corporations of the Australian case remains to be seen.
The Australian Federal Court dismissed the teenagers’ claim, seeking to prevent the environment minister from approving a coal mine extension by Whitehaven Coal’s Vickery coal mine. Instead, the court said in its ruling in Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560, that the minister could foresee the possibility of future harm caused to the children in the case by the increase in carbon dioxide emissions from Whitehaven’s expansion and therefore must recognize the duty of care, or moral obligation, to the children when approving it. In a statement to the stock exchange, after the ruling, the company stated: “Whitehaven looks forward to receiving the EPBC approval for the Vickery Extension Project and will keep the market updated as appropriate.” Whether the environment minister is to give the approval or not remains to be seen.
While the Dutch case will likely be appealed — and lawyers are currently questioning whether it should be the legislators, instead of the court, who decide by how much companies should cut their carbon emissions in the future — there is no doubt that the heat is on, not only for energy companies but for all companies and their boards of directors.
The UN Climate Change Conference of the Parties (COP26) global meeting will be held in Glasgow in November, and organizations worldwide are declaring their net-zero commitment — and “activists” all over the world are looking to hold the companies accountable.
Now, more than ever, we need directors that know the ABCs of ESG (environmental, social and corporate governance) and climate.
Here are five questions that competent boards need to ask themselves:
- Do we understand and feel comfortable with our scenario planning?
- Do we understand the demand from our key stakeholders?
- Do we understand and feel comfortable with our transition plan to net-zero or net-positive?
- Do we believe that we have allocated the resources and responsibilities needed to execute on the transition plan?
- Have we/will we sign off on our Task Force on Climate-related Financial Disclosures (TCFD) report?
The heat is on, and it is up to the companies and their boards to decide if they will be leaders, followers or not be part of the future at all.
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