The Commonwealth Climate and Law Initiative (CCLI) is a research, education, and outreach project focused on four Commonwealth countries: Australia, Canada, South Africa, and the United Kingdom. CCLI is examining the legal basis for directors and trustees to take account of physical climate change risk and societal responses to climate change under prevailing statutory and common (judge-made) laws. In addition to the legal theory, it also aims to undertake a practical assessment of the materiality of these considerations, in terms of liability, and the scale, timing, probability of this and the potential implications for company and investor decision-making.
Australia, Canada, South Africa, and the UK, despite only producing 6% of current annual global GHG emissions, account for 13% of global coal reserves and 11% of global oil reserves. Their stock exchanges also have 27% of all listed fossil fuel reserves and 36% of listed fossil fuel resources. They each have large and highly developed financial systems and account for 23% of the global pension assets and contain within the G20 the 8th, 5th, 14th, and 4th largest stock markets by market capitalisation respectively.
The significant commonalities in the laws and legal systems of each of the four countries makes the initiative’s work and outcomes readily transferable. They each operate a common law legal system. Their corporate governance laws are based on common fiduciary principles. Whilst their laws may differ at the margins, legal developments and judicial precedents are influential in each others’ jurisdictions.
CCLI aims to commission and undertake a wide range of research, engagement, and outreach activity across these four countries and also in other Commonwealth countries (e.g. India, Pakistan, Nigeria, Malaysia, Singapore, New Zealand etc), non-Commonwealth common law jurisdictions ex-US (e.g. Hong Kong), British Overseas Territories (e.g. Bermuda, British Virgin Islands, Cayman Islands etc), and British Crown dependencies (Guernsey, Isle of Man, and Jersey). Many of these jurisdictions are major financial centres and/or have significant fossil fuel reserves.
The unparalleled economic risks from climate change have led to rising concerns over the legal liability risks for individuals, companies, and investors. In September 2015 Bank of England Governor Mark Carney warned company directors could be held legally liable for failing to manage climate change risks. In early November 2015 the New York State Attorney General issued subpoenas to Exxon and Peabody Energy and began investigations over claims they misled the public and investors about the dangers and potential business risks associated with climate change.
These developments, and others, could potentially have significant implications for the insurance sector, but also for other parts of the financial system and for companies in carbon intensive sectors as well. Company directors and pension fund trustees, could be held liable for i) contributing to anthropogenic climate change, ii) not reasonably managing the risks associated with climate change, and/or iii) misleading investors about the business risks of climate change or failing to comply with legal reporting requirements.
Company directors have duties imposed on them by law that govern the way in which they conduct the affairs of their organisations. In the UK, these duties are largely contained in the Companies Act 2006 and in common law fiduciary duties. Similar (but different) duties exist in other legal systems all around the world - in some jurisdictions they are on a statutory footing, in others they are based on fiduciary duty and common law principles.
If directors breach these legal duties, they may be exposed to i) legal claims and litigation (by pension fund members and shareholders); and/or ii) fines and regulatory action by regulators. In some circumstances, trustees and directors might find themselves personally liable to pay compensation for losses, fines and/or legal costs. In other cases, trustees and directors might look to their insurance policies (D&O insurance and trustees’ liability policies) for cover, resulting in substantial liabilities for insurers.