In his historic speech “The Tragedy of the Horizon”, Mark Carney, the governor of the Bank of England, emphasised:
“We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix….
once climate change becomes a defining issue for financial stability, it may already be too late….”
The corporate world has long been aware of the growing threat of climate change. In spite of many laudable initiatives and increasing attention by the corporate and financial world, global emissions are still rising. A series of recent reports sound the alarm: global warming must be kept below 1.5 degrees Celsius, if still possible, but at any rate below 2 degrees Celsius to avoid potentially cataclysmic consequences.
The debate on how to cope with climate change is in a deadlock. Those at the wheel in business and financial communities face difficulties in answering the question what their obligations are and which steps they have to take to meet their obligations. Some of them even wonder whether they do have legal obligations in the absence of pertinent legislation and case law.
It cannot be denied: there is uncertainty about the precise obligations of single enterprises. That is by no means a novelty. There has always been uncertainty about “the law” if hard and fast rules are unavailable. In those instances courts will interpret the law if, at some stage, the right cases are submitted to them. As a rule of thumb, courts assume their interpretation at the time of the judgment also applies to the past. There is a fair chance that this is also going to happen in the realm of climate change. Judges have shown to be keen to keep up with the demands of society. More likely than not, these judgments will come as an unpleasant surprise to the corporate world. Many corporations will learn they fell short of meeting their obligations as determined by the court, which, in turn, may imply that the shortcomings of the past have to be added to future reductions. In addition: they and their directors may face liability.
A group of international experts has made an effort to provide guidance by discerning the legal obligations of enterprises in the face of climate change: the Principles on Climate Obligations of Enterprises, https://climateprinciplesforenterprises.org/
(the Enterprises Principles), endorsed by 88 distinguished experts, among them international judges and Supreme Court justices from all continents. These Principles are based on the group’s interpretation of the law as it stands, or will likely develop. The group has borrowed from as many legal sources as possible, such as human rights, liability, environmental and company law, a series of Codes of conduct and governance, case law and legal doctrine. Together with other members of the group we are currently working on an update to cope with recent developments in climate science and the law. The Enterprises Principles and the update aim to help enterprises and their advisors (lawyers and auditors) gain a better understanding of what their obligations are, or could be.
The Enterprises Principles encompass reduction obligations, selection of suppliers, obligations concerning products, services and activities, impact assessments and disclosure. The update offers a few novelties, including Effective Climate Governance and obligations of (re)insurers.
The group realises that the choices made in the Enterprises Principles and the update are not necessarily self-explanatory (some are). However, the group and the endorsers stand firm in their belief that enterprises do have discernible legal obligations in the face of climate change. The obligations may differ slightly in borderline cases, some enterprises may have more stringent, and other more lenient obligations. That leaves untouched, that quite a few enterprises cannot avoid taking more measures than they currently do.
The website mentioned above contains the Enterprises Principles, the extensive commentary thereto (including the legal basis), the members of the group (with a concise bio) and the endorsers. We would be delighted to further discuss the key features of the Enterprises Principles, the update and practical problems enterprises and their advisers currently face.