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Directors' Duties and Climate Change - Avoiding 'Tragedy of the Horizons'


Climate change has been identified as the ‘tragedy of the horizons’, [1] implying that most regulators, policy makers, corporates and corporate directors don’t consider it in their decisions as its impacts are beyond their personal or professional time horizon.

The dissertation is based on the view that climate change is an issue that needs to be dealt with by corporates and their directors, now, and further assumes they would have done so if they could.

It then reviews any legal reasons for the inertia behind climate change decision making by directors, and looks for pathways allowing them to do so.

Finally, using recent climate change litigation experiences, it considers whether success or failure of litigation is
encouraging (through fear) or discouraging directors (through successful defence), respectively.

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Munib Madni

Founding Panvestor CEO

11th February 2020

[1] "Avoiding the tragedy of the horizon", 2015, Euroweek.

The dissertation starts by reviewing why despite global recognition of its potential financial impact, climate change has not been considered as an issue by company directors. Amongst the various challenges and obstacles directors face in incorporating climate change into their decision making, judicial anchors around the
shareholder primacy doctrine, easy defence in business judgement rule and lack of enforcement have been identified as the main reasons for inaction. How then, can well-intentioned directors who do want to incorporate climate change into decision making do so?

The first legal anchor identified by the dissertation is that of ‘the concept of a corporation’ i.e. for whom the director is working and then secondly ‘how to promote the best interest of that company’. These two seem to be the underlying legal challenges for well-intentioned directors to overcome. It is also through these two issues that one can identify possible pathways for the directors to incorporate climate change into their decisions without fear of legal action from shareholders or investors.​

On the first issue of ‘corporation as a whole’ the dissertation lends its support to the pluralist approach with stakeholders not shareholders being the owners. In answering the question of duty owed to the corporation, the dissertation finds that a dual objective/subjective standard of care, when accompanied with a ‘stakeholder
approach’ emanating from the human rights doctrine of ‘proportionality’, could deliver a theoretical construct which is conducive to wealth maximisation for the corporation as a whole but do so with climate change and similar issues also in check.

The dissertation then looks to climate change litigation of the past two decades to see whether any of the above pathways are seeing success thus reinforcing them as possible solutions. The dissertation finds that the limited number of private climate change litigation cases in US and Australia do not seem to provide any certain pathway for well-intentioned directors nor enough fear to those ignorant or in denial, to incorporate climate change into their decision making.

The dissertation concludes with practical recommendations in the form of ‘B Corporation’ certification and ‘Panvesting’ philosophy of investing, for companies and investors respectively. Sadly, climate change actions by directors cannot wait for litigation and eventual legislation to force directors to act, if so, we will become the
tragedy of the horizons.

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