With Shell announcing its withdrawal from the Arctic, the effects of climate change on business performance are everywhere – and it’s time corporate leaders consider the implications for their organisation, or face the consequences.



Business and environmental concerns are becoming the same. Those directors who ignore this risk not only damaging their organisations, but could face legal action holding them personally responsible for their negligence.

Accepted wisdom says that business’s short-term mindset and its need to make returns for shareholders make it ill-equipped to take on climate change, the greatest threat facing humanity. Maybe that was true. Now, not only is the environment changing but so is the financial landscape. Strategic-thinking CEOs know they cannot leave climate action to politicians or civil society.

Over a period of just ten days, Shell took a $7bn hit as it admitted it could not make the oil supply pay in the Arctic; Goldman Sachs announced that coal prices are unlikely ever to recover from their current slump; and Mars, Unilever, Kellogg, Nestlé and others wrote to world leaders calling for clear, science-based targets to drive down emissions. They warned that “drought, flooding and hotter growing conditions threaten the world’s food supply”.



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No longer about ethics

The biggest names in the business world are seeing climate change affect their bottom line and the rest will follow.

Climate change is no longer an ethical issue that can be sidelined as a corporate social responsibility project. It has immediate material impact on the operations of businesses today and their planning for the future.



Last week, the Bank of England governor, Mark Carney, delivered a stark warning to the insurance industry, detailing the varied risks global markets face as a result of climate change. He said there are an array of climate challenges faced by the financial community.

These include damage to physical assets from both climate change and the resulting extreme weather events, such as flooding and storms. “Transition risks” will accompany the unavoidable shift to a low-carbon economy, meaning formerly high-value commodities such as fossil fuels become hugely devalued. Finally, liability risks will result when people suffering the effects of climate change seek compensation from polluters.

But these are not only threats to business. Ignoring the risks and opportunities presented by climate change could land chief executives and their advisors in court. If directors fail to manage the impact of climate change on their businesses, they could be found personally liable for losses incurred by their shareholders.

The most obvious liabilities for companies and their directors relate to physical loss or damage. The residents of Tuvalu in the Pacific and Kivalina in Alaska, whose homes are disappearing beneath rising waters, have both threatened challenges against polluters.

Storm damage, such as that inflicted by hurricane Katrina, has also provided the basis for litigation against fossil fuel companies. The science linking extreme weather and climate change is gathering strength and many more such cases will surely follow.

Litigation will not stem only from physically affected parties but also those with a financial interest. Ocean acidification, shifting rainfall patterns and other effects of a changing climate will have implications for all major companies as their physical operations become affected.

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These environmental concerns are financial liabilities, and investors will look to litigation to recoup losses if they are mismanaged. Litigation could be brought not only against corporate entities, but also against the individuals steering them.

Company directors’ decisions now will affect the performance of their company in the future, and they could find themselves in court charged with breaching their director’s duties if they do not manage their company’s activities to achieve stability and resilience.

The Companies Act 2006 codifies directors’ duties in law for the first time. They must “promote the success of the company”, first by considering “the likely consequences of any decision in the long term”. Failing to plan for climate change is incompatible with this and other duties and leaves directors open to legal challenge.

The case for climate litigation against reckless directors grows ever stronger. Increased regulation, changing market dynamics and heightened risk to physical assets means maintaining the status quo is no longer an option for those keen to protect their finances and reputation.

We at ClientEarth are closely monitoring the activities of FTSE 250 companies. We will pursue those directors who fail to protect their investors from the challenge that climate change presents. Those intent on following a business-as-usual model, be warned: the “usual” has changed.