September 16, 2021

Volume XI, Number 259

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Commissioner Lee Emphasizes the Role and Responsibilities of the Corporate Board Concerning ESG and Climate Change

In recent remarks delivered by Commissioner Lee at the Society for Corporate Governance, she took the opportunity to again focus on the risks posed by ESG issues, particularly climate change, and how these particular matters should be a consistent focus of a corporate board's agenda.  

Indeed, Commissioner Lee connected the "need to ensure [a board] has relevant information related to the climate and ESG-related risks and opportunities its companies face" to the "directors['] fiduciary duties of loyalty and care," emphasizing the legal risks encountered by corporate board of directors who fail to meaningfully engage on these issues. 

This speech falls into a broader pattern of comments by Commissioner Lee that have emphasized ESG issues and climate change.  What is perhaps most noteworthy here is the idea that corporate board may have legal and regulatory risk now, before the SEC actually propounds new regulations and disclosure requirements, as "the regulatory landscape evolves."  There is at least the suggestion that, armed with the knowledge that the SEC will soon act on these issues, corporate boards have the responsibility to begin taking steps even in the absence of concrete guidance from the SEC. 

Additionally, it is also worth noting that while Commissioner Lee--one of the Democratic appointees--is currently pushing forward the agenda of ESG and climate change disclosures at the SEC, her Republican colleague Commissioner Roisman is simultaneously critiquing this initiative (https://www.sec.gov/news/speech/can-the-sec-make-esg-rules-that-are-sust...).  

Under state law, as everyone here knows, directors have fiduciary duties of loyalty and care.[39] A director’s duty of care fundamentally requires that a board must be well informed when making corporate decisions.[40] When those decisions, for example, relate to long-term business strategies, a board may well need to ensure it has relevant information related to the climate and ESG-related risks and opportunities its company faces.[41]        What’s more, under the duty of good faith (considered a subset of the duty of loyalty under Delaware law) directors may need to investigate “red flags” that suggest legal violations or other harm to the corporation.[42] This may require directors to do a deeper dive on climate change and other ESG issues as the regulatory landscape evolves. Unaddressed red flags relating to a violation of emissions regulations, for instance, could implicate the duty of good faith.[43] All of this suggests that climate change and other ESG matters should be regular and robust topics for the board, whether at meetings of the full board or in key committees, such as the audit committee, the compensation committee, or the risk committee. Or, perhaps, as some companies have already done, handled in a more centralized manner through a sustainability or ESG committee of the board.

 

 

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 181
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About this Author

Jacob Hupart Commercial Attorney Litigation Mintz Levin Cohn Ferris Glovsky and Popeo PC
Member

Jacob has a multifaceted litigation practice that encompasses complex commercial litigation, including cases involving securities, employment, and environmental claims, as well as class action litigation, white-collar criminal defense, and regulatory investigations. He has extensive experience handling all phases of litigation before federal and state courts, managing discovery, and conducting settlement negotiations. Jacob has represented clients in a variety of industries, including financial services, energy, education, and the media.

Prior to joining Mintz, he was an associate...

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