July 12, 2023

Top Ten Climate and Net-Zero Considerations for Board of Directors

By: Lisa DeMarco, Senior Partner and CEO, Resilient LLP; DT Vollmer, Associate, Resilient LLP

Climate change litigation is increasing, both in terms of the number of cases being brought and the types of claims being pursued. Climate change is also becoming expensive: The Insurance Bureau of Canada estimates that insured damage for severe weather events reached $3.1 billion in 2022, the third highest year on record.[1] Litigation risks are also mounting for companies and now the first claims are being brought against directors and officers for their actions or perceived inaction on climate issues in their governance, disclosure, and oversight of risk management and strategy. Claims against governments can also affect the policy and operating environment for companies or result in delays or rejection of environmental approvals for projects. The recent news that Canada’s Competition Bureau will investigate allegations of “greenwashing” as well as a complaint by concerned health professionals against the Canadian Gas Association for claims relating to natural gas in their “Fuelling Canada” campaign has captured the attention of boardrooms and regulators across the country.

In this article we provide a list of the top ten considerations for Boards of Directors as they contemplate, develop, and set net-zero commitments and broader ESG and climate-related strategies for companies in Canada and around the world.

Setting the stage for a credible transition to net-zero

  1. Climate-related Financial Disclosures

    Companies in Canada and the U.S. will likely soon be required to make climate-related disclosures, including disclosing their scope 1, 2, and 3 emissions. The U.S. Securities and Exchange Commission (“SEC”) has proposed climate-related disclosures rules[2] that would require the disclosure of scope 1 and 2 emissions in disaggregated constituent GHGs and in the aggregate, as well as in absolute and intensity terms. Scope 3 emissions and intensity would be disclosable only if material or where a registrant has set a GHG emissions target or goal that includes scope 3 emissions. The U.S. Commodity Future Trading Commission continues to consult on potential oversight of climate-related financial risk relevant to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants and the products being developed to address climate-related market risks and to facilitate the transition to a net-zero economy.

    The Canadian Securities Administrators (“CSA”) published the draft National Instrument 51-107 Disclosure of Climate-related Matter addressing the need for climate-related disclosure requirements,[3] which mandates disclosure for large federally regulated entities but for a “comply or explain” approach for many entities in light of data and other constraints. CSA has indicated that it will seek to harmonize mandatory disclosures with the SEC. The Office of the Superintendent of Financial Institutions has also recently published guidelines[4] providing that federally regulated financial institutions should identify, collect, and use reliable, timely, and accurate data pertaining to transition risks (including GHG emissions data) relevant to its business activities to inform risk management and decision-making.

    Companies choosing to voluntarily set net-zero targets and disclose their emissions and climate-related risks voluntarily should consider relying on well-developed broadly used standards and frameworks such as the Task Force on Climate-related Financial Disclosures recommendations, Science Based Targets initiative, Carbon Disclosure Project, and the International Sustainability Standards Board’s recently published IFRS Sustainability Disclosure Standards.

  2. Credible Net-Zero Transition Plans

    Sustainability and net-zero statements and plans are a growing source of greenwashing claims and securities litigation, affecting companies in multiple industries (in particular, oil and gas, energy, transportation and agriculture) and take effect through multiple legal routes, and suggests that these claims are likely to increase. Boards must ensure that they are not making materially false or misleading statements regarding their net-zero targets, strategies, transition plans, and broader climate-related actions such as how and by how much they are reducing their GHG emissions. In addition, boards must seriously consider how they are calculating and determining their emissions profile and the emissions throughout their value chain if they are to develop and implement credible corporate net-zero plans. Boards should consider whether establishing and implementing Paris Agreement-aligned transition plans, or other appropriate strategies to limit the impacts of a company on and from climate, may help to mitigate risks of greenwashing claims and the potential climate-related impacts on would-be claimants.

  3. Avoid Greenwashing

    Governments across the world are focusing on climate and net-zero claims made by companies and growing allegations of “greenwashing” by climate activists and shareholders. Securities regulators and competition agencies are also playing an important role in corporate net-zero claims as they seek to protect consumers and investors. Greenwashing can be understood as “the use of unsubstantiated or misleading claims about, or selective disclosure of, environmental performance or best practice for commercial or political gain”.[5] As more companies publicly disclose their actions and policies to reach a state of net-zero across their value chains, any actual or perceived disconnect between what a company says and what it is doing may lead to greenwashing and/or climate-washing claims.

    The European Union is taking a leading role in addressing greenwashing risks, with the recent tabling of the proposed Green Claims Directive[6] that will, among others, set out detailed EU rules on the substantiation of voluntary green claims and require EU member states to impose “dissuasive” penalties on organizations that make false environmental claims. It is anticipated that greenwashing claims will continue to increase as more companies make net-zero by companies and as strategic litigants demand meaningful and credible action to support net-zero strategies.

    What are the Risks?

  4. Reduce Regulatory Liability

    Companies are likely to face increased regulatory risks associated with their climate-related disclosures. The SEC has convened an Enforcement Task Force Focused on Climate and ESG Issues that is tasked with examining material misstatements in disclosure of climate risks. Similarly, the UK Financial Conduct Authority (FCA) set out its views to the chairs of authorised fund managers on the need for companies and boards to communicate clearly and avoid making misleading claims.[7] However, Canadian securities regulators have yet to enforce deficiencies related to climate-relate risks disclosure even through the CSA has indicated that climate-related risks are material and must be disclosed in financial statements.[8]

    Boards in Canada should expect Canadian securities regulators to follow the SEC and other regulators and be aware that failing to disclose material climate-related risks in their financial statements and noting how such risks are and will be managed could cause companies to face administrative and regulatory action. Boards must also be responsive to that fact that the value of investments may be diminished if a company unsuccessfully defends regulatory legal action and this may have further portfolio impacts when regulatory approvals are denied because climate impacts are not sufficiently considered and addressed.

  5. Securities Law Litigation

    Boards should be mindful of and prepared for the risk that investors can leverage the evidence underpinning regulatory sanctions into claims for damages due to misrepresentation. For example, a recent class action by shareholders against Oatly Group and its board alleges that the company made materially false and misleading statements, and also failed to disclose material adverse facts about Oatly in its filings, including the company's financial metrics and overstating claims about the sustainability of its practices and products.[9]Companies and Boards exposed to carbon-intensive industries and hard to abate sectors of the economy face systemic risks if climate litigants are successful against companies in these industries and sectors. General net-zero and climate-related statements by companies in these sectors and industries may be the subject of securities litigation, with successful securities law based claims resulting in significantly increased liability risks for other related industries and companies. In addition, policyholder companies may seek compensation support from insurers, with cascading effects on insurance pricing, coverage, and the insurability of entire sectors of the economy.

  6. Understand Fiduciary Duty

    There is an increasing risk for boards for claims from shareholders for alleged breaches of their fiduciary duty to mitigate and disclose climate risks and identify climate-related opportunities, especially where a company makes misleading disclosures. Directors could also face personal liability for misleading disclosures or for failing to fulfil their duties in respect of the necessary transition to net-zero and should therefore be aware that discrepancy actions and commitments are likely to make claims more likely. 

    As an example of the increased risks, earlier this year environmental law organization ClientEarth filed a derivative action, brought by shareholders on behalf of the company, seeking permission to bring a claim against Shell’s board of directors, alleging breaches of legal duties under the UK’s Companies Act 2006, including that the Board mismanaged material and foreseeable climate risks and had failed to adopt and implement an energy transition strategy that aligns with the Paris Agreement. Although ClientEarth’s lawsuit was recently dismissed by the UK’s High Court in accordance with “the well-established principle that it is for directors themselves to determine (acting in good faith)” how to manage and conduct the affairs of a business, it is likely that activist and climate shareholders derivative actions will continue to test the extent of a board’s fiduciary duties when it comes to managing climate risks and taking meaningful action to meet net-zero targets. However, as this case demonstrates, there has not yet been a successful climate-specific claim against boards but this is likely to change as more shareholder groups pursue claims for inaction or inadequate action in breach of a board’s fiduciary duties to the company and stakeholders more broadly.

  7. Commercial Terms

    Boards need to be aware that commercial contracts may give rise to climate-related litigation. Companies operating in sectors which are particularly likely to be exposed to climate change impacts (such as energy, agriculture and industries with significant infrastructure) should be aware that their business models may face disruption as the world transitions to net-zero emissions by 2050 and governments adopt stricter climate adaptation and mitigation policies. In addition, boards should be supportive of ensuring compliance with climate-informed safety regulations in order to minimize the risk of litigation. As such, adopting and imbedding key climate considerations in commercial terms has become an important tool in reducing climate-related litigation risks for many companies.

  8. Mitigate Civil Litigation Risks

    Companies and governments face legal claims before even the materialization of any physical climate risks. Climate activities, youth litigants, and shareholder groups continue to attempt to hold companies and governments liable for damages suffered as a result of the effects of climate change and violations of human rights. Companies without credible emission reduction and net-zero transition plans are likely to face attributional climate litigation risks as claimants seek to hold companies liable for the climate-related impacts directly attributable to their historic and contemporary emissions. Developing credible net-zero and potentially carbon negative strategies to minimize potential claims is likely to be key to mitigating these risks.

    Best Practices

  9. Professional Indemnity Insurance

    Boards and their insurers must consider substantial claims to cover damages awards or settlements regarding professional errors and omissions (E&O) or breaches covered by director and officer (D&O) insurance policies. There is also the potential for litigation risk associated with disagreements as to the scope of indemnity obligations. Directors and professionals, such as accountants and lawyers, must ensure that they are seeking and/or providing advice related to climate risks, disclosures. A failure to seek and provide proper advice may result in large damages awards could disrupt the D&O and E&O insurance market and create short-term cash flow issues and longer-term pricing risks. There may also be litigation risks associated with the scope of coverage under D&O and E&O policies as it relates to climate-related damages.

  10. Be Proactive!
    Climate-related risks and opportunities require boards to be proactive. Boards may consider some or all of the recommendations and consideration discussed above to ensure that they are aware of and able to proactively respond to climate-related risks. This may also include proactively and as soon as practicable (i) assessing litigation exposures across loan and policy books, investment portfolios, and operations; (ii) embedding the management of climate-related risks in their core business risk management; (iii) reviewing climate-related vulnerabilities across investments; (iv) direct resources to climate mitigation and adaption strategies and plans; (v) developing and adopting credible net-zero and interim emission reduction targets and transition plans; and (vi) ensure that material stakeholders have been identified and develop meaningful stakeholder engagement mechanisms to bring these voices into the boardroom.


Insurance Bureau of Canada, “Severe Weather in 2022 Caused $3.1 Billion in Insured Damage -- making it the 3rd Worst Year for Insured Damage in Canadian History”, (18 January 2023), online: < https://www.ibc.ca/news-insights/news/severe-weather-in-2022-caused-3-1-billion-in-insured-damage-making-it-the-3rd-worst-year-for-insured-damage-in-canadian-history>.

[2] SEC, “The Enhancement and Standardization of Climate-Related Disclosures for Investors”, (11 April 2022), 87 FR 21334, online: <https://www.federalregister.gov/documents/2022/04/11/2022-06342/the-enhancement-and-standardization-of-climate-related-disclosures-for-investors>.

[3] CSA, Consultation Climate-related Disclosure Update and CSA Notice and Request for Comment Proposed National Instrument 51-107 Disclosure of Climate-related Matters, (18 October 2021), online: <https://www.osc.ca/sites/default/files/2021-10/csa_20211018_51-107_disclosure-update.pdf>.

[4] OSFI, Guideline B-15 – Climate Risk Management, (7 March 2023), online <https://www.osfi-bsif.gc.ca/Eng/Docs/b15-dft.pdf>.

[5] Benjamin, L. et al. “Climate-Washing Litigation: Legal Liability for Misleading Climate Communications.” LSE Grantham Research Institute, Policy Briefing, The Climate Social Science Network (January 2022).

[6] European Commission, Proposal for a Directive of the European Parliament and of the Council on substantiation and communication of explicit environmental claims, COM(2023) 166, 2023/0085 (22 March 2023)

[7] FCA, “Authorised ESG & Sustainable Investment Funds: improving quality and clarity”, (19 July 2021).

[8] CSA, CSA Staff Notice 51-358 Reporting of Climate Change-Related Risks (2019), CSA Staff Notice 51-358 Reporting of Climate Change-related Risks.

[9] Bentley v Oatly, US SDNY, Case 1:21-cv-06485.

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