Climate Contract Playbook Edition 3
71
[Darcy’s Board Minutes]
The Origin Story
Child’s name
Darcy’s board minutes
Full name
Board Minutes incorporating consideration of climate change factors
Practice Area / Sector
Corporate
Section 172 of the Companies Act 2006 (section 172) requires directors “to promote the success of the company for the benefit of its members as a whole” . There are many consequences of this ‘shareholders first’ approach, an example of which is a tendency to focus on short-term financial performance rather than tackling what are often considered to be ‘tomorrow’s issues’ such as the impact of climate change. By doing so, directors may be breaching their fiduciary duties.
Issue
Whilst reform of the concept of shareholder primacy within corporate governance is desirable, introducing specific drafting into board minutes to encourage directors to consider environmental and social impact objectives, their net zero targets and/or carbon footprint and climate change risks as a routine part of their decision-making is one way of trying to bring the climate emergency to the fore within the boardroom and ensure that their strategies to address climate risk are not forgotten.
Solution
The current requirements of section 172 are centred on ensuring boards of directors make decisions which are in the best interests of their shareholders. Whilst section 172 sets out a list of matters to which the board should have due regard – including “ the impact of the company’s operations on the community and the environment ” – these are secondary to financial performance. However, per the Commonwealth Climate and Law Initiative 38 , directors “ may breach their fiduciary duties…where they consciously disregard, or wilfully ignore, material financial risks associated with climate change and their potential impact on corporate risk management and strategy ”.
Context
Including this drafting in board minutes as standard will help to ensure that boards do not forget the importance of making decisions mindful of environmental objectives, impacts and risks. Presently, the environmental consequences may – in the majority of businesses – not be properly considered, however increasingly these consequences will have a tangible impact on financial performance and future strategy (i.e. the company’s success).
Impact
38 https://ccli.ouce.ox.ac.uk/wp-content/uploads/2019/10/CCLI-Directors%E2%80%99-Liability-and-Climate-Risk-Comparative-Paper-October-2019- vFINAL.pdf.
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