Directors of local firms should consider climate change-related risks in the discharge of their duties, to fulfill their companies’ long-term legal, economic, moral and social obligations towards their shareholders and other stakeholders, according to a white paper commissioned by the Commonwealth Climate and Law Initiative .
“Under the ‘comply or explain’ approach of the Philippine corporate governance framework for publicly-held companies, boards of directors are encouraged to foster the corporation’s long-term success, and to sustain its competitiveness and profitability in a manner consistent with its corporate objectives and ‘the long- term best interests of its shareholders and other stakeholders’.”
The new legal analysis finds that if sustainability reporting is made fully mandatory by the Philippine SEC, as is predicted for 2023, the failure to comply with the reporting rules may demonstrate gross negligence or bad faith in directing the affairs of the corporation in relation to climate change risks that the company may face, or regarding the company’s obligation to refrain from harming the environment.
“The opinion finds that directors may be held liable for gross negligence in performing their duties, but generally are able to take actions to mitigate the impacts of climate change on their company without exposing themselves to the risk of liability due to the business judgment rule.
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