Climate Change and Company Law

Anita Foerster and Louis de Koker

The company is the primary vehicle for conducting business in Australia and in many countries around the world. Companies are involved in a wide range of activities that contribute to climate change through associated greenhouse gas (‘GHG’) emissions, including resource extraction, production, manufacturing and transport. The business activities of companies are also increasingly impacted by climate change — by its physical effects (such as extreme events and longer-term changes to resource availability) and by the legal, policy, technological and market shifts that are occurring in response to climate change.

Company law is concerned with the formation and regulation of companies as business entities and their governance. It does not directly regulate business activities which contribute to climate change, or business responses to climate change. However, company law has a significant indirect influence on both.

For example, climate change is widely recognised as a financially material risk for companies, enlivening obligations under company law to identify, disclose and manage these risks. The way in which companies approach climate risk management can help to reorient business activities and investment away from high-emitting, climate-damaging activities. Investors and civil society are increasingly engaging with company law to influence the approach that companies take to climate change, using member resolutions and strategic litigation to pressure companies to shift away from high-risk business models. Corporate regulators are also establishing standards and guidance for climate risk disclosure and management, actively monitoring company performance, particularly disclosure practices that may be misleading or deceptive (greenwashing) and taking enforcement action.

In this chapter, we consider these questions by exploring the way in which climate change intersects with three core areas of company law: directors’ duties, the rights of shareholders as members and disclosure. We also engage with long-running debates about the role and purpose of the company in society and the potential of company law reform to shift the organisation and regulation of business away from existing models focused on short-term profit generation, which contribute to social and environmental harms like climate change, towards more sustainable models.