Governance Challenges 2022: Legal Considerations For Oversight of Climate-Related Risks

In the past few years, we have seen a remarkable acceleration in appreciation of the importance of ESG to corporate decision-making, enterprise risk management, and the ability for a corporation to withstand crisis. Companies face a growing set of expectations from employees, customers, investors, and regulators with respect to how they incorporate ESG considerations into business decisions and how they mitigate and disclose risks related to ESG. The thesis is that companies that appropriately manage ESG risks and capitalize on opportunities are more resilient to adversity and perform better financially over the long term.

Boards across industry sectors are focusing on ESG issues, including increased attention to climate-related risks. The board’s responsibilities for oversight of climate-related risks are related to its oversight of strategy, risk management, internal controls, ethics, and corporate disclosure. These responsibilities are grounded in the board’s fiduciary duties of care and loyalty, including the duty of good faith, which generally requires attention to known risks, as well as information and compliance systems, under the laws of the state of incorporation. In addition, with the overlay of federal securities laws and regulations, public company boards also require attention to compliance with disclosure obligations and oversight of corporate disclosure with respect to climate-related matters.

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