Climate change is not just an environmental issue—it’s a business risk. In recent years, the legal and regulatory landscape has shifted, and corporate directors are facing growing expectations to address climate-related risks. In the Philippines, directors must be aware of their responsibilities and potential liabilities related to climate change. The Securities and Exchange Commission (SEC) has also implemented sustainability reporting guidelines that emphasize transparency and
accountability.
Directors’ Duties and Responsibilities Related to Climate Change
Corporate directors have fiduciary duties to act in the best interests of their company. These duties encompass both financial and non-financial risks, including climate risks. Directors must exercise due care and diligence in identifying, mitigating, and disclosing risks related to climate change.
1. Duty of Care: Directors are expected to stay informed about climate risks that may impact the company’s operations, financial performance, and reputation. They must
actively oversee the development of strategies to address these risks and ensure the company’s long-term sustainability.
2. Duty of Loyalty: Directors must act in the best interests of the company and its stakeholders, including shareholders, employees, and the community. Ignoring climate risks or failing to take action could be viewed as a breach of this duty.
3. Duty to Disclose: Transparency is a key aspect of corporate governance. Directors must ensure that the company’s climate risks and sustainability efforts are accurately disclosed to stakeholders.
Potential Liabilities for Directors
Failure to address or disclose climate risks could expose directors to legal and financial liabilities. These include:
- Civil Liability: Directors could face lawsuits from shareholders or other stakeholders for failing to manage or disclose climate-related risks.
- Regulatory Sanctions: The SEC and other regulatory bodies may impose fines or penalties for non-compliance with disclosure requirements.
- Reputational Damage: Companies that fail to take climate action may suffer reputational harm, leading to loss of customers, investors, and business opportunities.
Directors of corporations vested with public interest may face heightened scrutiny. These companies—which include publicly listed companies, banks, and insurance firms—have broader obligations to act in the best interests of society and the environment.
SEC Sustainability Reporting Guidelines
In recognition of the growing importance of sustainability, the SEC has introduced Sustainability Reporting Guidelines for publicly listed companies in the Philippines. These guidelines aim to promote transparency and accountability in how companies manage environmental, social, and governance (ESG) issues.
Key Components of SEC Sustainability Reports:
1. Governance Structure: Companies must disclose their governance framework for managing ESG risks and opportunities. This includes identifying the roles and responsibilities of the board and senior management in overseeing sustainability efforts.
2. Environmental Performance: Companies must report on their initiatives to reduce greenhouse gas emissions, manage energy and water consumption, and protect biodiversity.
3. Climate-Related Risks and Opportunities: Companies must assess and disclose both physical risks (e.g., extreme weather events) and transition risks (e.g., regulatory changes, market shifts) associated with climate change.
4. Social Impact: Companies must report on their contributions to employee welfare, community development, and social equity.
5. Economic Performance: Companies must disclose their financial performance related to sustainability initiatives, including investments in clean energy and sustainable practices.
Alignment with Global Standards
The SEC encourages companies to align their sustainability reports with international frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). This alignment helps ensure consistency and comparability in sustainability reporting.
Litigation Risks and the Precautionary Principle
As climate litigation becomes more common globally, Philippine companies and directors may face lawsuits for failing to take adequate action on climate risks. The Precautionary Principle—a key principle in environmental law—holds that lack of full scientific certainty should not be used as a reason to postpone actions that could prevent environmental harm. Directors should be proactive in adopting and disclosing measures to address climate risks. This not only reduces litigation risks but also demonstrates a commitment to corporate responsibility and sustainability.
Best Practices for Directors
To mitigate liabilities and enhance corporate resilience, directors should consider the following best practices:
1. Educate Themselves: Stay informed about climate risks and the latest regulatory requirements.
2. Integrate Climate Risks into Corporate Strategy: Ensure that climate risks are considered in the company’s strategic planning and decision-making processes.
3. Enhance Disclosure Practices: Provide clear, comprehensive, and transparent disclosures on sustainability and climate risks.
4. Engage Stakeholders: Regularly communicate with shareholders, employees, and other stakeholders about the company’s sustainability efforts.
Conclusion
As climate change continues to pose significant risks, directors must take proactive steps to fulfill their fiduciary duties and ensure compliance with sustainability reporting requirements. By embracing transparency and integrating climate considerations into corporate strategies, directors can safeguard their companies’ long-term success and contribute to a more sustainable future for all.