CORPORATE RESPONSIBILITY AND CLIMATE CHANGE.

Author:Bradley, Graham
 
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By common agreement on the part of the scientific community and groups such as the UN Intergovernmental Panel on Climate Change (IPCC), climate change (formerly global warming) is an inherently long-term phenomenon. In response to perceived long-term risks, governments around the world have passed laws and entered into commitments (mostly non-binding) to introduce policies to reduce greenhouse gas emissions over time.

What responsibilities do commercial companies and their boards have in relation to such policies?

In democratic societies, corporations must, above all else, obey all laws and regulations, respecting both the letter and the spirit of those legitimate expressions of their communities' requirements and expectations. It is fundamental that every company must obey the laws of all jurisdictions in which it operates. Their directors must also fulfil their fiduciary duties under relevant corporation law. Beyond legal compliance, corporations must in the long-term interests of their owners protect their company's reputation and nurture customer, employee and community goodwill and loyalty by being good corporate citizens that contribute positively to the societies affected by their operations.

Under the laws of most Anglo-American countries, the primary fiduciary duty of company directors is owed to the company and its owners: those are its primary stakeholders. It is the owners who appoint the directors and charge them to protect and grow the value of their investment. It is they who remove directors who fail to achieve this objective. The Anglo-American corporation law and general law is crystal clear in this regard and ex cathedra statements by Business Roundtable CEOs do not alter this legal position. (1,2)

It is equally clear, however, that company directors are entitled to consider a wider group of stakeholder interests in their pursuit of the long-term sustainable prosperity of their corporations. Considering wider stakeholders, including employees, customers, suppliers and the communities in which companies operate, is not inconsistent with, and arguably is squarely consistent with, their duty to their primary stakeholders.

Does this mean, however, that company directors have an obligation to go beyond existing laws and regulations in relation to long-term climate change? Many voices advocate this outcome. They are, in my view, misguided.

Many companies do, of course, seek to reduce their energy usage and thereby reduce the...

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