Legal Strategy Disrupted: Managing Climate Change and Regulatory Transformation

• Published date: 01 December 2021
• Author: Stephen Kim Park
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/ablj.12194

American Business Law Journal

Volume 58, Issue 4, 711–749, Winter 2021

Legal Strategy Disrupted: Managing

Climate Change and Regulatory

Transformation

Stephen Kim Park*

The effects of climate change on the natural, economic, political, and social

environments of business will be broad and substantial. The legal environment

of business is not immune from these forces. In fact, as this article explores,

law is both a necessary means to address climate change disruption and itself a

source of disruption. Regulatory measures to buffer the shocks of climate

change and facilitate the innovation necessary to mitigate and adapt to it are

likely to disrupt industries and firms. Drawing on legal and management the-

ory, the field of legal strategy identifies the conditions and actions through

which firms can engage with the legal environment to protect as well as

enhance their value. However, as this article shows, the legal strategy literature

does not adequately account for the legal, regulatory, and other transition risks

arising from the expanding scope and changing modes of regulatory responses

to climate change. Accordingly, to adapt legal strategy to the impending age of

regulatory change and transformation, this article advances a conception of

legal strategy that embraces resilience as an indicator of firm value.

INTRODUCTION

The disruptions caused by the COVID-19 pandemic portend the dis-

ruptions to business arising from climate change, the focus of this

*Associate Professor of Business Law and Satell Fellow in Corporate Social Responsibility,

University of Connecticut. Many thanks to Robert Bird, Justin Evans, the Tobias Leader-

ship Center at Indiana University, the Center for Legal Studies & Business Ethics at the

Spears School of Business at Oklahoma State University, and the participants in the Ethical

Leadership and Legal Strategies for Post-2020 Organizations symposium, as well as friends

and family, for their comments and encouragement. All errors and omissions are my own.

©2021 The Author.

American Business Law Journal ©2021 Academy of Legal Studies in Business.

711

article.

1

The effects of climate change are vast, ranging far beyond the

planet’s environmental ecosystems.

2

Climate change threatens to

cause shocks in demand for investment, consumption, and trade and

in the supply of labor, energy, food, and technology.

3

Its effects on the

global economy will be widespread, long-lasting, and inequitable.

4

To avert climate catastrophe, there are increasingly strident calls to

reorder the global economy in order to enable a transition to a “net

zero”(i.e., carbon neutral) world. If carried out, these collective efforts

may plausibly be viewed as the defining issue of this decade.

5

For busi-

ness, the disruptions associated with transitioning to net zero will be sub-

stantial, affecting a broad range of industries and commercial activities in

numerous ways.

6

At the disposal of firms is a range of resources to protect as well as

enhance their value. Drawing on management research, legal strategy

identifies and examines the conditions in which law can serve as a source

1

See Somini Sengupta, Climate Change Has Lessons for Fighting the Coronavirus, N.Y. TIMES

(Mar. 12, 2020), https://www.nytimes.com/2020/03/12/climate/climate-change-coronavirus-

lessons.html (referring to COVID-19 as “climate change on warp speed”).

2

See John Branch & Brad Plumer, Climate Disruption Is Now Locked In. The Next Moves Will Be

Crucial, N.Y. TIMES (Sept. 22, 2020), https://www.nytimes.com/2020/09/22/climate/climate-

change-future.html.

3

See PATRICK BOLTON,MORGAN DESPRES,LUIZ AWAZU PEREIRA DASILVA,FRE

´DE

´RIC SAMAMA &

ROMAIN SVARTZMAN,THE GREEN SWAN:CENTRAL BANKING AND FINANCIAL STABILITY IN THE AGE

OF CLIMATE CHANGE 14 (Bank for Int’l Settlements, Jan. 2020), https://www.bis.org/publ/

othp31.pdf [hereinafter GREEN SWAN].

4

See Swiss Re Group, World economy set to lose up to 18% GDP from climate change if no

action taken, reveals Swiss Re Institute’s stress-test analysis (Apr. 22, 2021), https://www.

swissre.com/media/news-releases/nr-20210422-economics-of-climate-change-risks.html

(announcing the release of a study by the world’s largest reinsurer, finding that global eco-

nomic output may decrease by nearly 20% if climate change is left unchecked).

5

See Bill McKibben, Biden’s Earth Day Climate Pledge for 2030 Will Define His Presidency,THE

NEW YORKER (Apr. 22, 2021), https://www.newyorker.com/news/daily-comment/bidens-earth-

day-climate-pledge-for-2030-will-define-his-presidency; see also Remarks as Delivered by

Secretary Granholm at President Biden’s Leaders Summit on Climate (Apr. 23, 2021),

https://www.energy.gov/articles/remarks-delivered-secretary-granholm-president-bidens-

leaders-summit-climate (referring to the Biden administration’s climate change strategy as

“our generation’s Moonshot”).

6

See Brad Plumer, Biden Wants to Slash Emissions. Success Would Mean a Very Different America.,

N.Y. TIMES (Apr. 22, 2021), https://www.nytimes.com/2021/04/22/climate/biden-emissions-

target-economy.html.

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of competitive advantage.

7

Over the past couple of decades, a rich and

varied literature has emerged that applies this premise to a variety of

business-specific contexts.

8

Notwithstanding conceptual distinctions

among them, legal strategy researchers share a common goal of under-

standing how firms can strategically use legal rights, obligations, and pro-

cedures to further firm-specific objectives for private gain.

In the context of the post-2020 challenges posed by climate change,

this article posits that the legal strategy literature does not adequately

account for the vast scope and diverse modes of regulatory responses

to climate change. Climate change presents two sources of disruption,

which, in combination with each other, undermine prevailing concep-

tions of legal strategy. The first source arises from the expanding

scope of regulation and market intervention. By regulating certain

business conduct as a means of responding to climate change—

ranging from mandatory environmental, social, and governance

(ESG) reporting and clarification of the fiduciary duties and time hori-

zons of institutional investors to mandatory carbon pricing and the

expansion of carbon emission markets—voluntary and discretionary

sustainability measures and corporate social responsibility practices by

companies will become widely adopted or universal.

9

The second

source of disruption arises from the challenges that firms will encoun-

ter in complying with decentralized regulatory mandates.

10

While

legal strategy presumes a stable regulatory environment, it accommo-

date s cha nges i n law a nd recognizes the capacity of managers to balance

7

Competitive advantage is a value-creating strategy that draws on a firm’s resources to

improve the firm’s efficiency or effectiveness in ways not being done by its competitors. See

Robert C. Bird, Law, Strategy, and Competitive Advantage,44C

ONN.L.REV. 61, 71 (2011).

8

See Justin W. Evans & Anthony L. Gabel, Legal Entrepreneurship and the Strategic Virtues of

Legal Uncertainty,57A

M.BUS . L.J. 593, 599–602 (2020) (providing an overview of legal strat-

egy scholarship); Thomas M. Madden, Law and Strategy and Ethics?,32G

EO.J.LEG.ETHICS

181, 199–206 (2019) (analyzing legal strategy scholarship in the context of ethics);

W. Michael Schuster & Jack Wroldsen,Entrepreneurship and Legal Uncertainty: Unexpected Fed-

eral Trademark Registrations for Marijuana Derivatives,55A

M.BUS. L.J. 117, 120–23 (2018)

(tracing the development of the legal strategy literature and highlighting its application to

entrepreneurship).

9

See Part III.A, infra.

10

See Part III.B, infra.

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