Commissioner Lee Emphasizes the Role and Responsibilities of the Corporate Board Concerning ESG and Climate Change

Under state law, as everyone here knows, directors have fiduciary duties of loyalty and care.[39] A director’s duty of care fundamentally requires that a board must be well informed when making corporate decisions.[40] When those decisions, for example, relate to long-term business strategies, a board may well need to ensure it has relevant information related to the climate and ESG-related risks and opportunities its company faces.[41]        What’s more, under the duty of good faith (considered a subset of the duty of loyalty under Delaware law) directors may need to investigate “red flags” that suggest legal violations or other harm to the corporation.[42] This may require directors to do a deeper dive on climate change and other ESG issues as the regulatory landscape evolves. Unaddressed red flags relating to a violation of emissions regulations, for instance, could implicate the duty of good faith.[43] All of this suggests that climate change and other ESG matters should be regular and robust topics for the board, whether at meetings of the full board or in key committees, such as the audit committee, the compensation committee, or the risk committee. Or, perhaps, as some companies have already done, handled in a more centralized manner through a sustainability or ESG committee of the board.

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