Thanks to Meredith for sending this my way. Eric W. Orts – the Guardsmark Professor of Legal Studies & Business Ethics and professor of management at the Wharton School of the University of Pennsylvania, and visiting professor of law at Columbia Law School in the summers of 2023 and 2024 – published an article in Columbia Law School’s Blue Sky Blog last month. He argues that
“… there really is a fiduciary duty to destroy the climate when doing so will maximize profits for firms and investors. This means that the leaders of U.S. corporations and institutional investors owe a fiduciary duty to maximize profits through economic activities that continue to produce, sell, and use fossil fuels (i.e. coal, gas, and oil) without considering how to contribute to a global economic transition toward more climate-friendly sources of power (such as solar, wind, hydro, geothermal, and nuclear). In addition, if profits can be maximized by deforestation or releasing methane or other greenhouse gases as well, then profits must again take precedence…
Professor Roberto Tallarita drew on an old-school jurisprudential distinction by the legal philosopher Wesley Hohfeld to suggest that corporate directors and managers may have the ‘privilege’ to consider the climate problem in their decision-making but not a corresponding ‘duty’…
If this were not bad enough, there is another level of fiduciary duty that is more problematic in requiring profit maximization even when it means contributing to climate damage. As scholars have observed, the effects of broadening the corporate governance standard for fiduciary duties are substantially countered by narrower financial fiduciary duties that apply to institutional investors. Without going into the details, a pecuniary standard is applied for many investment fund managers that essentially requires profit maximization. Even if a corporate board may have significant leeway to consider climate issues, its investors may insist on a narrower financial focus: or else! Companies with low profits and shareholder returns may find themselves the targets of hedge fund activists or private equity hunters. Hard-core profit-maximizing investors may act to achieve their own financial objectives whether the corporate directors and managers of operating companies like it or not…
Is there really a fiduciary duty to destroy the climate? The short answer is yes. As long as profit maximization is the standard for corporate governance and institutional investors, the law of fiduciary duties will continue to contribute to the climate problem.”
Pretty ominous stuff, especially in the context of current regulatory and legal trends in the US. But Orts does say
“Because the climate is everybody’s problem, everybody, including businesses and investors, should contribute to preserving it. Fiduciary duties must change, even if that will be difficult.”
They key is to show the direct value (in business fundamentals) of climate management programs.
Members can learn more about the business value of sustainability here.
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