'Mission Critical''Revisiting The Board's Oversight Role After In Re: Boeing Co.

Published date18 May 2022
Subject MatterCorporate/Commercial Law, Environment, Compliance, Corporate and Company Law, Directors and Officers, Corporate Governance, Environmental Law, Climate Change, Shareholders
Law FirmAkin Gump Strauss Hauer & Feld LLP
AuthorMs Kerry E. Berchem, John Goodgame, Cynthia M. Mabry, Grace K. Seidl and Charles Smith

Recent rulings in the United States and overseas, coupled with the Securities and Exchange Commission's (SEC) recently proposed disclosure rules covering climate-risk disclosures, underscore the attention boards of directors and management must continue to pay to climate change and its potential impact on business operations and the risks faced by companies across all sectors of the economy. Obviously, the energy industry is acutely attuned to these issues and last year's decision in In re: Boeing Co. Derivative Litigation (discussed in detail below) only serves as the most recent reminder of the potential exposures (including personal liability) companies, boards of directors and management may face when they fail to consider these issues seriously.

May 26, 2021, marked the first time that a court imposed a bright-line emissions reduction requirement on a private corporation unrelated to an independent statutory or regulatory mandate. The District Court of The Hague ruled that Royal Dutch Shell must uphold a duty of care owed to Dutch citizens to reduce its carbon dioxide (CO2) emissions. The District Court of The Hague grounded the obligation in the "unwritten standard of care" enshrined in Dutch tort law that dictated "what may be expected of [Shell] . . . with respect to Dutch residents." In its decision the District Court of The Hague considered a number of factors, including Shell's and other actors' contributions to and responsibilities for climate change, human rights concerns, climate science, regulatory pathways to address climate change and feasibility. The District Court of The Hague criticized Shell's existing policy for merely monitoring developments, for being intangible and undefined, and for allowing other parties to take the lead in addressing climate change. Ultimately the District Court of The Hague ordered Shell to enact a new policy to address climate change.

Shell has made clear that it intends to appeal the decision, yet regardless of any precedential value the decision adds further pressure on companies to proactively implement policies that align with the Paris Agreement targets and basic human rights to a clean and healthy environment, and not just react to government-imposed laws and policies. In the United States, the decision will continue to attract significant attention in the oil and gas and other energy-intensive sectors, as well as in the financial industry. It also may cause companies promoting corporate sustainability to take a closer look at how they set environmental targets and substantiate their claims. While it is unlikely that United States courts will follow the reasoning set forth by the District Court of The Hague, in part due to the conservative majorities on the United States Supreme Court and in the federal judiciary, the focus on a corporation's duty of care calls to mind a line of Delaware cases that address boards of directors duty to oversee risk and safety, which are highlighted below. Similar to the Shell case, this line of cases presents an avenue for activists to bring litigation related to climate risks.

In a derivative case against directors of The Boeing Co., the Delaware Court of Chancery allowed Caremark1 claims against The Boeing Co. directors to survive a motion to...

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