Are Firms and Managers At Risk When Contributing to Climate Change?

Executives’ personal responsibility to address climate change may be decided in courtrooms.

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Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
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In 1973, Swiss entrepreneur Stephan Schmidheiny took over as head of the Swiss Eternit Group, a leading manufacturer of asbestos products, three years after the firm had become the biggest single shareholder in the Italian company Eternit. In 2012, Schmidheiny was accused and convicted of causing an environmental disaster through negligence, and of knowingly failing to introduce adequate health and safety measures. This failure led to more than 2,200 asbestos-related deaths in Italy. In 2013 the court of second instance increased the sentence, and found Schmidheiny guilty of causing a permanent environmental disaster with criminal intent. His appeal is currently pending. Should it be unsuccessful, Schmidheiny faces 18 years in prison.1

Being held liable or personally responsible for business decisions can quickly become a nightmare for senior executives. Directors’ and officers’ (D&O) liability insurance has become a multi-billion-dollar market, but D&O insurance is of little use to an executive facing incarceration.

In the wake of perceived malfeasance by corporations, calls for executives to be held liable are common. The Schmidheiny case is worth watching because of its potential repercussions for matters of broader concern. The interesting question is whether or not it is likely that other environmental or human rights issues hold similar risks for executives. A likely candidate here is climate change — or rather, the damage resulting from extreme weather events or regional shifts in weather patterns.

At some point, affected parties will claim damages for losses attributed to climate change, especially if insurance is unavailable or unaffordable. Even today, organizations such as the Climate Accountability Institute and the Climate Justice Programme aim to use the law “to protect the natural environment and people from the adverse impacts of climate change.” Whom will the legal actions target?

The remainder of this article looks at four questions: which organizations might be held liable? On what basis might they be held liable? Will individual executives be targeted as well? Are investors and financial institutions also at risk of being held liable?

Research is already attributing climate change implications, such as rising sea levels and extreme heat, to specific carbon producers.

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Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
See All Articles in This Section

References

1. "Swiss billionaire gets 18 years jail for Italian asbestos deaths," June 3, 2013, Reuters. http://uk.reuters.com/article/2013/06/03/uk-italy-asbestos-idUKBRE9520UZ20130603

2. Heede, Richard, Tracing anthropogenic carbon dioxide and methane emissions to fossil fuel and cement producers, 1854 – 2010, Climatic Change 122 (2014), pp. 229-241. http://download.springer.com/static/pdf/371/art%253A10.1007%252Fs10584-013-0986-y.pdf?auth66=1409411728_f58acdab2e6938c889b57a28234471c7&ext=.pdf

3. Carbon Tracker Initiative, "Unburnable Carbon: Are The World's Financial Markets Carrying a Carbon Bubble?", 2011. http://www.carbontracker.org/wp-content/uploads/2014/09/Unburnable-Carbon-Full-rev2-1.pdf

4. Critically: Foster, Caroline E., “The ILC Draft Principles on the Allocation of Loss in the Case of Transboundary Harm Arising Out of Hazardous Activities: Privatising Risk?,” Review of European Community and International Environmental Law, Vol. 14, No. 3, 2005, pp. 265-282.

5. For instance, as early as 1959, a defendant was held liable in trespass for damage caused by gases and airborne particulates deposited on plaintiffs’ land (Martin. v. Reynolds Metals Co., 342 P.2d 790, Or. 1959).

6. "Establishing Accountability for Climate Change Damages," Union of Concerned Scientists and Climate Accountability Institute, October 2012, p. 4. http://www.climateaccountability.org/pdf/Climate%20Accountability%20Rpt%20Oct12.pdf

7. Saño, Naderev (Yeb) / Richards, Julie-Anne, “Carbon Majors and Climate Justice,” June 9, 2014. https://www.project-syndicate.org/commentary/naderev----sa-o-and-julie-anne-richards-propose-a-levy-on-fossil-fuel-producers-to-help-those-most-vulnerable-to-climate-change

8. For details on the tort and civil liability regimes to address climate change damage, see Cullet, Philippe, “Liability and Redress for Human-Induced Global Warming,” 43A Stanford Journal of International Law (2007), pp. 99-121, on pp. 109-111. See also Humphreys, Stephen (ed.), “Human Rights and Climate,” Cambridge University Press 2010, pp. 145-151.

9. For example, for the oil sector please refer to the International Convention on Civil Liability for Oil Pollution Damage (Brussels, November 29, 1969). A list of the relevant international treaties can be found in documentation from the International Law Commission (ILC) on "International liability in case of loss from transboundary harm arising out of hazardous activities" (http://legal.un.org/ilc/guide/9_10.htm; see e.g. the Studies undertaken by the UN Secretariat, UN Doc. A/CN.4/543, June 24, 2004). See also Directive 2004/35/CE of the European Parliament and of the Council of April 21, 2004 on environmental liability with regard to the prevention and remedying of environmental damage.

10. Human Rights Council, Resolution 10/4, “Human rights and climate change,” March 25, 2009.http://ap.ohchr.org/documents/E/HRC/resolutions/A_HRC_RES_10_4.pdf A detailed analysis of the effects on specific human rights is provided in the Report of the Office of the United Nations High Commissioner for Human Rights (OHCHR) on the relationship between climate change and human rights, A/HRC/10/61, January 15, 2009, paras. 20-41, and Annex. http://daccess-dds-ny.un.org/doc/UNDOC/GEN/G09/103/44/PDF/G0910344.pdf?OpenElement

11. This interpretation is confirmed in the OHCHR Report (see footnote 10), para. 70. The right to an effective remedy was enunciated in the Universal Declaration of Human Rights and has been reinforced and expanded by several subsequent binding treaties.

12. See the third pillar (Access to Remedy) of the Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie, “Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework,” March 21, 2011; endorsed by the UN Human Rights Council on June 16, 2011.

13. There already many instances in which the existing judicial barriers have been overcome by innovative approaches adopted by lawyers (see the details in Skinner, Gwynne / McCorquodale, Robert / De Schutter, Olivier, “The Third Pillar – Access to Judicial Remedies for Human Rights Violations by Transnational Business,” December 2013, analyzing the relevant case law in the United States, Canada, and Europe). http://accountabilityroundtable.org/wp-content/uploads/2013/02/The-Third-Pillar-Access-to-Judicial-Remedies-for-Human-Rights-Violation-by-Transnational-Business.pdf

14. For an overview of climate change-related lawsuits, see the International Council for Human Rights Policy, “Climate Change and Human Rights: A Rough Guide,” 2008. http://www.ichrp.org/files/summaries/35/136_summary.pdf

15. Press release, May 28, 2014. http://assets.panda.org/downloads/pr28may2014.pdf

16. See, for example, Art. 234 of the Swiss Criminal Code (Prohibition of contamination of drinking water).

17. The documentation is available at: http://www.ecchr.de/lahmeyer-case.html

18. See, for example, the work of the UNEP Finance Initiative on climate change. http://www.unepfi.org/work-streams/climate-change

19. https://sloanreview.mit.edu/article/human-rights-the-next-frontier

20. See, for example: Honorary degrees awarded by the Yale University on May 27, 1996. http://www.yale.edu/opa/arc-ybc/ybc/v24.n32.comenc.06.html

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