Faculty Author Type

Emeritus Faculty [Janis Sarra]

Document Type

Working Paper

Publication Date



fiduciary obligation, climate change, pension trustees, climate-related financial risk


Fiduciary obligation, under both corporate law and the common law, requires directors and officers to identify and address climate-related financial and other risks. In fulfilling their obligations to act in the best interests of the company, directors and officers must directly engage with developments in knowledge regarding physical and transition risks related to climate change and how these risks may impact their corporation. Depending on the firm’s economic activities, the risk may be minor or highly significant, but directors and officers have an obligation to make the inquiries, to devise strategies to address risks, and to have an ongoing monitoring to ensure the strategies continue to be responsive to the risk. Directors’ fiduciary duty requires that they have overseen and monitored the actions of the individuals charged with mitigation and adaptation; and have mechanisms in place to respond rapidly to changes in the company’s risk profile. In addition to fiduciary obligations, this study examines the statutory duty of care under corporate law, which requires directors and officers to exercise the care, diligence and skills that a reasonably prudent person would exercise in the circumstances. This duty requires directors and officers to supervise and manage the transition that will address the specific risks, as well as the new opportunities, posed by climate change.

The study also examines pension plan trustees and other investment fiduciaries in respect of their fiduciary obligations related to climate change. Pension fund trustees have a fiduciary obligation to pension beneficiaries to act prudently in their best interests in making investment decisions regarding fund portfolios. In fulfilling their obligations to beneficiaries, pension trustees and their investment managers have an obligation to identify and address climate-related financial risk. Trustees can take climate change into account as a legitimate investment issue over the short or long term or both. If trustees fail to act to address material climate change risk, they may be personally liable for breach of their fiduciary obligation. Inaction is no longer acceptable, given all the evidence that climate change risk is material across the entire economy. Trustees can also take climate change into account because they have duties as public fiduciaries additional to their financial duty to beneficiaries. Fiduciaries have a duty to act even where the potential costs and benefits of climate change cannot be fully quantified immediately. Fiduciary obligation also requires considering the benefits of investment in green adaption and mitigation technologies and other products and services that are likely to have upside financial potential for return on investment.



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