{"id":24587,"date":"2025-06-01T09:50:12","date_gmt":"2025-06-01T14:50:12","guid":{"rendered":"https:\/\/blogs.law.columbia.edu\/climatechange\/?p=24587"},"modified":"2025-07-23T11:58:02","modified_gmt":"2025-07-23T16:58:02","slug":"is-there-really-a-fiduciary-duty-to-destroy-the-climate","status":"publish","type":"post","link":"https:\/\/blogs.law.columbia.edu\/climatechange\/2025\/06\/01\/is-there-really-a-fiduciary-duty-to-destroy-the-climate\/","title":{"rendered":"Is There Really a Fiduciary Duty to Destroy the Climate?"},"content":{"rendered":"
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Legal Colloquium: The New Climate Fiduciaries<\/figcaption><\/figure>\n

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Note: The views reflected in the post are those of the author and the author alone, and do not necessarily reflect the views of the Sabin Center or anyone at the Sabin Center.<\/em><\/p>\n

At a colloquium co-sponsored at Columbia Law School by the Ira M. Millstein Center for Global Markets and Corporate Ownership and the Sabin Center for Climate Change Law, two fields that usually do not touch on each other joined to discuss an essential topic: the relationship between fiduciary duty and responsibility for climate action. You can read one summary of main themes from the colloquium by the organizers\u00a0here<\/a>. I have been invited to share a version of my reflections as an academic observer of the colloquium, which I\u2019ve previously\u00a0published<\/a>\u00a0(with more extensive footnotes) in the Columbia Law School Blue Sky Blog on Corporations and the Capital Markets.<\/p>\n

It almost goes without saying that despite the recently prevailing political winds in the United States and elsewhere, climate science is\u00a0\u201cunequivocal\u201d<\/a>\u00a0in its findings that human-caused atmospheric damage is increasingly severe and many related physical risks to humanity and other life on Earth are rapidly intensifying. A major cause is economic activity which relies on the production, sale, and use of fossil fuels (i.e., coal, oil, and gas) which emit carbon dioxide when burned. Methane emissions and deforestation are other causes, and they are also most often associated directly with human economic activities. The negative consequences of human-induced climate disruption are already apparent in increasingly damaging storms, floods, heatwaves, wildfires, droughts, and waves of involuntary human migration. If present trends continue, and if humanity continues to burn fossil fuels at its current rate, the consequences will get much worse. The younger generations in the world today and those coming after them in the foreseeable future will be radically impoverished and many people will die from direct physical effects. A foundational question posed at the Columbia colloquium is how corporate law and its standards of fiduciary duty relate to what many climate scientists now\u00a0call<\/a>\u00a0the \u201cclimate emergency.\u201d[i]<\/sup><\/p>\n

Unfortunately, under what I will call the Maximization Model of fiduciary duty in the United States and many other jurisdictions, the answer is 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. More on the Maximization Model of fiduciary duty in a moment.<\/p>\n

At the colloquium, several scholars reported that some jurisdictions in the world \u2013 and some U.S. states \u2013 allow for a more moderate and permissive interpretation of fiduciary duties. Professor Cynthia Williams said, for example, that Canada\u2019s national-level corporate fiduciary duty explicitly includes \u201cthe environment\u201d among the relevant considerations. The relevant Canadian statute\u00a0provides<\/a>\u00a0that \u201cEvery director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.\u201d \u201cBest interests of the corporation\u201d is further defined to include \u201cthe following factors:\u201d (a) \u201cthe interests of shareholders, employees, retirees and pensioners, creditors, consumers, and governments; (b) \u201cthe environment<\/em>;\u201d and (c) the long-term interests of the corporation.\u201d<\/p>\n

Canada\u2019s statute is an updated version of what have been called \u201cconstituency statutes\u201d in the United States, which explicitly expand the fiduciary duties of corporate managers and directors \u201cbeyond shareholders\u201d but do not usually include \u201cthe environment\u201d among allowable factors,\u00a0except<\/a>\u00a0in Arizona and Texas. Approximately two-thirds of U.S. states\u00a0have<\/a>\u00a0constituency statutes, but not yet, importantly, the great corporate law state of Delaware. \u00a0At the colloquium, former Delaware Supreme Court Chief Justice Leo Strine reiterated that, as a matter of current law, corporate fiduciary duties continue to focus solely on the interests of profits for shareholders.<\/p>\n

In the Netherlands, courts have recently found that the nation\u2019s corporate fiduciary duty laws not only\u00a0permit\u00a0<\/em>but also\u00a0require<\/em>\u00a0consideration of climate risks and damage that a firm may be causing. This development appeared to follow a movement among Dutch corporate law professors arguing for\u00a0expanding<\/a>\u00a0corporate fiduciary duties to include \u201csocietal responsibility.\u201d In 2021, a court in the Hague\u00a0found<\/a>\u00a0that Royal Dutch Shell violated its fiduciary duties under Dutch law by failing to address its climate risk adequately and ordered the company to \u201creduce CO2<\/sub>emissions by net 45% by the end of 2030\u201d against a 2019 baseline. On appeal, quantification of a reduction target\u00a0was<\/a>\u00a0nullified, but the overall holding of a fiduciary duty to consider climate risks was affirmed.<\/p>\n

After Royal Dutch Shell reincorporated in the United Kingdom, a follow-up lawsuit\u00a0accused<\/a>\u00a0the company\u2019s directors of violating their fiduciary duties under UK law. As Professor Thom Wetzer noted at the Columbia colloquium, however, this case was dismissed because the court found that the plaintiff, ClientEarth, brought the case for improper purposes. It was a\u00a0close call<\/a>\u00a0for Shell, though, because the UK corporate fiduciary statute, like Canada\u2019s, includes \u201cthe environment\u201d as a relevant factor in the exercise of fiduciary duty, and the facts alleged by ClientEarth were compelling. Specifically, ClientEarth claimed that Shell had made a \u201cnet zero\u201d carbon dioxide emission pledge as in the long-term interests of the corporation and its shareholders but did not put in place an actual or realistic plan to achieve this target. This allegation, if true, would seem to violate a basic fiduciary duty to be honest and trustworthy.<\/p>\n

The European Union also appeared momentarily ready to adopt an EU-wide change in corporate fiduciary duties as part of its \u201cGreen Deal\u201d legislation, which would have\u00a0included<\/a>\u00a0legal responsibility for climate risk, but this proposal was deleted \u2013 even before a more general\u00a0rollback<\/a>\u00a0of the EU legislation was recently announced.<\/p>\n

Except perhaps in the Netherlands, then, there is no mandatory fiduciary duty for corporate directors and managers to consider the climate as a reason to mitigate their reliance on fossils fuels or take other pro-climate actions that would reduce profits for \u201cthe corporation and its shareholders.\u201d (Note that some commentators and advocates tend to swallow the conjunction to say only \u201cprofits for the shareholders.) Shareholders are people too, however, and so one can argue that the\u00a0permissive\u00a0<\/em>scope of corporate fiduciary duties should allow for the adoption of climate-friendly policies if they generally enhance\u00a0shareholder \u201cwelfare\u201d<\/a>\u00a0rather than profits. Also, there is wiggle room in arguments favoring \u00a0the \u201clong-term\u201d interests of shareholders, though future generations of not-yet-existing \u201cshadow shareholders\u201d are unlikely to be included.\u00a0(Cf. Thomas Hale\u2019s recent treatment of\u00a0\u201cshadow interests\u201d<\/a>\u00a0of future generations in the context of current climate policy.)\u00a0\u201cEnlightened shareholder value\u201d<\/a>\u00a0is another expansive formulation into which climate concerns might be smuggled. The business judgment rule and procedural impediments to shareholder lawsuits still protect significant discretion to adopt some climate-favorable policies and actions in the United States and elsewhere.<\/p>\n

At the colloquium, Professor Roberto Tallarita drew on an old-school jurisprudential distinction by the legal philosopher\u00a0Wesley Hohfeld<\/a>\u00a0to suggest that corporate directors and managers may have the \u201cprivilege\u201d to consider the climate problem in their decision-making but not a corresponding \u201cduty.\u201d This theoretical approach may not satisfy those who see the climate emergency as urgent \u2013 and indeed urgent enough to ground an imperative moral duty to act. Essentially, under the traditional view of corporate fiduciary duty, caring about the climate may sometimes be permitted but not required. There may be a \u201cprivilege\u201d to care about the climate but not a mandatory \u201cduty.\u201d<\/p>\n

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 including some of my colleagues at the Wharton School have\u00a0observed<\/a>, the effects of broadening\u00a0 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 well 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. Often, the current owners and managers of a target are given a lucrative \u201coffer that they can\u2019t refuse,\u201d which lightens the burden for them (though often not other business participants such as employees who are often downsized as a result).<\/p>\n

The Maximization Model of fiduciary duty lies at the center of the problem. According to this approach, which has been most influentially and succinctly\u00a0expressed<\/a>\u00a0by Milton Friedman, the focus of corporate directors and managers must be on profits alone. To maximize profits becomes the preeminent corporate fiduciary duty. For Friedman, the climate crisis (if he had considered it) would count as simply another kind of \u201cpollution\u201d or \u201csocial responsibility\u201d issue which corporate directors and managers should ignore. He believed that economic externalities of this kind should be handled by government. Friedman recognized law and (to an uncertain extent) ethics as legitimate constraints on the profit motive. So one might think that Friedman allowed for moral arguments for a\u00a0\u201cclimate imperative\u201d<\/a>\u00a0in business. Nevertheless, the shareholder profit-maximization model is taught today in many\u00a0business schools<\/a>\u00a0and\u00a0law schools<\/a>\u00a0as the definition of corporate fiduciary duty.<\/p>\n

A large hole in Friedman\u2019s Maximization Model is his assumption that business and its profit calculations are separable from the political system that is supposed to adopt laws to control pollution and other externalities. If the influence of Elon Musk and the big oil and gas companies has taught us anything in the 2024 U.S. national election, it is that one cannot depend on an independent political system to check business operations, at least not in the United States after the ironically named\u00a0Citizens United<\/em><\/a>\u00a0case and its\u00a0progeny<\/a>.<\/p>\n

Consider also the decades-long failure of international governance regimes to regulate the climate problem effectively. As one scholar recently\u00a0writes<\/a>:<\/p>\n

In 1992, countries promised, in international law, to \u201cprevent dangerous anthropogenic interference with the climate system.\u201d In the decades that followed [the adoption of the first treaties at the Earth Summit in Rio de Janeiro], countries met again, and again, and again, but \u201cdangerous anthropogenic interference with the climate system\u201d got worse. It has been suggested that doing the same thing again and again and expecting a different result is a definition of insanity.<\/p>\n

Government regulation alone won\u2019t get a handle on the\u00a0\u201csuper wicked\u201d<\/a>\u00a0and notoriously complex climate problem. As the well-known corporate lawyer William Savitt observed at the Columbia colloquium, the climate is \u201ceverybody\u2019s problem,\u201d and it therefore becomes \u201cnobody\u2019s problem.\u201d<\/p>\n

Changing the fiduciary duties of corporate directors and officers, as well as institutional investors, to allow for a truly \u201creasonable person\u201d standard to address the climate problem will not come easy, given the entrenchment of the Maximization Model in business and law. As a recent study\u00a0indicated<\/a>, teaching profit maximization as the \u201ctruth\u201d of fiduciary duty also has a significant effect on how willing businesspeople are to support social or environmental causes that do not enhance profits. Even if one can show that the Maximization Model is too narrow, wrong, and dangerous, it will prove practically difficult to dispel.<\/p>\n

Professors Dorothy Lund and Elizabeth Pollman have persuasively shown that there is today a\u00a0\u201ccorporate governance machine\u201d<\/a>\u00a0that reinforces a view that profit maximization for shareholders is fundamental. However, this view directly contributes to the climate crisis because the use of fossil fuels is ubiquitous in the economy. Maximizing profits is equivalent to supporting the ever-increasing discovery, production, sale, and use of coal, gas, and oil \u2013 and the ever-increasing climate damage that results. As James Gleick\u00a0observes<\/a>\u00a0recently in a different context:<\/p>\n

A machine is autonomous, defined by it own internal operations, self-regulating, and self-propelling. Step back a bit, though, and what looks like a marvel begins to seem monstrous.<\/p>\n

So it is with the Maximization Model of corporate fiduciary duties. It has elegantly and efficiently served to encourage economic growth, and it nicely fits mathematical equations, but it has become monstrous by causing certain, foreseeable, and deadly climate damage.<\/p>\n

Here are a few recommendations for reform.<\/p>\n

    \n
  1. Stop teaching the Maximization Model as if it were a natural law. Fiduciary duties and business corporations are much older than the financial models of the firm that, at least since Milton Friedman, have popularized profit maximization for shareholders as an unalterable truth.<\/li>\n
  2. Adopt laws that reject the Maximization Model and allow for the consideration of pro-climate corporate policies and actions as legitimate ends of business managers and investors. The Netherlands may be leading the way toward adopting a mandatory fiduciary duty to consider climate consequences in business decisions. At least, list \u201cthe environment\u201d along with other business interests and concerns beyond shareholders in fiduciary duty statutes whether nationally (as in Canada and the UK) or at state or regional levels (as in Arizona and Texas). Although adopting a federal corporate statute of this kind is impossible to imagine in the United States at the moment, Delaware could make a major statement by adopting<\/a>\u00a0a version of a fiduciary duty statute that would include \u201cthe environment,\u201d and maybe even specifically \u201cthe climate.\u201d Other states with constituency statutes\u00a0could<\/a>\u00a0amend them too. At the same time, fiduciary duties for institutional investors should be\u00a0changed<\/a> to permit and maybe even require pro-climate issues to be considered or at least fully and accurately disclosed.<\/li>\n
  3. Push for international actions recommending that companies and institutional investors consider the climate emergency to be an important fiduciary issue. Although the Environmental, Social, and Governance (ESG) movement has been watered down in its mainstream version to be concerned only with profit maximization, it could recover its\u00a0original purpose<\/a>\u00a0expressed by the United Nations, including addressing the climate crisis, through creative legal interpretation and reform.<\/li>\n<\/ol>\n

    Is there really a fiduciary duty to destroy the climate? The short answer is yes. As long as profit maximization is the fiduciary duty standard for corporate governance and institutional investors, the law will continue to contribute to the climate problem.<\/p>\n

    Unlike other externalities, climate damage is a ubiquitous consequence of our fossil-fuel economy. \u201cDrill, baby, drill\u201d leads inexorably to \u201cburn, baby, burn.\u201d<\/p>\n

    Because the climate is everybody\u2019s problem, everybody, including businesses and investors, should contribute to preserving it. Fiduciary duties must change, even if that will be very difficult. For as Paul Hawken\u00a0said<\/a>\u00a0more than three decades ago: \u201cThere is no polite way to say business is destroying the world.\u201d There is a moral duty to stop doing so, which should translate also into legal fiduciary duties.\u00a0<\/em><\/p>\n

    \u00a0This post was originally published on Columbia Law School’s Blue Sky Blog here<\/a> and is inspired by a colloquium on \u201cThe New Climate Fiduciaries\u201d\u00a0 jointly sponsored by the Sabin Center for Climate Change Law and the Millstein Center and held at Columbia Law School on February 21, 2025.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

          Note: The views reflected in the post are those of the author and the author alone, and do not necessarily reflect the views of the Sabin Center or anyone at the Sabin Center. At a colloquium co-sponsored at Columbia Law School by the Ira M. Millstein Center for Global Markets and Corporate […]<\/p>\n","protected":false},"author":2314,"featured_media":26155,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[9440,69207,137],"tags":[],"class_list":{"0":"post-24587","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-climate-finance","8":"category-cross-cutting-issues","9":"category-events","10":"czr-hentry"},"yoast_head":"\nIs There Really a Fiduciary Duty to Destroy the Climate? - Climate Law Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.law.columbia.edu\/climatechange\/2025\/06\/01\/is-there-really-a-fiduciary-duty-to-destroy-the-climate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is There Really a Fiduciary Duty to Destroy the Climate? - Climate Law Blog\" \/>\n<meta property=\"og:description\" content=\"      Note: The views reflected in the post are those of the author and the author alone, and do not necessarily reflect the views of the Sabin Center or anyone at the Sabin Center. 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