ESG and Mission-Critical Issues for Director & Officer Liability

This article, by Jonathan Drimmer of Paul Hastings and Yousuf Aftab, was originally published on CorpGov in December 2019.

Amidst a spirited debate around the duties of directors in relation to environmental, social, and governance (ESG) risks, two recent decisions from Delaware courts provide clarifying contours.  The decisions are particularly significant since Delaware is the leading state for corporate law and the most popular jurisdiction of incorporation for publicly traded companies.  Both decisions construe the scope of a board’s responsibility to monitor and oversee corporate risk under the standards set forth in In re Caremark Int’lInc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), and its progeny. Together, they lay the foundation for director and officer liability for mission-critical ESG failures.

We discuss the decisions, their practical implications against the backdrop of evolving investor expectations, and some practical steps boards should take to navigate them.