Environmental liability for directors and officers is well established. Federal and provincial statutes in Canada impose statutory duties on directors and officers to take all reasonable care to prevent the corporation from contravening environmental legislation.1 Directors and officers have also been held civilly liable under causes of action such as negligence, nuisance, and strict liability for environmental harms. 2
Director and officer liability for climate change-related risks is less clear. Even in the middle of the Covid-19 pandemic, concerns remain about climate change. Investors continue to closely track climate change disclosure and associated corporate governance practices.3 Inadequate disclosure of climate change risk, coupled with a lack of good governance, could be the basis for a new wave of liability for corporate directors and officers.
D&O LIABILITY IN THE ENVIRONMENTAL CONTEXT
In the regulatory context, directors' and officers' environmental liability is baked into environmental legislation. For example, under the Environmental Protection Act ("EPA"), directors and officers who fail to take all reasonable care to prevent the corporation from discharging contaminants in contravention of the EPA are guilty of an offence.4 The EPA also authorizes the issuance of regulatory orders to address harm caused by environmental contamination.5 Where a person owns or owned, or has or had management or control of an undertaking or property, he or she may be subject to such an order. Corporate directors and officers are presumed to have management and control of the corporation.6 As such, directors and officers may be named in orders issued by regulators such as the Ontario Ministry of Environment, Conservation and Parks to address environmental contamination.
Courts have upheld regulatory orders issued to directors and officers in a number of cases. For example, in Baker v Ministry of the Environment, 7 Northstar Aerospace Inc. was ordered to remediate contamination caused by its operations. Following Northstar's bankruptcy, the Ministry of the Environment and Climate Change (as it then was) issued an order to the former directors of Northstar to continue with the remedial work. The directors brought a motion to stay the order. The Divisional Court denied the motion, holding that the directors were responsible for continuing the remediation work.8 The directors eventually reached a $4.75M settlement with the Ministry to be released from the order.
In the civil context, courts have held directors and officers liable for environmental contamination under various causes of action. For example, in Midwest Properties Ltd v Thordarson, 9 the Ontario Court of Appeal held the company and its director liable for petroleum hydrocarbon contamination that had migrated onto a neighbour's property. In Midwest, liability was grounded in nuisance, negligence, and the statutory cause of action under s. 99(2) of the EPA. The Court of Appeal ordered the company and its director to pay remediation costs as well as punitive damages.
POTENTIAL WAVE OF D&O LIABILITY FOR CLIMATE CHANGE RISKS
With ongoing public concern about climate change, directors and officers could face a new wave of climate change-related liability. Such liability could arise where directors and/or officers fail to take all reasonable care to address or mitigate climate changerelated risks relating to corporate activities. Climate change risks include physical risks (e.g. extreme weather events or shifts in climate patterns) and transitional risks (e.g. changes in markets, regulations, policies, and technologies related to a shift towards a low-carbon economy).10 Investors concerned about these risks are increasingly looking at two factors in making investment decisions: (1) corporate disclosure and (2) good corporate governance.
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Footnotes
1. See e.g. Environmental Protection Act, RSO 1990, c E 19, s 194 [EPA]; Ontario Water Resources Act, RSO 1990, c O 40, s 116; Canadian Environmental Protection Act, 1999, SC 1999, c 33, s 280.1.
2. See e.g. Midwest Properties Ltd v Thordarson, 2015 ONCA 819.
3. Principles for Responsible Investment, "What are the Principles for Responsible Investment?", online: https://www.unpri.org/pri/an-introduction-to-responsible-investment/what-are-the-principles-forresponsible-investment.
4. EPA, supra note 1, s 194(2).
5. Ibid, s 18.
6. Caltex Petroleum Inc v Ontario (Ministry of Environment and Energy), 1995 OEAB No 75 at 7–8, aff'd 1998 OJ No 825 (Div Ct).
7. 2013 ONSC 4142.
8. Ibid.
9. Supra note 2.
10. Canadian Securities Administrators, CSA Staff Notice 51-358: Reporting of Climate Change-related Risks (1 August 2019) at 10–11, online: https://www.osc.gov.on.ca/documents/en/SecuritiesCategory5/csa_20190801_51-358_reporting-of-climate-change-related-risks.pdf.
Originally published 2 June, 2020
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