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Studies Say Shareholder Suits over Environmental Issues Could Come

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Is there anything over which corporate shareholders won't sue? Reports from both McKinsey Quarterly and Corporate Library suggest that environmental issues are high on executives' worry lists, and that shareholder suits against companies for a perceived lack of environmental responsibility may not be far off.

 

According to CFO.com, McKinsey found nearly 9 of 10 corporate executives rank the environment as "the top societal issue that could affect shareholder value." In previous years, employee benefits and jobs lost to offshoring topped the list. The pressure comes in part from shareholders asking for better climate disclosures from corporations and from state and local governments asking the SEC to clarify the rules that require companies to report any material effect that climate change might have.

 

Similarly, Corporate Library indicates that corporate executives' professional liability insurance rates may increase as a result of the risk of shareholder litigation over environmental issues -- even if it's unclear as of yet whether such litigation would be successful. Corporate Library senior research assistant Beth Young rated 24 "carbon-intensive businesses" with regard to their climate disclosures and the governance processes they have in place for such issues. She notes:

Low scores in both [disclosure and governance] may suggest a board that has been slow... to give the appropriate amount of attention to climate-related issues. An unconsidered refusal to act could give rise to claims for breach of fiduciary duty.

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