As climate policy becomes a central pillar of EU corporate regulation, directors are under increasing pressure to align governance with sustainability goals. Recent legislative developments—most notably the CSRD and CS3D—embed transition planning, double materiality, and stakeholder engagement into corporate responsibility. But as litigation around fossil fuel strategies rises and public scrutiny intensifies, the boundaries of directors’ duties remain contested. How can boards balance fiduciary obligations with the demands of climate adaptation and resilience? This article explores the evolving legal framework and philosophical implications of corporate climate governance in Europe and beyond.

The rise of Climate Directors duties

Even though the Commission published the two Omnibus directive proposals on 26th February to simplify CSRD, CS3D, Taxonomy directors’ duties will remain under a sustainable strategy. Indeed, Climate Corporate Governance is on the way on both sides of the Atlantic Ocean and in Asia. Achieving the net zero carbon by 2050 (is it still possible?) has sparked a great transatlantic doctrinal Debate regarding the “new” Corporate Climate Duties. Even if the European Commission will pursue an “unprecedented simplification effort” as announced in the Communication to the European Parliament, the European Council, the Council of the EU, the European Economic and Social Committee, and the Committee of the Regions entitled “A competitiveness Compass for the EU” (also called “Competitiveness Compass”, it would be inconceivable to come back to 2001 at the time of the first European Recommendation on CSR and to ignore the EU Green Deal of 2019. Listed Companies and their Directors have already taken into account social and environmental issues. In France for example the PACTE law (22 May 2019) has made a significant change in the definition of the corporate purpose of the company including these issues. It is also difficult to erase the huge European work during the last Decade if we bear in mind the NFRD (Non-Financial Reporting Directive of 22 December 2014), the CSRD (Corporate Sustainability Reporting Directive of 14 December 2022) and the recent CS3D (Corporate Due Diligence Directive of 13 June 2024). Mentalities in the board room have changed and the way in tackling Climate Change is rather a question of adaptation and mitigation.

More scrutiny on “Transition Plans”

The CSRD is already implemented by some State Members (France was the first of among the Member States on 6 December 2023): it introduced more specific and more stringent obligations such as the Transition Plans like article 22 of CS3D.  Such plans also called “climate related Plans” must be implemented by the company “to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement, and the objective of achieving climate neutrality”. Technical aspects of the innovative double materiality principle (i.e., sustainability matters that affect the company as well as the impacts of the company on sustainability matters such as the people and the environment) introduced by the CSRD (such as PAI (Principal Adverse Impacts) on the people and the environment must be considered. It is about time to “do no significant harm” to the Planet (EU Taxonomy Regulation of 18 June 2020).

Extractive sector companies are in the eye of the NGO storm and in the scrutiny of the Public. The sustainable strategy defined by the board of those companies is hard to put into practice mostly because the Stakeholders (the NGO for example) are focusing on the Transition Plans announcing the reduction of GHGs (greenhouse gases) which is never enough in their eyes.

The rise of fossil fuel litigation raises pressing legal questions. In France, in the wake of the Due Diligence Law of 27 March 2017, climate litigation is increasing (for example TotalEnergies, CA Paris, 18 June 2024). In the UK, the same issues apply and the large number of doctrinal commentaries of the highly instructive decision Client Earth v. Shell plc coming from Academics working in Business Law and as well on Environmental Law show that all attention is the way the boards implement the sustainable strategy. The growing number of highly interesting papers from renowned Academics, (it is unfortunately impossible to list them all here) and the international conference on that topic is a sign that does not deceive. The climate directors’ duties offer a great opportunity to take a new look or to reborn on very interesting corporate governance topics such as.

The Stakeholders as strong as the Shareholders?

The Debate on the Shareholder Primacy can be seen in a new light. Why not “reconcile” shareholder primacy with the interests of people and planet? What about the angelic vision of Stakeholders and the constant impression that shareholders are not involved in sustainability issues. What about “reasonable Shareholders”? The thing is that at international level and European level, the Stakeholders’ power is greater.

At European Level, the CSRD, the CS3D and the EFRAG Norms promote a “Stakeholder Dialogue”. Indeed, on may ask about the effectiveness of the effectiveness of the “Stakeholder dialogue”. It is a real game-changer for corporate governance will essentially reside in the stakeholders’ role that the European texts wish to promote. The removal of Article 25 from the CS3D does not call into question the obligations of boards of directors towards stakeholders. In line with its role as the driving force behind the standards, the CSRD maintains the core elements of the stakeholder mechanism, with the boards of directors of major companies being required to report on how the business model and strategy take account of the company’s stakeholders and of its impact Article 13 of the CS3D of 13 June 2024  is a strong signal in favour of a “Meaningful engagement with stakeholders”  based on “effective and transparent consultations” at different stages of the due diligence process. In article 3.1(n) the CS3D provides useful definition of “stakeholders” including expressly “national human rights and environmental institutions, civil society organizations whose purposes include the protection of the environment, and the legitimate representatives of those individuals, groupings, communities or entities”. Such broad definition opens the door to a change in practice of corporate governance in EU and abroad because of the extraterritoriality of the CS3D (How the EU’s Sustainability Due Diligence Directive Could Reshape Corporate America, Luca Enriques, Matteo Gatti, Roy Shapira, ECGI Law Working Paper n°817/2025, January 2025).

At international level, the OECD Principles on Corporate Governance go even further by requiring boards of directors to take account of the “interests of stakeholders” in very controversial Chapter VI, entitled Sustainability and resilience, which has already become a cornerstone of the doctrine. Taking stakeholders’ interests into account has ceased to be merely optional. The mapping of stakeholders will be an essential step. The boards must take into account a wider group of stakeholder’s interest and to prevent the negative effects of their activities on health, human rights, environment. This approach is confirmed by Chapter V A (Chapter V ‘s title is “The responsibilities of the board”) “Board members should act on a fully informed basis, in good faith, with the due diligence and care, an in the best interest of the company and the shareholders, taking into account the interests of stakeholders”

Is the Business Judgment Rule still a legitimate or useful shield?

The Business Judgment Rule (BJR) might find colors in the new version of the OECD Principles on Corporate Governance. It still confers substantial discretion to consider climate risk.

Indeed, Principal V.A.1 therefore advocates a form of Business Judgment Rule, rightly specifying the importance of the interest in “benefiting the company”. Principle V.A.1 states in detail that “Protecting board members and senior management from potential legal action if they made a business decision diligently, with procedural due care, on a duly informed basis and without any conflicts of interest, will better enable them to assume the risk of a decision that is expected to benefit the company, but which could eventually be unsuccessful. Subject to these conditions, such a safe harbor would apply even if there were clear short-term costs and uncertain long-term negative impacts to the company, as long as managers diligently assess whether the decision could be reasonably expected to contribute to the long-term success and performance of the company.” The title of principle V.A.1 is evocative: “Board members should be protected against litigation if a decision was made in good faith with due diligence” and even if it will be difficult to implement, it is an integral part of the basis of prudent and diligent corporate governance. It might be asked to what extent the BJR might also protect the interests of the stakeholders because the interests of the company are closely tied with the interests of its shareholders. It is also difficult to argue that when the directors act in good faith to the best interest of the company they do not consider the interests of future shareholders and of stakeholders too. The directors would not be automatically in breach of their duties if they “reasonably believed” they were acting in the best interests of the company, even if their decision ultimately damaged it.

The next generation sustainable board directors

There is an increasing demand for board level sustainability competency, and we must not throw stones at the boards as they have made significant progress and next generation sustainable boards director including more Women (Directive on Women on Boards (EU Directive 2022/2381) 23 November 2022 (implemented in France by Ord. 2024-934, 15 October 2024) are well aware of Climate Change and the Climate risks. Among the duty of care, the duty for monitoring, the duty of diligence, the “positive duty to act in the interest of the entity (Suzan Watson and Lynn Buckley, Journal of Corporate Law Studies, 2024, Vol. 24, NO 1, 233-265) new general climate duties such as environmental and resilience-related duties appear.

Many questions remain. What about Directors’ personal liabilities if the Company’s Transition Plans are not sufficient regarding GHG reduction? How “to no significant harm” (EU Taxonomy) to the Planet and people?  To what extent should Boards open their doors to public enforcement?

There is no doubt that climate directors’ duties will revolve around two key concepts: sustainability and resilience. People and Planet must not be viewed as obstacles to Profit. The corporate purpose. The last question might be: to what extent do the boards have to open their doors? The corporate purpose of the company might be the best compass of sustainable corporate governance which could reconcile the often-irreconcilable interests of stakeholders and shareholders.

Catherine Malecki is Professor of Law at Rennes 2 University (France) and a member of the prestigious Institut Universitaire de France (IUF) Her main research and interests include CSR (Corporate Social Responsibility) Sustainable Finance, Financial Law, Comparative Business Law. She is leading a project on The Stakeholder corporate governance.