On 7 November 2025, the Cambridge Seminar on Law and the Climate Crisis welcomed Professor Ernest Lim to talk about corporate law and climate change.
Speaking to legal scholars, practitioners, and students, Professor Lim examined how directors’ duties were evolving in response to global climate and sustainability pressures. He argued that while company law traditionally prioritised shareholder value, directors were increasingly expected to consider the wider environmental and social impacts of corporate activity. Drawing on legal developments, high-profile litigation, and international trends, Lim highlighted how both private companies and state-owned enterprises were grappling with the challenge of integrating climate responsibility into fiduciary decision-making.
Summary
Redefining Directors’ Duties
Professor Ernest Lim distinguished between the internal and external dimensions of directors’ duties. The internal concerned company interests and shareholder value, while the external related to corporate impacts on the environment, economy, and society. Lim argued that global developments increasingly pressured directors to account for these externalities.
Legal Framework and the Climate Imperative
In both English and US law, directors were required to act in good faith and with reasonable care in the company’s best interests. Climate risks had to be considered where they materially affected shareholder value. Failure to do so could amount to a breach of duty, as illustrated in ClientEarth v Shell, where the court emphasised the difficulty of proving direct causation between corporate decisions and climate harm.
External Duties and Global Trends
Lim outlined three global shifts that reshaped corporate responsibility:
- The rise of universal ownership, which required major asset managers to address system-wide risks such as climate change.
- The EU’s Corporate Sustainability Due Diligence Directive (CSDD) and Corporate Sustainability Reporting Directive (CSRD), which imposed environmental and social due diligence and reporting obligations.
- The influential role of state-owned enterprises (SOEs), both as major emitters and as leading investors in renewable energy.
Corporate Law Innovations and Their Limits
Some UK companies, such as Faith in Nature, had amended their constitutions to include ecological clauses or nature guardians. While symbolically significant, Lim noted that these measures faced enforcement challenges: shareholders could override them, and nature representatives lacked standing. This highlighted the tension between shareholder primacy and environmental stewardship.
China and State-Owned Enterprises
Chinese SOEs exemplified the difficulty of balancing economic growth with climate goals. Although they led in renewable investment, continued coal expansion reflected short-term economic priorities. Lim argued that SOEs’ fiduciary duties incorporated broader social and environmental considerations, but insufficient accounting for future externalities sustained high emissions.
Global Lessons and Future Pathways
Lim concluded that SOEs and public utilities worldwide offered lessons on aligning fiduciary duties with climate responsibility. He cautioned that universal ownership could either support or hinder decarbonisation, depending on economic incentives. The challenge ahead lay in embedding climate-conscious governance within company law, ensuring directors internalised externalities while supporting long-term sustainability.
About the Cambridge Seminar Series on Law and the Climate Crisis
The Cambridge Seminar Series on Law and the Climate Crisis is co-hosted by the Centre for Climate Engagement at Hughes Hall, Cambridge Zero, the Centre for Environment, Energy and Natural Resource Governance (C-EENRG) at the Department of Land Economy, the Cambridge Climate Society, the Lauterpacht Centre for International Law, and the Cambridge University Law Society.
Find out more here.