The Legal 500: Environmental Social and Governance Comparative Guide

May 18, 2023

ESG and the Duty of Oversight: A Trojan Horse Attack on the Business Judgment Rule - Read our chapter in The Legal 500: Environmental Social and Governance Comparative Guide

Over the past decade, businesses and investors have widely incorporated environmental, social, and governance (“ESG”) considerations into their decision making process. At the same time, corporate law continues to evolve such that some have advocated that not only do Boards of Directors have an affirmative obligation to factor ESG considerations into their decision making process, but they also have an explicit duty of oversight to implement internal reporting and control systems related to ESG risks. In this view, the duty of oversight would be fully extended from its classic formulation of director oversight of legal compliance to the more nebulous concept of oversight of business risks. Such a result, however, could expose directors to expanded personal liability, have serious, deleterious consequences for how Boards function and, ultimately, how companies perform.

In this Hot Topic chapter, our authors provide context on whether directors are obligated to monitor and oversee business risks related to ESG, even when the Board is not confronted with a specific business decision to which that framework would apply.

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