UK directors can be world leading on climate transition

By 2023, more than 70% of FTSE 100 companies were already doing some form of transition planning voluntarily - but UK-regulated financial institutions and large companies face challenges as the government prepares prospective legislation.

And for directors, trustees, and asset managers, this is more than a compliance issue - it’s a test of fiduciary duty in the age of climate risk and litigation.

Climate risk is business risk

Company directors have fiduciary duties under UK law that require them to act in good faith, promote the success of the company, and exercise reasonable care, skill, and diligence. Others with fiduciary duties often have similar obligations, often associated with generating a risk-adjusted financial return for a beneficiary.

Increasingly, this means recognising that climate change cannot be dismissed as an abstract or ‘woke’ trend, but as a potentially material business risk.

Failure to identify, manage, and disclose both climate-related risks and opportunities could expose directors to claims of breach of duty. Courts are less likely to intervene where directors can demonstrate they have evaluated and acted upon foreseeable risks.

Silence, on the other hand, may be interpreted as negligence.

Transition plans as legal safeguards

Credible transition plans can serve as risk mitigation tools. As set out in a published legal opinion recently prepared by barristers at Erskine Chambers for environmental law charity ClientEarth, detailed planning and disclosures can:

• demonstrate oversight by showing directors have considered climate risks and taken steps to address them;
• reduce greenwashing exposure through using data and context to substantiate climate claims;
• support regulatory compliance, bringing the organisation in line with disclosure obligations under the Companies Act and financial regulations.

In short, transition plans are not just strategic, they also mitigate risk.

Concerns about liability may be overstated

That said, there are concerns about directors being exposed to liability for forward-looking statements in transition plans. These concerns are understandable, but may well be overstated.

As the Erskine Chambers opinion explains, under the relevant UK legal frameworks for liability, directors could generally only be liable for misrepresentations arising from targets, plans or expectations in transition plans if they knew that the representations in question were false or acted recklessly as to whether they were true.

This standard provides a high bar for claimants to meet. Overall, it provides a balanced framework: it encourages honest, diligent disclosure without punishing reasonable ambition.

Statements made in good faith, based on the best available information and accompanied by appropriate caveats, are unlikely to breach this threshold.

Directors should lead, not lag

The evolving regulatory landscape presents a clear opportunity for directors to demonstrate leadership. Transition planning is no longer a niche concern, it’s central to long-term value creation, stakeholder trust, and legal accountability.

Directors who proactively engage with transition planning are not just fulfilling their fiduciary duties, they’re helping to future-proof their companies.

Duty meets decarbonisation

The UK is one of the first to act globally, and as the UK government commences design of its transition plan mandate, those directors who act will be world-leading. The legal framework for liability and mitigation is largely already in place. Stakeholder expectations are rising, and the risks of inaction are growing.

Transition plans should not be seen as a compliance burden - rather, they are a blueprint for responsible governance and an opportunity to show stakeholders how the business is preparing to respond in a changing world.