By: Atty. Euney Marie Mata-Perez
I was just inducted as a member of NOWCD, the NextGen Organization of Women Corporate Directors, the Philippine chapter of Women Corporate Directors International.
Incorporated on September 24, 2021, NOWCD seeks to bring together a trusted community of experienced and engaged directors across the Philippines, looking to continue to increase representation of women across publicly- and privately- held boards, from 17% to 23% by 2025. The organization is driven by the belief that diversity and representation is central to ensuring success for any organization.
At the induction, Mr. Federico “Piki” Lopez, the Chairman and Chief Executive Officer of First Philippine Holdings Corp (FHPC), as the speaker, shared his very interesting and relevant thoughts about climate change, under the FPHC’s mission to “foster collaborative pathways for a decarbonized and regenerative future”.
His talk spurred interest and awareness to the NOWCD members on the obligations of directors with respect to climate change. This led me to review the legal opinion entitled “Directors’ Duties & Responsibilities and Disclosure Obligations Under Philippine Law On Climate Change Risks” (the “Opinion”), which was published by the Commonwealth Climate and Law Initiative (CCLI), together with ClientEarth and the Institute of Corporate Directors. The Opinion was authored principally by my esteemed law school professor, Atty. Cesar Villanueva.
It is hoped that the Opinion will lay the basis for our regulators to formally adopt rules which outline directors’ duties with respect to climate change. This article will briefly summarize the contents of the Opinion in light of directors’ legal and fiduciary duties.
- The Philippines’ 1987 Constitution recognizes the citizens’ “right to health” and “right to a balanced and healthful ecology”. The Supreme Court has affirmed this right in the case of Oposa v. Factoran, G.R. No. 101083, 20 July 1993.
- The Constitution, while guaranteeing the principles of private ownership, also decrees the “social function of private property and economic enterprises”, and, in this regard, provides that “the use of property bears a social function and economic agents (which include corporations) should contribute to the common good”.
- The foregoing means that the fiduciary duties of directors of “for-profit” corporations of obedience and diligence, not just to the shareholders but to other stakeholders, as well their duty to abide by the rules of good governance, “include within the scope of responsibility a stewardship role to ensure that company operations do not degrade the environment or contravene environmental laws”.
- It recognized that the Climate Change Act (Republic Act No. 9729), while providing opportunities where private sector may have the opportunity to fulfill their social responsibilities towards meeting climate risks, does not define or impose an institutional responsibility on the private corporate sector to address climate change beyond the legal parameters set out in our environmental laws.
- However, under Section 30 of the Revised Corporation Code (RCC), directors can be personally and solidarily liable with the corporation for “willfully and knowingly assenting to patently unlawful acts of the corporation” or at least for “gross negligence or bad faith in directing the affairs of the corporation”. In this regard, the Opinion states that, while prohibited acts under various environmental laws provide limited areas where directors may be held criminally liable, Section 30 of the RCC can provide legal basis for such a liability especially “when the commission of such prohibited acts is egregious”.
- Directors also have the duty to ensure that material climate change issues should be properly disclosed. The RCC includes certain duties of directors to “inform or disclose” to shareholders material or relevant information relating to corporate transactions.
- Under the Securities and Exchange Commission’s Code of Corporate Governance, publicly-held companies are mandated to ensure that material and reportable non-financial and sustainable issues are disclosed.
- The Philippine Stock Exchange disclosure rules require publicly-listed companies to disclose any material fact which may materially affect investor’s decisions, which would include disclosure on climate-related risks.
If shareholders are able to prove that a director’s failure to identify and monitor climate change risks constitute a breach of their fiduciary duties, a derivative suit may be filed against erring directors.
- The Opinion did state that under the current disclosure rules for publicly-listed companies which adopt the “complain or explain” approach, the obligation to disclose and submit the sustainability report, including material climate-change disclosures, is primarily a corporate responsibility. Thus, directors are not directly and personally liable for corporate disclosures, unless they make false or misleading statements of material fact in required SEC filings which are tantamount to “market manipulation” or “fraudulent transactions”, under the Securities Regulations Code.
In summary, the emerging role of directors in addressing climate change includes, not just the duty to refrain from harming the environment based on the “prohibited” acts which may be imposed under existing laws, but also includes the directors’ stewardship over the company’s long term success with due regard to climate change risks.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel).