Directors at risk if they neglect the full scope of climate risks

After one of the hottest European summers on record, climate should be front of mind for organizations and individuals. Recent research from Triodos Bank estimates that the extreme heat of 2026 could reduce Europe’s GDP by 1 percent, or around EUR 180 billion.

Despite the mounting, tangible effects of the climate crisis, board directors and executives often underestimate the breadth of climate risks their firms face — and in some cases, the risks they face personally.

We’ve mapped the comprehensive scope of those risks with a special focus on liability under criminal law, and we’ve proposed a concrete way forward.

1. Physical risk: Severe weather events and shifting climate patterns are already having a financial impact. Physical climate risk is a known, material business risk. Boards that do not properly assess their firm’s exposure and strengthen its resilience are neglecting their governance duty.
2. Transition risk: Sustainability regulation has not softened for good. A lack of action today will inevitably lead to more regulation tomorrow. But thoughtful transition planning is not a mere compliance exercise – it is a question of preparing the firm for upcoming change.
3. Liability risk: More climate-related damage will occur and insurance may become unaffordable or unavailable. Where affected parties – whether private, corporate, or public – are left with uninsured losses, they may seek compensation through the courts. The groundwork is already being laid. What matters about recent court cases is less who won them than the legal principles courts were prepared to engage with.
4. Personal risk under criminal law: The legal trajectory matters for executives personally, not just for their firms. In 2014, we explored this topic in an article on the MIT Sloan Management Review website. The debate has moved on considerably since then.

While some scholars are developing new grounds for criminal liability, others believe that existing law, covering negligence and homicide, already addresses the responsibilities of directors and executives.

Causation is the key legal question. Attribution science is advancing, closing the gap between emissions and damages. However, one can also imagine scenarios in which precise attribution might not even be necessary: the share of global emissions from the largest emitters is clearly documented. There is one atmosphere in which those emissions accumulate, increasingly causing damages without historical precedent. The tobacco parallel is instructive: Several landmark cases succeed not by proving that a patient had smoked one specific brand. They succeeded when internal documents revealed that the industry’s public narrative contradicted what it knew privately.

As climate litigation evolves, the personal exposure of senior leaders becomes increasingly real. Not knowing is no defense and deliberately avoiding confirmation of a known risk is often treated as equivalent to actual knowledge. Finally, changing public perceptions and narratives will likely influence court practices.

What should boards do?

Climate risks are a strategic issue and in no way hypothetical.

The question is not whether to act, but how and how soon, regardless of personal conviction.

Meaningful and timely action is the most effective response. In a legal context, inaction is often seen as a decision. Boards owe it to their shareholders to assess what a changing climate means for future earnings and risk exposure: this is their duty of care.

Recent MSCI research also found that the more transition-ready a company, the lower the costs of capital.

Equally, a sound climate strategy must identify ways to protect the societies and economies a company depends on.

Olivier Jaeggi, ECOFACT Managing Director, and Marta Baretta, ECOFACT Legal Expert