Board Responsibility and Sustainability‑Related Disclosure in Asia

2. Directors’ Responsibility

Abstract

This chapter examines the evolving role and legal responsibilities of directors in ensuring effective governance and credible sustainability-related disclosure across jurisdictions. It underscores directors’ duties to integrate sustainability considerations into their oversight, strategy, and disclosure functions. Finally, the chapter examines the different standards adopted by the courts to review board decision-making and the approach to hold directors’ accountable for breach of applicable laws and regulations.

2.1. The Role of Directors in Contemporary Corporate Governance

Directors play a crucial role in corporate governance by overseeing a company's strategic direction and senior executives while ensuring their accountability. Directors establish long-term goals while tracking executive activities and upholding ethical and legal standards. Directors use board meetings and committees as platforms to evaluate financial reports, risk management strategies, and corporate policies to protect shareholder interests and maintain business integrity.

Principle VI.C of the G20/OECD Principles recommends that the board of directors must adequately consider material sustainability risks and opportunities when fulfilling their key functions. The board has a vital role in establishing effective governance and internal controls that enhance the reliability and credibility of sustainability-related disclosures. Certain boards have also established specialised committees for advice on sustainability matters for the board’s decision-making.

Directors may need to maintain a proactive approach by frequently updating their understanding of governance trends and best practices amid increasing regulatory scrutiny and stakeholder activism, in order to operate effectively in today's complex corporate environment. Sustainability-related disclosure requirements are closely linked to the fiduciary duties of directors in the jurisdictions under study, as discussed below.

2.2. Directors’ Duties in Asia and other regions

2.2.1. Directors’ Duties to Consider Sustainability Matters

Fiduciary duties are the cornerstone of corporate law. These duties include a duty of care and a duty of loyalty. Directors are required to act in good faith, with diligence and care (referred to as the ‘duty of care’) and in the best interests of the company (referred to as the ‘duty of loyalty’). The duty of care focuses on responsible decision-making, and the duty of loyalty ensures integrity and commitment to the company’s success. Together, these duties ensure that directors exercise adequate oversight and uphold the integrity of corporate decision-making.

Traditionally, corporate law is mostly concerned with managing the inter-relationship between the company, its management and its shareholders. However, in corporate laws worldwide, boards’ consideration of the interests of non-shareholder constituencies – employees, creditors, clients, and the society at large (‘stakeholders’) – has gained momentum and ranges in terms of a spectrum.

At one end of the spectrum are some jurisdictions that only regard shareholders’ interests as paramount (‘shareholder primacy model’). Scholars who advocate for this approach have argued that contractual arrangements and other statutes are more appropriate to protect stakeholders' interests than corporate laws (Luca Enriques, 2017[28]). More broadly, academics have classified the corporate law in the US, and Delaware law in particular, as being rooted in a shareholder primacy tradition (Schwartz, 2024[29]). While directors can adopt a single-minded focus on shareholder value maximisation in the case of the shareholder primacy model, sustainability matters that impact shareholders’ interests cannot be ignored by the boards.

At the other end of the spectrum, some jurisdictions accord equal status to shareholders and stakeholders’ interests in corporate decision-making (‘pluralist model’). Directors are required to balance any competing interests of shareholders, stakeholders, and stakeholders among themselves. India represents a paradigmatic example of the pluralist model of stakeholder governance – company directors in India must consider the interests of shareholders and stakeholders alike (Varottil, 2016[30]). Similarly, in France, the legal framework requires directors to have due regard to the social and environmental impacts of the company’s activities (Segrestin, 2020[31]). Sustainability considerations become more salient in jurisdictions that have adopted a pluralist model of stakeholder governance, as stakeholders’ interests have the same priority accorded to shareholders’ interests.

In between lie other jurisdictions that have adopted a mixed approach wherein the long-term interests of shareholders are prioritised; however, in doing so, stakeholders’ interests may be considered (‘enlightened shareholder value model’). Under this model, directors have a clearer insight into prioritising shareholders’ interests if there is any conflict. However, they cannot ignore stakeholders’ interests if such failure to consider adversely impacts the company’s long-term interests. A clear example of this model is Section 172 of the UK Companies Act, 2006, which requires directors to have regard to stakeholders’ interests in promoting the success of the company and its members as a whole. The ‘enlightened shareholder value model’ is also reflected in Principle V.A of the G20/OECD Principles, which recommends board members to act “in the best interest of the company and the shareholders, taking into account the interests of stakeholders”.

The extent of consideration of stakeholders’ interests and priorities varies in these three models. In the shareholder primacy model, sustainability matters that have a direct and significant impact on share prices would still be required to be considered by the board of directors. For instance, wherever climate and nature-related risks are regarded as financially material risks, they must be considered by company directors (OECD, 2022[32]).

In the enlightened shareholder value model, directors must also accord a similar level of consideration to sustainability matters. However, while in the shareholder primacy model the emphasis may be on factors that more evidently relate to profit maximisation, the enlightened shareholder value model requires directors to consider stakeholders’ interests with greater flexibility on how they may impact the long-term value of the company.

Since each stakeholder constituency is on an equal footing and absent a hierarchy, directors have a heightened responsibility to consider stakeholders’ interests in the pluralist model. Directors may be required to justify any trade-off between shareholders and stakeholders in a given board decision. They may have to demonstrate that, based on available information and expertise, directors rightly factored in any sustainability-related risks in their decision-making process. Further, courts may be more likely to expect a relatively higher standard of care from directors in pluralist jurisdictions concerning the board’s consideration of sustainability matters.

The enforcement of directors’ duties to consider stakeholders’ interests is non-existent, and no successful action has yet been taken to court. This is because of many factors, which will be further elaborated in Chapter 3, such as standing requirements for shareholders and stakeholders to initiate an enforcement action, the standard of review adopted by courts, and the operation of the business judgment rule. Additionally, other institutional factors, such as the nature of corporate ownership and the conduciveness of the legal systems to facilitate legal action, are also vital factors that impact enforcement.

Asian jurisdictions within the scope of this report can be classified as aligning with the pluralist and enlightened shareholder value conception with one exception.

Table 2.1. Different Corporate Governance Models

Jurisdiction	Sustainability-related disclosure	Governance Model	Directors should consider the interest of:
China	R, C	Pluralist (L)	Stakeholders (including shareholders)
France	L	Pluralist	Stakeholders (including shareholders)
Hong Kong (China)	R	ESV (R)	Priority to Shareholders
India	L	Pluralist (L)	Stakeholders (including shareholders)
Indonesia	L	ESV	Priority to Shareholders
Japan	L, C	ESV (C)	Priority to Shareholders
Korea	C	Shareholder Primacy (L)	Priority to Shareholders
Singapore	R, L	ESV (C)	Priority to Shareholders
United Kingdom	R, L	ESV (L)	Priority to Shareholders
Viet Nam	L	ESV	Priority to Shareholders

Key: L = requirement by the law or regulations; R = requirement by the listing rules; C = recommendation by the codes or principles, including frameworks set by the regulator or stock exchange following a “comply or explain” model; ESV = Enlightened Shareholder Value Model; Pluralist = Pluralist Model; Shareholder Primacy = Shareholder Primacy Model

The newly revamped Chinese company law also has a stakeholder focus. It requires that a “company shall take into full consideration the interests of its employees, consumers and other stakeholders, as well as the protection of the ecological environment and other public interests and assume social responsibilities” (Standing Committee of the National People's Congress, 2023[33]). Board members and senior executives owe a duty of diligence to the company and are required to act in the best interests of the company and exercise reasonable care (Standing Committee of the National People's Congress, 2023[33]). Further, Article 3 of the Municipal Corporate Governance Guidelines requires directors to ‘protect the legitimate rights of shareholders and ensure that they are treated fairly, respect the basic rights and interests of stakeholders, and effectively enhance the overall value of the enterprise’ (CSRC, 2018[34]). In continuation of this stakeholder-oriented corporate law, China published recently the Basic Guidelines containing corporate sustainability reporting standards (Ministry of Finance, 2024[35]).Three stock exchanges have also put in place guidelines for the preparation of ESG reports by listed companies (ESG Reporting Guidelines, 2025). This framework largely aligns with international standards but also accounts for China-specific considerations (Yang, 2025[36]).

The ‘stakeholder model’ has gained more acceptance in France (Lechani, 2024[37]). The duties of corporate managers extend beyond shareholders to the best interests of the company (Alogna et al., 2020[38]) with courts assessing decisions based on the company’s overall social interest (intérêt social) rather than solely shareholder interests (Civil Code, art. 1833).

In India, the Companies Act requires directors of a company to act “in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment” (Companies Act, 2013[39]). The judiciary has read into the term ‘environment’ in Section 166(2) to include consideration of the risks corporations face due to climate change (M.K. Ranjitsinh v. Union of India, 2021[40]). The highest court has also recognised the ‘right against the adverse effects of climate change’ within the Constitution of India (M.K. Ranjitsinh v. Union of India, 2024[41]). Hence, for directors of Indian companies, considering matters such as climate risk and sustainability is not merely a choice but an obligation that, if ignored, runs the risk of liabilities for breach (Varottil, 2022[42]). Listed companies in India must also make sustainability disclosures in their annual report under the BRSR framework as provided in the listing regulations (SEBI, 2015[43]).

Company law in other jurisdictions, such as Indonesia, Viet Nam, Japan, and Singapore, do not explicitly require directors to consider stakeholders’ interests. However, other instruments and judicial precedents have laid emphasis on the board to consider sustainability matters particularly when such consideration is relevant for the creation of long-term shareholder value (Atkins, 2019[44]). For example, when a company is selling a manufacturing plant, it may be in the long-term interests of the company and its shareholders to consider the interests of the employees of the plant and the community around it that there is no liability risk which may erode shareholder value.

In Indonesia, company directors are required to act in the interests of the company (The Law of the Republic of Indonesia, 2007[45]). Indonesian companies in the natural resources sector are required to integrate environmental considerations into their operations and prepare an environmental and social responsibility implementation report as part of annual reporting (The Law of the Republic of Indonesia, 2007[45]) read with Government Regulation No. 47 of 2012 Regarding Corporate Social and Environmental Liability). A combined reading of these provisions and practice suggests that directors of Indonesian companies must consider sustainability matters, including climate risks (Eddymurthy, 2024[46]).

In Viet Nam, directors are required to ‘perform their duties in an honest and prudent manner for the best interests of the company and its shareholders’ (Ministry of Finance, 2020[47]). This duty to arrive at decisions which are in the best interests of the company includes the duty to consider stakeholders’ interests (OECD, 2023[48]).

Company law in Japan does not have an express statutory requirement for directors to consider stakeholders’ interests and related sustainability matters. Notably, when shareholders’ interests conflict with those of other stakeholders, directors must prioritise the company’s best interests, as their legal duty is to the company and its shareholders (Yamada, 2025[49]). However, Japan has a long history of concern for stakeholders’ interests beyond shareholders’ interests (Sarra, 2012[50]). For instance, the Japanese Corporate Governance Code, a voluntary code for listed companies, requires that “companies should take appropriate measures to address sustainability issues, including social and environmental matters” positively and proactively (JPX, 2021[51]). It is important for company directors to implement a risk management system that adequately addresses risks emanating from sustainability matters such as climate risk, in order for directors to fulfil their duty to oversee the long-term sustainability of the company (Yamada, 2025[49]).

Like Japan, Singapore’s company law does not provide an express statutory requirement to consider sustainability matters. Directors are required to consider the interests of the company in their decision-making (Section 157, 159, Companies Act 1967). Courts in Singapore have expressed that ‘company’s interest does not simply mean profit maximisation or profit maximisation by any means’ (Ho Kang Peng v Scintronix Corp Ltd, 2014[52]). Singapore’s Corporate Governance Code Principle 13 furthers engagement with a myriad of stakeholders (MAS, 2018[53]). Directors of companies in Singapore have also acknowledged that they are allowed to consider stakeholder’s interests in the company’s governance (Tan, 2019[54]).

Under Hong Kong (China) law, directors owe fiduciary duties to the company, including the duty to act in good faith and in the best interests of the company (Lim, 2021[55]). In addition, directors also owe non-fiduciary duties, the most crucial of which is the duty to exercise reasonable care, skill and diligence (Hong Kong e-Legislation, 2025[56]). The Hong Kong Listing Rules requires boards to prioritise long-term sustainable growth for shareholders and value creation for all stakeholders (HKEX, 2025[57]). Listed companies must also disclose how they engage with shareholders and stakeholders and assess material ESG issues that are significant to investors and other stakeholders (HKEX, 2025[57]; HKEX, 2025[58]). Thus, per a leading legal opinion, wherever sustainability risks such as climate risks are financially material, directors must consider the same (Stock, 2021[59]).

The law in Korea is aligned more closely with shareholder primacy than the stakeholder model of governance. Directors’ duties are owed to the company, and the consideration of stakeholders’ interests is not explicitly mentioned (OECD, 2023[48]). Under the revised Korean company law, directors are required to perform their duties ‘in good faith’ for the ‘interest of the company’ and ‘shareholders’ as per statutes and the articles of incorporation.

2.2.2. Directors’ Duties to Make Disclosures

Directors are responsible for ensuring that the company follows all applicable rules and regulations and establishes proper compliance and risk management systems (OECD, 2023[1]). They must also typically declare that the company has complied with all applicable rules and regulations. Certain jurisdictions have provided a direct obligation in their respective company laws requiring directors to oversee compliance with relevant laws (for instance, China and Hong Kong (Standing Committee of the National People's Congress, 2023[33]; Hong Kong e-Legislation, 2025[56])). Thus, provided facts and circumstances warrant, one may argue that failure to comply with any applicable law could amount to a breach of directors’ duties under company law.

This general obligation on directors to ensure that the company complies with rules and regulations has also translated into specific duties regarding financial and non-financial disclosures. Regarding financial disclosures, regulatory frameworks for listed companies (read with accounting standards) in many jurisdictions require directors to provide a ‘true and fair view’ of the company’s financial position. Climate-related (and sustainability-related) risks can pose ‘material’ financial risks, which may merit a distinct accounting treatment (IFRS, 2023[60]). For instance, these risks can adversely impact the estimated residual value and expected useful lives of assets or lead to a fall in demand for certain products due to regulation or changes in consumer preferences. These impacts may need to be accounted for in the financial statements and communicated to all relevant stakeholders (Bompas, 2024[61]). Investors have also asked their portfolio companies to provide financial statements that reflect the anticipated financial effects of identified climate risks and impacts (CCLI-CGI, 2024[62]).

Sustainability reporting frameworks in the jurisdictions under study also require the board of directors to ensure proper oversight (OECD, 2023[1]). Most importantly, sustainability reporting (including climate-related disclosure) is directly relevant across directors’ strategy, risk oversight and disclosure functions (Baker, 2024[63]). Some boards have also established sustainability committees mandated to assist the board in sustainability matters (OECD, 2025[64]). Members of these committees would be required to play a proactive role in shaping systems and processes that provide the basis for high-quality disclosures.

Table 2.2. Directors’ Responsibilities based on Sustainability Disclosure Frameworks

Jurisdiction	Sustainability-related disclosure	Relevant Framework	Directors’ obligations under disclosure framework
			Oversight / Approval Requirement	Disclose Sustainability-related Governance Structures	Liability
China	R, C	Guidelines No. 14 of Shanghai Stock Exchange for Self-Regulation of Listed Companies—Sustainability Report (Trial)	Yes (Article 4)	Yes (Article 12)	Yes (Article 61) Supervisory measure or disciplinary sanction by the Exchange
		Self-Regulatory Guidelines No. 17 for Companies Listed on Shenzhen Stock Exchange—Sustainability Report (For Trial Implementation)	Yes (Article 4)	Yes (Article 12)	Yes (Article 61) Supervisory measure or disciplinary sanction by the Exchange
		Continuous Supervisory Guidelines No. 11 for Companies Listed on Beijing Stock Exchange—Sustainability Report (For Trial Implementation)	Yes (Article 4)	Yes (Article 12)	Yes (Article 60) Supervisory measure or disciplinary sanction by the Exchange
		Corporate Sustainability Disclosure Standards—Basic Standards (Trial)	Yes (Article 19)	Yes (Article 19)	-
France	L	Article L225-102-1 of the Commercial Code (CSRD transposed)	-	-	-
Hong Kong (China)	R	Main Board: Environmental, Social and Governance Reporting Code GEM Board: Environmental, Social and Governance Reporting Code	-	Yes (Paragraph 13)	Yes (Main Board Listing Rules 2A.09 and 2A.10)
India	L	SEBI (Listing Obligation and Disclosure Requirements), Regulations, 2015	Yes	Yes	Yes (Regulation 98-99) Exchange may impose fine, suspend trading, freeze assets of the promoters or other appropriate action.
Indonesia	L	OJK Regulation Number 51/POJK.03/2017 [Note: Not available/ English] OJK Regulation Number 29/POJK.04/2016	Yes (Regulation 2, 16, 18)	Yes [Note: This one appears to be the general circular for Annual Reports]	Yes (Regulation 19)
		OJK Circular No 16/SEOJK.04/2021	-	-	-
Japan	L, C	Cabinet Office Order on Disclosure of Corporate Affairs Japan’s Corporate Governance Code	- Yes (Section 3)	- Yes (Section 3)	-
Korea	C	Code of Best Practices for ESG Disclosure Rules on KOSPI Market	Yes (Principle II)	Yes (Principle V)	-
Singapore	R, L	Practice Note 7.6 Sustainability Reporting Guide (Mainboard) Practice Note 7/F Sustainability Reporting Guide (Catalist)	Yes	Yes	For board responsibility, please refer to Paragraph 3.1 of Practice Note 7.6 (Mainboard) / 7F (Catalist) Sustainability Reporting Guide
Viet Nam	L	Circular 96 (read with Appendix IV) Decree 47 (provisions for disclosure by SOEs - Form No. 4 in Appendix II)	Yes (Article 6)	Yes	-
United Kingdom	R, L	FCA’s Climate related Disclosure Regime: UK Listing Rules UKLR 6.6.6(8),UKLR 14.3.24, UKLR 16.3.23 and UKLR 22.2.24 UK Companies Act requirements for companies and for LLPs	Yes	Yes	General penalties for violation of the UK Companies Act and UKLR will be applicable.

2.3. Standards of Review

This section discusses the standard of review i.e. the standard adopted by the courts to review board decision-making and the approach to hold directors accountable for breach of applicable laws and regulations. This section forms the basis of the plausible enforcement of sustainability disclosures in the next chapter.

2.3.1. Standard of Review

There are broadly two standards of review adopted by courts across different jurisdictions: (a) subjective standard; and (b) objective standard.

The subjective standard is the default standard used by courts wherein courts are more deferential to the decision taken by the board of directors. The subjective standard acts as a proxy to the ‘business judgement rule’ in jurisdictions where such rule is not recognised either in their respective company law frameworks or in court decisions. The business judgement rule refers to a legal assumption that the decisions undertaken by the board of directors is in the company’s interests and that courts would not engage in an objective assessment of such a decision. However, upon evidence, this rule may be rebutted by litigants and courts may then be required to review a board’s decision. The business judgement rule may either be recognised under the provisions of the company law (for instance, in Indonesia) or through judicial interpretations by courts of law (for instance, in the UK).

China, France, India, and Viet Nam do not formally recognise business judgement rule. However, they adopt a subjective standard to the extent that courts generally defer to the decision of the board of directors as regards to those being in the company’s best interests.

The objective standard is a more rigorous standard that requires directors to act in a more prudent manner, given their specific skills and expertise. This standard focuses on the outcome of a board decision and allows the court to question whether no ‘reasonable’ director of equivalent skills and expertise would have arrived at such a decision in the first place.

Courts in certain jurisdictions such as Hong Kong (China), Japan, Singapore, and the United Kingdom have adopted a mixed approach of recognising a combination of subjective and objective tests.

Table 2.3. Business Judgment Rule and Standard of Review

Jurisdiction	Business Judgement Rule	Subjective Standard	Objective Standard	References
China	No	Yes	-	Sustainability Policies and Practices for Corporate Governance in Asia
France	No	Yes	-	The International Bar Association Company Director Checklist - France
Hong Kong (China)	Yes	Yes	Yes	Directors Liability and Climate Risk: White Paper on Hong Kong
India	No	Yes	-	The Business Judgment Rule: The Indian context
Indonesia	Yes	Yes	-	The Law of the Republic of Indonesia Law n. 40, 2007
Japan	Yes	-	Yes	ESG, Externalities, and the Limits of the Business Judgment Rule
Korea	Yes	Yes	-	Sustainability Policies and Practices for Corporate Governance in Asia
Singapore	Yes	Yes	Yes	Sustainability Policies and Practices for Corporate Governance in Asia
Viet Nam	No	Yes	-	Sustainability Policies and Practices for Corporate Governance in Asia
United Kingdom	Yes	Yes	Yes	Business judgment and director accountability: a study of case-law over time

These standards have wide-ranging ramifications in so far as consideration of sustainability matters is concerned. In the event of a breach, the standard at which the board would be held accountable would determine the level and extent of consideration of sustainability matters in the first place. For instance, boards may be more likely to effectively engage with the management if the courts adopt an objective standard to view the role of the board of directors in case there is a liability event.

2.3.2. Approaches

Since the enforcement of directors’ duties for not considering stakeholders’ interests (or for breach of sustainability-related disclosure requirements) is relatively less developed in Asia (Slaughter & May, 2024), countries could turn to other regions and prevalent law and jurisprudence for reference. This sub-section discusses the existing enforcement approaches in three advanced economies – the United States, the United Kingdom, and Australia. There are primarily two enforcement approaches: (i) under the relevant company law for breach of directors’ duties, on account of a breach of other applicable regulations, including the breach of the duty to make adequate disclosures; and (ii) under the relevant securities law, for violation of regulatory provisions requiring sustainability disclosures.

Furthermore, enforcement actions for misleading and deceptive sustainability related claims by companies under other regulations, such as consumer protection law, advertising related rules, and financial regulation, would complement corporate and securities law enforcement.

There are primarily two prevalent approaches under company law aimed at holding directors accountable if they fail to consider the interests of stakeholders. These are (i) Caremark Claim; and (ii) Stepping Stone Liability.

Caremark Claim

The first approach is often called the ‘Caremark Claim’ or oversight duties. This approach finds its basis in the In re Caremark International Inc. Derivative Litigation, (1996) (‘Caremark Claim’) (Law Justia U.S., 1996[65]). The Caremark case is a landmark ruling by the Delaware Court of Chancery, which established that a corporate board’s failure to implement and maintain an adequate information and reporting system could constitute bad faith and a breach of the director’s duty of loyalty. This case involved alleged violations by Caremark employees of US federal and state laws and regulations applied to health care providers.

Subsequent judicial precedents have drifted away from a plain application of Caremark. Marchand v. Barnhill (2018) marked a pivotal moment in Delaware corporate law, emphasising the board’s duty to implement and monitor mission-critical compliance systems. In this case, a Caremark claim arose from a deadly listeria outbreak at Blue Bell Creameries. Although a compliance programme existed, the Delaware Supreme Court held that because food safety was integral to the company's operations, the board had a heightened obligation to ensure it was regularly informed of safety violations.

The court declined to dismiss the claim, finding the board had failed to establish any system ensuring it received and addressed reports of food safety problems, such as setting up a board level committee on food safety, regular discussions about food safety in board meetings, or any protocols of escalating food safety related information at the board level, among others. Thus, the court inferred that this was an intentional and sustained neglect amounting to breach.

In Teamsters Local 443 v. Chou (2019), the Delaware court extended Caremark duties beyond traditionally defined “mission critical” functions, highlighting a broader societal interest in protecting public health. The board of AmerisourceBergen (an American drug wholesale company) faced claims it inadequately oversaw compliance in a subsidiary distributing cancer drugs. Despite evidence of a compliance programme and outside legal advice, the court imposed heightened oversight duties due to the grave risks posed to patients. This expansion suggested that even when a subsidiary’s activities are financially peripheral, directors may be held liable if oversight failures endanger human lives and public safety.

Re Boeing Company Derivative Litigation (2021) further developed Caremark by emphasising directors’ responsibility for oversight of high-risk, safety-sensitive operations. Following two fatal 737 MAX crashes, the court found Boeing’s board failed to establish systems to monitor airplane safety, despite operating in a highly regulated, life-critical industry. The board did not form safety-focused committees, did not regularly discuss safety, and passively accepted management’s reassurances even after clear warning signs. The court concluded this amounted to bad faith, as the directors knowingly disregarded their oversight duties in the face of significant risks, thus allowing the claim to proceed.

In the current context, one may argue that failure to comply with sustainability reporting requirements would amount to a breach of directors’ duties if these obligations were ‘mission critical’ to the company. For instance, if an oil major fails to disclose its stranded assets based on culpability, the directors could be liable for breach of directors’ duties (Barker, Williams and Cooper, 2021[66]). It is pertinent to note that the Caremark duty has emerged from Delaware (US), a ‘shareholder primacy’ jurisdiction. Thus, with certain caveats, the ‘Caremark Claim’ may be better suited to be argued in jurisdictions where consideration of stakeholders’ interests is secondary to shareholders’ interests. However, commentators have warned that a ‘Caremark claim’ is one of the most difficult to prove in a court of law, because the ‘mission critical’ test as laid down by Delaware court is subjective, and various other institutional factors make it difficult for such claim to be successful elsewhere (Fiegenbaum, 2025[67]).

There is also room for applying the Caremark claim outside of the US. An Asian extension of the Caremark claim has been seen in the Tokyo District Court verdict in the TEPCO Derivative Suit on the Fukushima Nuclear Accident (Goto, 2024[68]). In a shareholder derivative suit, the Tokyo District Court ruled that former TEPCO directors breached their duty of care by ignoring a government report warning of a potential tsunami risk to the Fukushima 1st Nuclear Power Plant before the 2011 disaster. As a result, they were ordered to pay ¥13.321 trillion (~USD 85 billion as of May 26, 2024) in damages to the company (TEPCO, 2022[69]). This case is notable because a Caremark claim was successful despite any specific violation of laws or regulations, with heavy reliance placed on failure on the part of the board of directors to take preventive measures. It should be noted that the Tokyo High Court overturned the district court ruling in June 2025. The court ruled in favour of the executives, finding that the massive natural catastrophe that caused the disaster was not foreseeable (The Japan Times, 2025[70]).

Stepping Stone Liability

The second approach has emerged from a novel judicial interpretation of breach of directors’ duties in Australia. This approach is referred to as the “stepping stone” liability. Establishing serious contravention of the applicable laws and regulations against the company would constitute the first stepping stone. Such corporate fault then leads to the second stepping stone: a finding that the directors breached their statutory duties by exposing the company to civil liabilities or criminal prosecution by failing to ensure compliance with applicable rules and regulations (A. Herzberg, 2012[71]). This approach has been applied in the case of breach of continuous disclosure requirements in Australia (Ramsay, 2021[72]). Thus, directors may also face personal liability whereby facilitating the making of the misleading representation, they will be found to have breached their own duties of care (Hutley, 2021[73]).

Courts in Australia have held that directors are liable for breach of directors’ duties for failing to ensure that the disclosures they approved were not misleading and/or deceptive (Black, 2025[74]). In one instance, the court also noted that the board chair uncritically accepted the information, as provided by the management, without challenging the correctness of the advice or the assumptions (ASIC, 2019[75]). The stepping stone approach has been critiqued as not being a legitimate interpretation of the general statutory duties (Zhou, 2025[76]). However, courts have resonated well with this approach as it is seen as a more natural interpretation of directors’ duties (Black, 2025[74]).

Some fundamental differences between the Caremark claim and stepping stone approach are noteworthy. Caremark involves direct liability for directors who fail to oversee or implement compliance systems, requiring a clear link between this failure and the company’s breach. It covers a broad range of compliance issues and has a high burden of proof. In contrast, stepping stone liability is indirect, arising when a director’s inaction contributes to a company’s breach, which then becomes the basis for holding the director personally liable. It is narrower in scope, focusing on specific breaches, and may only require proof that the director was aware of the risk of the company's breach and failed to take necessary steps.

Additionally, judicial precedents in Australia suggest another critical approach. Courts have held that failure to prevent a contravention of the Corporations Act or taking steps that would give rise to such violation could be held as a breach of directors’ duties should facts warrant the same (Black, 2025[74]; Jade, 2014[77]; Jade, 2016[78]). Since sustainability reporting requirements in Australia stem from the Corporations Act, one may argue that failure to make adequate sustainability disclosures could be tantamount to a breach of directors’ duties.

Further, the question pertaining to breach of disclosure obligations regarding climate risks amounting to a breach of directors’ duties has reached the courts in Australia, albeit later settled. An investor argued that the superannuation fund had failed to adequately consider and disclose the financial risks associated with climate change in its investment decisions and portfolio management (Columbia Law School, 2018[79]). This case was settled, and the fund agreed to enhance and make its disclosure practices more robust. However, it has been suggested that this settlement is significant and paves the way for more action on this front (Colombo, 2022[80]; Ekaterina Aristova, 2024[81]).

In 2021, the Australasian Centre for Corporate Responsibility initiated legal action as a shareholder against gas company Santos Limited, accusing it of misleading or deceptive conduct relating to representations regarding its plan to reach net zero Scope 1 and 2 greenhouse gas emissions by 2040, contained in its 2020 Annual Report. This marked the first legal case worldwide to challenge a net zero target, and it remains ongoing (ACCR, 2024[82]). This may be one of the most critical legal developments in providing greater impetus to private enforcement actions regarding sustainability-related disclosures globally.