By Yoichiro Hamabe
How much liability should company directors bear for extremely unlikely but extremely damaging accidents?
It is a question that many victims of the 2011 Fukushima nuclear disaster may be asking now. In June, the Tokyo High Court overturned a lower court decision that had required four former inside directors of the company that owned the Fukushima Nuclear Power Plant, Tokyo Electric Power Co. (TEPCO), to pay the utility a total of about 13.3 trillion yen ($97 billion) in compensation for failing to take steps to prevent the disaster. The plant’s nuclear reactors melted down after an earthquake spawned a tsunami that flooded the facility.
The Fukushima nuclear accident caused irreparable harm to the local community and severely hindered Japan’s nuclear energy policy. Criminal proceedings and numerous civil lawsuits have been filed over the accident, and TEPCO likely would have gone bankrupt if not for massive government support using taxpayer funds.
A group of TEPCO shareholders brought a derivative lawsuit against the company’s former chairman, former president, two former vice presidents, and a fifth executive. (All five were also company directors; non-executive directors were not sued.) In 2022, the Tokyo District Court held that all but the fifth defendant should have foreseen and acted to prevent the disaster.
Since the Tokyo High Court overturned the liability of the first four defendants, the case has been appealed to the Supreme Court. The Supreme Court has already ruled that two of the executives cannot be held criminally liable, but it is uncertain how the court will rule regarding civil liability. Regardless, I support the District Court’s ruling.
The District Court emphasized the defendants’ failure to implement timely tsunami countermeasures despite having read a scientifically credible “long-term assessment” prepared in 2002 by the government’s Earthquake Research Promotion Headquarters, which warned that the power plant was at significant risk of being hit by a massive tsunami in the event of a powerful earthquake. Instead of acting, the defendants delegated further evaluation and delayed action for at least two years.
The District Court ruled that, given the potential for catastrophic environmental damage, the defendants bore a heightened duty of care that extended beyond mere legal compliance.
The District Court ruled that, given the potential for catastrophic environmental damage, the defendants bore a heightened duty of care that extended beyond mere legal compliance. This approach aligns with prior Japanese jurisprudence, such as in banking, where directors are held to a duty of care appropriate to their industry. Some have noted that it is also consistent with Delaware jurisprudence such as the 2019 Delaware Supreme Court decision in Marchand v. Barnhill, which expanded the scope of the so-called Caremark oversight obligation even in the absence of a specific violation of law.
However, the Tokyo High Court rejected the predictive value of the long-term assessment, citing seismological uncertainty and the fact that government agencies, such as the Central Disaster Prevention Council, had not incorporated the assessment into official disaster planning. The High Court concluded that the executives’ failure to act was understandable under the circumstances.
The High Court’s conclusion is consistent with the Supreme Court's decision in the case of the two former executives who were charged with criminal negligence. They were found not guilty because the Supreme Court determined that the very same long-term assessment was “not recognized as information that would lead people to recognize the realistic possibility of a giant tsunami.”
Japan's legal culture treats criminal liability very narrowly. White-collar crimes rarely lead to indictment or conviction. That said, the burden of proof for civil liability in Japan is lower. In this case, even though the executives escaped criminal liability, civil accountability remains a viable legal route—one arguably more appropriate given the nature of their misjudgment.
Unlike the United States, Japan has relatively few shareholder derivative lawsuits because the absence of discovery makes it difficult to collect evidence. This makes civil lawsuits difficult to use generally, and also suppresses derivative lawsuits. What makes the TEPCO case unique is that the facts of the Fukushima nuclear disaster were widely publicized, allowing the plaintiffs to access evidence relating to the liability of the executives.
The core disagreement between the District Court and High Court centered on the reliability of the long-term tsunami risk assessment. The District Court viewed it as a credible warning; the High Court dismissed it as merely one opinion among many. Critics argue that the latter’s reasoning effectively excuses inaction by executives even when serious risks are known, provided the danger isn’t imminent.
Following a 1989 accident involving damage to the recirculation pump at the Fukushima Nuclear Power Plant, a group of shareholders organized themselves as the Anti‑Nuclear TEPCO Shareholder Movement and began submitting proposals at shareholder meetings calling on TEPCO to halt the expansion and construction of new nuclear power plants. That same shareholder group brought the derivative lawsuit after the 2011 disaster.
Notably, in 2008, when TEPCO considered tsunami countermeasures, another power plant had been shut down due to an earthquake. Despite those warning signs, the High Court gave little weight to the defendants’ failure to respond with urgency. Now that the disaster has occurred, however, the High Court said consideration should be given to holding the company’s current directors legally liable should the same or a similar accident occur again.
The High Court ruling appears to have emphasized the natural disaster aspect, rather than the human contributions to the disaster, to exempt the defendants from an obligation to consider the environment. It did so without deeply examining the situation at the time. If no one had informed the defendants of the assessed risks, they should have been excused from responsibility. However, in this case the information was properly communicated; the defendants went out of their way to find alternative expert opinions that justified delay and immediate cost savings.
In Japan, it is not uncommon for business owners—especially in small and medium-sized enterprises—to face personal bankruptcy alongside their companies, though this outcome is rare among listed firms. This preference for risk sharing extends beyond directors to individuals such as drivers, who are sometimes held liable for traffic accidents. This illustrates that personal financial ruin is not unique to corporate leadership.
In the TEPCO case, countless entrepreneurs and farmers suffered catastrophic losses, not from the earthquake itself but from the radioactive contamination that followed the Fukushima nuclear reactor meltdown. The public is left wondering if it is fair that the responsible parties for the nuclear accident are exempted from bankruptcy while many victims have gone bankrupt and continue to suffer in other ways.
[B]oard attention to the bundle of issues labeled ESG – standing for environmental, social, and governance – may actually be an effective form of risk management.
When it comes to preventing nuclear accidents, operators should be held responsible for doing everything possible, given the seriousness of an accident should it occur. The harsher District Court approach is unlikely to discourage directors as a group from taking necessary actions to secure profits for their company. Of the two approaches, the High Court ruling, which denies responsibility, is much more dangerous, as it may lead corporate directors to think that they will never be held accountable even if they neglect to take proactive damage prevention measures.
Ultimately, the TEPCO derivative lawsuit underscores a paradox within corporate governance. Directors who cling to a narrow, short-term reading of shareholder primacy and put off costly risk-control measures can inadvertently expose shareholders to ruinous losses when ignored environmental risks materialize.
By contrast, board attention to the bundle of issues labeled ESG – standing for environmental, social, and governance – may actually be an effective form of risk management. If TEPCO directors had placed more emphasis on ecological resilience and the interests of other stakeholders such as the local community, they might have avoided the costly disaster.
In an era of climate uncertainty and heightened social scrutiny, the TEPCO case serves as a cautionary tale. Fiduciary duty, flexibly interpreted, can propel companies toward genuine ESG integration. But this will work only if courts are prepared to reward vigilance and penalize complacency.
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Yoichiro Hamabe is a professor of law at Aoyama-Gakuin University in Japan and a 2024-2025 visiting scholar at the U.S.-Asia Law Institute.
Suggested citation:
Yoichiro Hamabe, “Focusing on ESG Could Prevent Disasters Like Fukushima,” USALI Perspectives, 5, No. 11, July 20, 2025, https://usali.org/usali-perspectives-blog/focusing-on-ESG-could-prevent-disasters-like-fukushima.
The views expressed in USALI Perspectives essays are those of the authors, and do not represent those of USALI or NYU.
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