Climate Change Risk and Liability Report

Climate Change Risk and Liability Report

Stepping up good governance to seize opportunities and reduce exposure Climate change risk and liability report 2021

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Introduction

NIGEL BROOK PARTNER, CLYDE & CO

Contents

Much has changed since we published our first climate risk report two years ago, at a time when it was still a relatively nascent boardroom issue for businesses outside the energy sector. The countdown to net zero carbon emissions has now truly begun and developments around climate change risk and regulation are accelerating, with implications for all industries. More than 110 countries have now committed to becoming carbon neutral by mid-century, including major emitters such as China (by 2060), the EU, the UK, Japan and South Korea, and around two thirds of total emissions now fall under such pledges 1 . But global emissions need to almost halve by 2030 from 2010 levels, if the world is to have a chance of keeping warming below 1.5 degrees 2 , and policies to achieve that are lacking. Governments are increasingly being held to account if their actions are deemed not to live up to their pledges. Public perception of climate change is shifting rapidly, and growing numbers of people, young and old, are adding their voices to calls to tackle the issue faster. More and more companies of all shapes and sizes are starting to see that beyond the damage caused to the planet, climate change could pose a threat to their business models. They recognise the need to be ahead of the curve to avoid a disorderly transition to a low carbon economy and face up to social, economic, legal and regulatory demands.

It’s a lot to think about, at a time when many othermajor issues – notably the impact of the COVID-19 pandemic – are also clamouring for attention on the boardroom agenda. Despite the challenges,apathway toprogress is essential. This year’s United Nations COP26 climate change summit in Glasgow is likely to set the pace in terms of defining and strengthening the policy response. Since achieving net zero will require significant investment as well as regulation, this could create major opportunities for businesses, as well as risks. As companies build resilience, the importance of good governance cannot be overestimated. Putting climate risk awareness at the heart of decision-making and embedding it into both strategy and culture at all levels of an organisation is an important step. Since legal considerations extend beyond environmental law and regulation to areas like asset management, finance, insurance, tax and many more, businesses are looking to their lawyers for deep knowledge of all the issues and out-of-the-box thinking to guide them through the transition. At Clyde & Co, we have developed market- leading expertise and a reputation for innovation in this space. In this report we look at all the key issues, from recent and emerging developments in this area, to how organisations can best position themselves to withstand shocks and seize the initiative, so that they can help to deliver a future that is sustainable for themselves, and for all of us.

01. Introduction

03. What is the impact of COVID-19 onthe climate change agenda?

07. What does the risk landscape look like today?

19. Reporting requirements: what dobusinesses need to know?

25. How can good governance help address climate risk?

31. What are

34. Conclusion

36. Contributors

the insurance implications of these issues?

UN News https://news.un.org/en/story/2020/12/1078612

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2 UN Climate Change https://www.un.org/en/climatechange/science/key-findings

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What is the impact of COVID-19 on the climate change agenda?

The COVID-19 crisis has vividly demonstrated how suddenly the world we live in can change and how quickly policymakers, companies, and individuals can adapt when forced to do so – setting a precedent for climate change transition. Sucha“blackswan”eventthatunexpectedly exposes businesses’ vulnerabilities may provide a foretaste of the kinds of shocks that climate change or a disorderly transition could create in specific industries or economies. Businesses may be surprised by the speed of the changes it triggers, with associated implications for boards’ duty of care in terms of assessing, mitigating and reporting on risk. At the same time, increasingunderstanding of the interplay between climate change and catastrophic events such as floods and wildfires makes the frequency of this type of event more foreseeable. This has obvious implications on parties’ commercial obligations, from force majeure clauses to insurance policy coverage that is predicated on a certain event or peril being unforeseeable. The novel coronavirus has also focussed attention on how changes in landuse and theunsustainable exploitation of nature can give rise to sudden and catastrophic loss around the world.

Managing COVID-19 may have given businesses a playbook for how to deal with fast-moving challenges or created a sense that major enterprise-wide risks that were previously thought too big or too difficult to deal with can now be addressed. It has in some ways proved that organisations can make rapid and large-scale changes if the will to do so is there, moving climate risk further up the list of priorities. In particular, digital transformation has been fast-tracked, speeding up the adoption of sophisticated tech tools which enable smarter, more efficient processes and better products to be developed in a whole host of sectors, from energy and construction to insurance and law. We can expect to see innovations such as parametric insurance, smart contracts that respond to weather >Page 1 Page 2-3 Page 4-5 Page 6-7 Page 8-9 Page 10-11 Page 12-13 Page 14-15 Page 16-17 Page 18-19 Page 20-21 Page 22-23 Page 24-25 Page 26-27 Page 28-29 Page 30-31 Page 32-33 Page 34-35 Page 36-37 Page 38-39 Page 40

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