J466335—Resilience Campaign - Climate Change Post-Event Rep…

J466335—Resilience Campaign - Climate Change Post-Event Rep…

Clyde & Co Change Liability Risk conference, Friday 5 July 2019

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Clyde & Co Resilience Conference: Squaring up

On any measure, climate change is now a C-suite issue.

- Simon Konsta, Senior Partner, Clyde & Co

July 2019 In a video opening Clyde & Co’s recent Climate Change Liability Risk conference, leading climate scientist Dr Emily Shuckburgh of Cambridge University made this powerful statement: “The impacts on businesses from climate change are often thought to be far in the future, but they’re actually already here today.” Marking the end of London Climate Action Week, 280 delegates packed the auditorium to hear experts from the law, insurance, finance, academia, regulation, advisory and risk analysis speak about the critical climate change-related issues facing businesses and their directors and officers.

Clyde & Co Senior Partner Simon Konsta introduced the event by explaining its premise: that businesses need an appreciation of the present and future risks posed by climate change in their various forms; an awareness of what developments might drive policy going forward; and a toolkit to help them navigate the years ahead. It is, he pointed out, a highly complex and fast-changing issue that needs to be addressed at the highest level in businesses across every sector.

to the business risks posed by climate change

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Counting the commercial cost of physical and transition risk

Setting the scene on the physical risks of climate change, Hélène Galy, Willis Research Network Director of Willis Towers Watson put the issue into sharp business (and environmental) perspective. In addition to the clear damage to biodiversity and human populations from extreme heat, for instance, critical transport routes such as the Rhine are at risk of becoming impassable, planes may be grounded, and productivity is likely to suffer. If extreme weather events, such as last year’s “Beast from the East” or recent severe flooding in Asia become regular occurrences, the implications for sectors like retail or for the supply chains servicing any industry could be significant. “All continents will be affected,” she said, “but there will be winners and losers. Some areas can adapt, but others can’t. It’s existential.” While acknowledging that uncertainty makes decision-making difficult, Hélène advised looking at how risks develop over time, rather than taking too narrow a snapshot, and utilising frameworks that are currently being developed by regulators, standard-setting bodies and others to help identify and report on risk. Focussing on the transition to “net-zero” emissions, Michael Liebreich, CEO of Liebreich Associates, an adviser on clean energy and transport, climate finance and sustainable development, looked ahead to

the “three-third world of 2040”. This is when, based on current trends, he argued, we will see one-third of electricity being wind or solar-generated, one-third of vehicles will be electric and the economy will be one-third more energy efficient. Getting there will certainly not be hurdle- free, however. Though the cost of solar and wind power are falling exponentially, their variability makes them problematic. “Regulators are struggling to re-write the rule book to ensure that markets are benefitting from these cheap technologies but also that other systems are in place to keep the lights on,” he said. “The structure of power supply will have to evolve.” For Michael, the answer lies in new technologies such as pumped storage, biomass/biogas and demand response as well as batteries, based on fully digitised systems into which AI or Blockchain could be integrated. Similarly, green engines could revolutionise transportation – not just electric cars, but trucks, ships and planes. He’s confident that individual sectors can move quickly – citing the rapid shift to LED light bulbs that happened in just a few years as an example. Themessage: forward-thinkers can take the lead in whole new markets – those that don’t may get left behind or simply make the wrong strategic decisions, with value-destroying results.

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Looking through the liability lens: who’s in the line of sight?

Lawsuits for contribution to climate change are being launched on the basis of public/private nuisance, negligence – and increasingly – product liability. Such claims allege probably the biggest causal chain that has ever been argued. Importantly, claims are being made for future, as well as current, losses, for instance, from cities and one state claiming for lost tax revenue or the cost of strengthening infrastructure. When it comes to fiduciary duties, Ned Kirk, Partner in Clyde & Co’s New York office pointed to the high-profile claims against ExxonMobil in the US, where it has been alleged that directors and officers made false and misleading statements around climate change, as an example of the types of claims we might start to see more of. Moreover the point was made: “Duty of care is not static. Claims could be viewed very differently in hindsight to the way they are now.” In terms of liability risk, again, jurisdiction is an important factor. As Neil Beresford put it: “For insurers and underwriters, it’s worth noting that not all sectors are born equal: some are higher risk than others. The same is true for different jurisdictions: some have less restrictive rules oncausationormoredeveloped litigation funding markets, more vocal activists or a wider base of heavy industries.”

To highlight how fast the legal landscape is evolving as policymakers strive to meet the ambitious targets set out by the Paris Agreement, Jacinta Studdert, Partner in Clyde & Co’s Sydney office, pointed out that there are now over 1,500 climate-related laws in force around the world. Two decades ago there were 70. Not only are these becoming more ambitious as governments start to adopt more stringent emissions targets, enforcement of existing standards is also becoming tougher. In Australia,requirementsforcompaniestocarry insurance to cover environmental damage are increasingly a condition of operating licenses, while in China, “polluter-pays” laws and their enforcement by authorities have been strengthened. “Clearly, this poses major challenges for businesses, particularly global ones with cross-jurisdictional operations,” Jacinta said. Answering the stark question: “Who’s going to get sued?”, Neil Beresford, Partner at Clyde & Co in London warned: “A variety of businesses and individuals could be in the frame, and not just the oil majors. Climate change litigation arises in curious places. For instance we’re seeing the first negligence allegations against auditors signing off on accounts that don’t make provision for climate risks. And although the US actions by municipalities against oil majors are very much the ‘poster boys’ of climate change litigation, this is a worldwide phenomenon.”

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Addressing the practical agenda

During panel sessions, the discussion turned to the practical implications (both risks and opportunities) for businesses, directors and officers. Carlos Sanchez, Director Climate Resilience Finance fromWillis Towers Watson observed that “legal considerations will shift from being the enemy to being a friend” in conversations around evaluating, mitigating and pricing risk. A panel discussion among Richenda Connell, CTO and Co-Founder of specialist advisers Acclimatise Group, Miroslav Petkov, Head of Financial Services Environmental and Climate Risk at S&P Global Ratings and Professor Ben Caldecott of the University of Oxford’s Sustainable Finance Programme covered “indirect exposures” arising out of climate change that are hard to predict but that could pose liability risks to corporates. Chaired by Clyde & Co Partner from Sydney, Avryl Lattin, the panel addressed topics such as: what should business managers be doing, how to identify operational risks, and how to predict where exposures might come from. The session resulted in some suggestions for practical steps companies could take including: –– Make the best use of the latest scientific evidence and understand how that integrates with your business model. Sophisticated tools/models are available to develop bespoke projections –– Don’t overlook chronic risks (ie long-term, sustained changes) and the impact on capex/opex - extreme events should not be the only focus

–– Be transparent and give investors and other stakeholders the best possible information –– Consider your contracts. For example, supply chain resilience is likely to be tested more and more, putting contractual relationships under stress, and there is embedded liability yet to be tested in PPP contracts. Check terms to ensure that climate-related risks are taken into account –– Technology is set to open up liability issues – e.g. satellite >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10

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