New laws and regulations, strategic litigation and duties of care emerging in response to climate change are giving rise to new liability risks that pose a serious risk to companies’ future profitability, according to global law firm Clyde & Co.
The warning is issued in ‘The coming wave’, the firm’s third report on climate change. The new edition notes that with a twenty-fold increase in climate law and policy in the past 20 years, there are now over 1,500 national laws and executive acts addressing climate change, compared to just 70 when the Kyoto Protocol was adopted in 1997.
“Businesses, and the directors and officers who run them, can no longer ignore climate change,” comments Nigel Brook, a partner at Clyde & Co. “They are coming under increasing scrutiny from regulators and enforcement bodies and face an ever-growing body of climate-related law and regulation.
“The physical impacts of climate change are already significantly impacting companies' assets, investments, workforce, supply chains, input costs and outputs, and the cost of capital and insurance. And as the world transitions away from fossil fuels, regulation, policy, changes in consumer habits and investor pressure carry the potential to devalue or ’strand’ carbon-intensive assets, product lines, plant and business models.
“Companies that fail to adapt to this changing risk landscape will see an impact to their profitability. They may not be able to bear the costs of physical risks to their operations or infrastructure. They may become unable to attract investment. They might fail to keep pace with changing law and regulation, or they may simply fall below the emerging best practice standards set by their peers and become uncompetitive. All of this might give rise to lawsuits.”
Litigation on the rise
The report notes that in recent years, significant progress has been made by physical climate risk consultancies, insurers, and associations assisting companies in mapping their physical risks. Meanwhile, international organisations, regulators, standard-setting bodies, investor groups and asset managers are seeking to establish standards for transition risks to be integrated in investment decision-making.
However, climate-related liability risk is less well understood and less explored, although this is likely to change as climate change-related litigation becomes more common.
The report offers an in-depth guide to climate liability risks for businesses, directors and officers that:
- Examines examples of the physical and transition risks climate change poses to businesses across various sectors;
- Explores the current sources of black letter and "soft" law, regulation and standards relating to climate change through national framework climate legislation, carbon pricing, environmental regulation, and net zero policymaking; the rise of environmental, social and governance (ESG) factors in investment and lending; and climate-related financial disclosures;
- Surveys the current litigation landscape and indicates where liability risks could arise in the near future;
- Discusses high-level opportunities in certain industries for clients who can adapt their strategies to capitalise on them
The latest study leads on from the firm’s second report on climate change risk. ‘A rising tide’, which traced the advent of strategic climate litigation connected to greenhouse gas emissions, from administrative and human rights cases, to the current raft of litigation being brought against oil majors in the US by cities, states, and private citizens.
The first report. ‘A burning issue’, provided an overview of the litigation and liability landscape. Further details to supplement the three reports are available at https://resilience.clydeco.com.
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