About the report
Produced
29 October 2021
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Themes
Resilience
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29 October 2021
Climate change risk and liability report 2021
29 October 2021
Climate Change Risk Practice
Global
Introduction
We are pleased to present a new and updated edition of our Climate Change Risk and Liability report, Stepping up good governance to seize opportunities and reduce exposure.
The report, originally published in Spring 2021, aims to help businesses navigate the complexities involved in the transition to a low carbon economy.
Six months on, as world leaders, policy-makers, businesses and others gather for the COP26 international climate summit, it is clear that progress has been made and challenges in the battle to tackle climate change have continued to develop.
Pledges by governments to deliver net zero carbon emissions are being supported by plans to invest more in green technologies and jobs, such as those in the pipeline in the US, China and the EU, and there are now almost 2,350 climate laws and policies in existence. Despite this, concerns remain that still not enough is being done to achieve decarbonisation, with international commitments made to date on course to reduce emissions by just 12% by 2030, instead of the 45% needed to keep global warming to 1.5˚C or below.
COP26 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 many of 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.
“Climate change is a system-wide problem that needs a system-wide response. The best way to manage the risks is to work together. It’s in everyone’s interests to be part of the solution.”
Nigel Brook, Partner, Clyde & Co
COVID-19 and the risk landscape
The report considers how the COVID-19 crisis has prepared policymakers, companies, and individuals for the climate change transition.
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.
After years of discussions, organisations should be prepared for the international response to the climate “emergency” to develop more rapidly now, too.
The journey to net zero has only just begun (emissions were still rising until the pandemic hit), and there is still extensive scope to make changes that could contribute significantly to decarbonisation.
The report explores many of the key risks climate change poses to businesses, specifically the physical, transition, and litigation risks.
“New regulations around climate change and a sense that the pandemic has created a window of opportunity for change is galvanising activists, pressure groups and politicians alike.”
James Cooper, Partner, Clyde & Co
Reporting requirements
What do businesses need to know?
Standardised reporting is generally seen as a positive move to create an established framework for climate-related disclosures. The Task Force on Climate-related Financial Disclosures (TCFD) framework is fast becoming the globally accepted standard for reporting on climate-related risks, and stakeholders are increasingly pressing companies to adopt the standard.
However, standardised reporting is not a panacea for businesses looking for absolute clarity on their climate change reporting obligations.
The report considers the pros and cons of standardised reporting and provides an overview of what businesses need to know.
“The TCFD’s focus on disclosures is welcome but reporting is only part of the story: it’s governance that dictates what actions underpin those disclosures. Good governance formulates business processes that create value.”
Richard Elks, Partner, Clyde & Co
Good governance and insurance implications
How can good governance help address climate risk?
While good governance has always underpinned company performance, the pervasive and unpredictable nature of climate change risks, the more onerous reporting obligations and the complexity and long-term horizon of these issues make it more important than ever.
The report considers the importance of good governance and of pushing climate change up the board agenda.
In energy transition terms, as oil majors increasingly invest in renewable technologies, insurers too have been moving into the renewables market, by acquiring specialist practices or upskilling underwriters.
The report also considers the latest trends developing in the insurance industry as a result of climate change and the move to net zero.
“Currently, most of the drivers for change are non-litigious – it’s more about government policy, shareholder and interest group pressures and access to investment. While underwriters in some business lines are really starting to focus on climate risks and issues, this will become more widespread, particularly if we start to see significant tangible losses.”
Laura Cooke, Partner, Clyde & Co
End
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