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18 November 2022

Climate change risk and liability report 2022: An intensifying spotlight on reporting, governance and good practice

18 November 2022 Global

Introduction

In this report we look at the key issues, from recent and emerging developments in this area, to how organisations can best position themselves to withstand shocks and seize opportunities so that they can help to deliver a future that is sustainable for themselves, and for all of us.

Download the full report here

Climate risk and the liability landscape continue to evolve at a rapid pace. A raft of new climate-related legal claims are constantly being filed, and novel arguments are still being advanced. With the countdown to net zero carbon emissions fully underway and regulation tightening, there are profound implications for all industries. The onus on boardrooms to manage the risks and respond to the opportunities presented by climate change is stronger than ever.

A year on from COP26, we can now clearly see that the pledges made in Glasgow and the scientific certainty about the consequences of late action have shaped the climate litigation landscape to a significant extent. Governments are increasingly being held to account if their actions are deemed to not live up to their promises. An unprecedented number of new lawsuits have also been filed against corporate actors on various grounds, including greenwashing, and a failure to mitigate and adapt to climate change in line with the Paris Agreement goals. Growing numbers of people, young and old, are adding their voices to calls to tackle climate change faster.

More and more companies across all sectors are coming to realise that beyond the damage caused to the planet, climate change could pose a threat to their business models. Increasingly, 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 is a lot to think about at a time when many other major issues, notably, the immediate impacts of the energy crisis and the recovery from the COVID-19 pandemic, are also clamouring for attention on the boardroom agenda.

Despite the challenges, a pathway to progress remains essential. It is hoped that this year’s COP27 climate change summit in Sharm El Sheikh, Egypt, will re-invigorate the pace in terms of defining and strengthening policy on decarbonisation, and devoting more attention to the pressing issue of climate adaptation, as well as loss and damage. Achieving net zero while adapting to the already inevitable consequences of climate change will require significant investment as well as regulation, and this could create major opportunities for businesses, as well as risks.

As companies build resilience, the importance of a holistic climate risk assessment, including climate liability risk, cannot be overstated. At the same time, putting climate risk awareness at the heart of corporate governance and decision-making is an essential risk management tool for all boards.

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 the key issues and out-of-the-box thinking to guide them through the transition.

The global energy crisis and market tumult driven by Russia’s invasion of Ukraine have altered the climate agenda, causing short-term stagnation – and a reversal in some cases – of progress towards climate goals. But, like the recent COVID-19 pandemic, the impact of this latest crisis is neither permanent nor linear. While there is no definitive answer to the question of whether the energy crisis will help or hinder long-term global decarbonisation, our view is that it will do both – in different forms, in different places, at different times – but that, ultimately, the climate agenda will prevail

About the report

Produced

18 November 2022

Written by:

Emma Ager

Emma Ager

Partner

Nigel Brook

Nigel Brook

Partner

Laura  Cooke

Laura Cooke

Partner

Mary Anne Roff

Mary Anne Roff

Partner

Dr. Henning Schaloske

Dr. Henning Schaloske

Partner

Jacinta Studdert

Jacinta Studdert

Partner

Zaneta  Sedilekova

Zaneta Sedilekova

Associate

Sarah Hill-Smith

Sarah Hill-Smith

Associate

Wynne Lawrence

Wynne Lawrence

Legal Director

Read time

4 mins

Themes

Resilience

Download
About the report

Produced

18 November 2022

Written by:

Emma Ager

Emma Ager

Partner

Nigel Brook

Nigel Brook

Partner

Laura  Cooke

Laura Cooke

Partner

Mary Anne Roff

Mary Anne Roff

Partner

Dr. Henning Schaloske

Dr. Henning Schaloske

Partner

Jacinta Studdert

Jacinta Studdert

Partner

Zaneta  Sedilekova

Zaneta Sedilekova

Associate

Sarah Hill-Smith

Sarah Hill-Smith

Associate

Wynne Lawrence

Wynne Lawrence

Legal Director

Read time

4

Themes

Resilience

Download

What is the impact of the energy crisis on the climate change agenda?

The 2020s are a critical decade in the fight against climate change. According to the latest science, the global average temperature will continue its upward trajectory until emissions eventually reach net zero, a trend which highlights the need to not only mitigate but also to adapt to the impacts of climate change.  At the same time, the journey to net zero has only just begun. Despite high-level pledges, global energy-related carbon dioxide emissions rose by 6% in 2021 to 36.3 billion tonnes, their highest ever level, as the world economy recovered from COVID-19 and relied heavily on coal to power growth.

Climate change exacerbates the physical risks of changing weather patterns.  More frequent extreme weather events and rising sea levels (alone or in combination) cause damage to property and infrastructure, impacting asset values and insurance premiums and disrupting supply chains. At the same time, the shift to a low-carbon economy creates a transition risk, which will strand assets and may undermine business or investment decisions. If the transition is disorderly, it may give rise to “carbon shocks”. Both these risks act as a potential catalyst for a third type of risk: liability risk. 

What does the risk landscape look like today?

The 2020s are a critical decade in the fight against climate change. According to the latest science, the global average temperature will continue its upward trajectory until emissions eventually reach net zero, a trend which highlights the need to not only mitigate but also to adapt to the impacts of climate change.  At the same time, the journey to net zero has only just begun. Despite high-level pledges, global energy-related carbon dioxide emissions rose by 6% in 2021 to 36.3 billion tonnes, their highest ever level, as the world economy recovered from COVID-19 and relied heavily on coal to power growth.

Climate change exacerbates the physical risks of changing weather patterns.  More frequent extreme weather events and rising sea levels (alone or in combination) cause damage to property and infrastructure, impacting asset values and insurance premiums and disrupting supply chains. At the same time, the shift to a low-carbon economy creates a transition risk, which will strand assets and may undermine business or investment decisions. If the transition is disorderly, it may give rise to “carbon shocks”. Both these risks act as a potential catalyst for a third type of risk: liability risk. 

Conclusion

Organisations will be looking to legal advisers for guidance on how to identify, measure and manage the physical, transition and liability risks stemming from climate change, meet their disclosure requirements and to find creative best practice solutions to climate issues that could ultimately benefit their business.

At Clyde & Co we decided several years ago that we wanted to lead the way in helping clients build resilience to climate risks. Climate change and the transition represent a global challenge, and our expertise across multiple jurisdictions worldwide, spanning our core industry sectors and beyond allows us to advise clients across the growing spectrum of issues they face. We are committed to helping organisations understand and face up to these thorny challenges in a range of ways that go beyond expert legal advice for clients. We host interactive events to assist with scenario planning, deliver board presentations and help our clients mitigate climate risks before they arise.

Today, climate risk is not an issue any business can afford to ignore, and the commercial as well as ethical incentives are powerful. Those that take the lead stand to gain.

Download the full report here

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