Businesses urged to be prepared for new and broader risks of climate change

Law firm Clyde & Co has published a report exploring the legal, commercial and liability risks that climate change creates for businesses and their boards. ‘Climate change: a burning issue for businesses and boardrooms’ looks at what is driving the heightened risk environment and how most companies are vulnerable to climate-related risks in some way, even if they are not directly operating in the energy sector or other carbon-intensive parts of the world economy.

The report examines the risks faced by businesses and their boards in three main areas: physical risks that might impact businesses of all kinds as climate change-related events lead to physical damage to business property, assets or supply chains; transition risks that arise as the worldwide shift to a low or zero carbon economy impacts the finances and valuations of organisations and asset portfolios; and liability risks faced by those found to be responsible for contributing to climate change, or failing to avert, minimise or report on physical or transition risks.

Nigel Brook, partner at Clyde & Co, said: “Climate change is one of the defining issues of our time, with its effects becoming more apparent by the day. Boards have a responsibility to shareholders and other stakeholders to understand, measure, mitigate and report on the risks that climate change brings, which makes it a critical boardroom issue, not only to the corporations themselves, but to their directors, who are at risk of being held to account.”

In its analysis of the liability risks faced, the report looks at current trends in climate change litigation which include an increase in product liability claims brought by activists, states and cities against oil companies which are passing through the courts, particularly in the United States. Neil Beresford, partner, Clyde & Co, said: “Climate change litigation is not new, but we are now seeing new types of claims emerging brought by a wider range of claimants against businesses.”

The report also looks at how the risks associated with climate change have for a long time impacted insurers and will continue to do so as weather-related perils become more severe and more common. It also considers the crucial part that insurance has to play in mitigating the impacts of climate change and helping build resilience to it. James Cooper, chair of the insurance global practice group at Clyde & Co, said: “Insurers are no strangers to climate change issues and have long played a key role in raising awareness of the physical risks that it poses. They have also advanced their thinking on the impact that the transition to a low carbon economy will have on their balance sheets. But there are still significant opportunities for insurers to help businesses, communities and individuals build resilience to climate change through traditional and novel insurance models.”

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