2022 Predictions: Five key risks dominate in climate change

Climate change has rarely been out of the news in 2021 – whether due to reports of devastating floods and wildfires, coverage of COP26, climate change protests in many countries, or discussions around the flood resilience of new housing projects.

As we look ahead to 2022, there are five key areas we consider the re/insurance ecosystem should be aware of in relation to climate change risks.

Strategic litigation

With government emissions targets, announced ahead of and during COP26, having fallen short of expectations, there is a mounting sense of frustration at the limited climate change ambitions of political leaders.

This may well drive an increase in strategic litigation against governments and businesses, to force them to step up action on climate change, with more human rights-based cases likely in 2022.

Of particular note is the Agostinho case in the European Court of Human Rights, which aims to force Portugal and 32 other countries to make more rapid emissions cuts. The court has fast-tracked the case and the hearing could take place in 2022.

ESG and greenwashing

It is becoming clear that making unsupportable claims about your green credentials is not only a bad look, but could have significant legal or regulatory consequences.

A case filed in Australia’s Federal Court against energy firm Santos by shareholder advocacy body ACCR is challenging the company’s claims that natural gas is a ‘clean fuel’ and also querying the veracity of its Net Zero emissions plan.

There is also likely to be further regulatory activity next year focused on securing greater transparency from directors and officers in Net Zero targets and commitments, particularly as two new global standards emerged from COP26, on climate-related disclosures and general sustainability disclosure requirements.

Supply contracts

The UK and the European Commission have adopted proposals obliging large or listed companies to report assessment and mitigation of climate-related risks in financial statements. With added pressure from investors and consumers, companies are publishing decarbonisation and net zero plans, including indirect emissions occurring in their value chain.

This may well drive adoption of climate change-conscious clauses in supply chain contracts, for example: updated force majeure clauses, with an environmentally-friendly approach to performance interruption; contractor warranties obliging compliance with mitigation strategies or performance targets to reduce environmental harm; and clauses enabling one party to terminate contracts if the other party fails to achieve net zero targets.

Biodiversity and natural capital

This was a pivotal year for biodiversity action, with commitments made at significant conferences, and disclosure standards in development for biodiversity conservation and restoration.

Recent initiatives include the creation of a disclosure framework by the Taskforce on Nature-related Financial Disclosures, the development of sustainability reporting standards by the European Financial Reporting Advisory Group and GRI, and commitments made at COP26 to protect natural capital, including the end of deforestation by 2030.

In addition to regulatory pressure, there is growing momentum for future biodiversity litigation that will seek to drive corporations to review the way they deploy natural resources ahead of public and industry scrutiny.

Combustion engines

COP26 was a major disappointment for those seeking to end the sale of polluting automobiles by 2040.

The refusal of several major car manufacturers, plus the world’s three largest car markets – US, China and Germany - to sign the pledge may encourage strategic litigation from NGOs and other groups.

Most recently, German NGO Deutsche Umwelthilfe filed claims against BMW and Mercedes-Benz for alleged climate inaction, seeking an end to production of internal combustion engines by 2030. Whether successful or not, this and a similar case in Germany involving Greenpeace and Volkswagen will increase the pressure on auto manufacturers to take climate activism, and prospective regulatory action, seriously.

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