The reluctance of many in positions of power to recognise the existential threat of climate change and take adequate steps to fight it has been a source of frustration for scientists, campaigners and ordinary citizens alike. But it is at least a little heartening that many in the business community have noted the risks posed by this apocalyptic phenomenon and are pushing for action.
The latest firm to do so is global law firm Clyde & Co, which yesterday published a new report exploring the risks – specifically in the areas of legal, commercial and liability – that man-made climate breakdown creates for businesses and boards. The report, Climate change: a burning issue for businesses and boardrooms, the first of three to be launched over the next few months, looks at the drivers behind the heightened risk environment and asks how companies are vulnerable – even if they are operating in sectors that might not initially seem the most likely to be affected by climate change – and how they can step up to defend themselves.
The three areas covered in the report are physical risks – i.e. physical damage to property, assets or supply chains caused by climate change-related events – transition risks – i.e. those arising as the world inexorably shifts to a low-carbon economy – and liability risks – i.e. those faced by those businesses that stand accused of contributing towards climate change, or at least failing to minimise the potential damage caused by the first two risk groups.
“Climate change is one of the defining issues of our time, with its effects becoming more apparent by the day,” said Nigel Brook, Partner at Clyde & Co. “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.”
The report also looks at new trends in climate change litigation – for example, liability claims brought against oil companies by activists, and even cities and states – and how insurers have already been impacted by climate change and will continue to be so in ever more extreme ways. Additionally, Clyde & Co emphasises the key role that the insurance industry can play in mitigating the impacts of climate change and helping to build resilience.
“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,” said James Cooper, Chair of Clyde & Co’s Insurance Global Practice. “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.”
The release of the report comes hot on the heels of a publication from the Reserve Bank of New Zealand, advising that insurers in New Zealand need to incorporate climate risk into their decision-making process – advice that can no doubt be applied to the wider insurance industry across the world.