In this new article co-authored by WTW and Clyde & Co, we explore the rising concerns around climate-related liability risks for directors, and how to manage them.
The recent report from the IPCC - Intergovernmental Panel on Climate Change - notes that outside the formal climate policy processes, climate litigation is another important arena in climate governance, giving credibility to climate litigation as a powerful force in climate governance.
Climate liability risk has been gaining traction at board level since 2015, when the Paris Agreement was signed, with the number of climate-related litigation cases globally having subsequently doubled. WTW’s recent Directors and Officers Liability Survey Report 2023 also indicates that climate change is seen as the most high-priority risk for directors based in Great Britain, and as well as for directors in the Energy and Utilities sector. For directors based in Australia, climate change is placed at number four amongst seven risks.
Such cases are also targeting directors of companies and go beyond greenwashing allegations targeted at advertising campaigns, with the most recent case involving the entire Board of Directors of a multinational company being sued for allegedly failing to manage the material and foreseeable risks posed to the company by climate change.
Described as ‘the first of its kind’, the case brought to the forefront the issue of personal liability of high-level executives and was followed closely by corporates, directors and insurers around the world. The claimants in the action made several serious allegations, including a failure to effectively manage the company’s climate risks which could diminish its future success, failure to adopt an energy transition strategy aligned with the Paris Agreement, and a failure to be on track to deliver a reduction in the group-wide emissions by the end of the decade. While the Court has refused the petitioner the permission to continue a derivative action against the directors, experts expect these cases to increase and further discussion of the individual responsibility that directors of companies should bear. Academic literature confirms that climate change may pose a material financial risk to the businesses of some companies, especially if they stay behind the curve on climate and environmental issues. As such, the case highlights the need for the proactive management of climate liability risk that companies and their directors are exposed to.
WTW and Clyde & Co have joined forces to help organisations better understand and manage climate liability risks and respond to the opportunities presented by climate change. The joined-up service offered to mutual and new WTW and Clyde & Co clients across sectors includes strategic and legal advice on climate liability risk exposures as part of a wider climate risk assessment.
Three overarching areas of risk will be covered: