No one is ready for the rising tide of climate change

Protesters outside chanted “OLEA, you have no alibi”. Shell has probably already pointed out that they are on the hook for climate change problems. But regardless, the singing activists who postponed this week’s shareholders’ meeting for nearly three hours were eager to ram the message home.

One wake-up call came a year ago. Shell, it was clear at the time, was surprised by a decision of a Dutch court that its climate plans were not sufficient and this imposed new targets for emission reductions. The company is attractive.

The judgment established, for the first time, that a private company had a I have to act compatible with meeting the Paris climate goals to limit global warming, based on human rights and human rights obligations. The implications of this still play a role.

The Bank of England used its inaugural “climate stress test” highlight one black spot: the possible discovery of the insurance sector. Despite a doubling of global climate processes since 2015, the regulator suggested that no one had carefully considered this before and, indeed, “several insurers have struggled to combine and put together the information needed for a robust assessment of possible discoveries”.

Different cases, around direct or indirect contributions to climate change, green washing, breaches of reliable duties and more, could affect different insurance products in different ways. Cases may be aimed at changing behavior, as with Shell, or establishing liability rather than collecting damages. But the distinction is becoming more blurred, according to legal experts, and the former may lay the groundwork for the latter.

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Specialist policies covering directors and officer compensation duties, or D&O as it is known, were seen as particularly exposed to possible disbursements, or covering legal defense costs even where suits were unsuccessful. That, the Bank said, could make a future cover prohibitively expensive. Francis Kean, of McGill and Partners, believes that the wide range of cases that could lead to claims could make it difficult for insurers to create an exclusive language, even if politicians are willing to accept it.

In a week where HSBC banker Stuart Kirk prompted discussion about whether the financial risks of climate change are superfluous, it seems that other risks are insufficiently examined. (Kirk himself explicitly accepted climate science – “there will be fires”. And yet the Bank of England suggested that understanding and modeling changing physical risks of fire, flood, wind or drought was quite erratic, at least in the financial sector.)

Rising litigation risk is a reality for companies, whether they realize it or not. Sue Garrard, a sustainability consultant and former Unilever administrator, argues that the current gap between corporate commitments to climate change and performance is huge: “But most companies don’t think of litigation as a major issue, despite the fact that the basis for processes. is changing and expanding as people understand more about climate risks. “

Cases are becoming more diverse and ambitious: a lawsuit by a Peruvian farmer against German RWE over damages related to melting of an icy lake near his home is being tried.

And this is no longer just an energetic thing: the London School of Economics tracks the sector ramp with cases against German car companies, financial institutions and food and agricultural companies.

A greater focus on green washing, including regulators on both sides of the Atlantic, is part of this: “all sectors are engaged in green washing today” is the verdict of Sophie Marjanac of ClientEarth.

Because there is greater consensus and understanding around other environmental damage, this could start a process – in the way that Paris has created a “universally defined danger line” in the words by Roger Cox, the Dutch lawyer behind the Shell case. International plastic waste agreement is expected, for example, to lay the groundwork for more lawsuits in that area.

Of course, an “avalanche” of cases was expected after Shell; many will not succeed. But the Bank of England’s gaps – including the suggestion that a publicly backed reinsurance pool may be needed if success rates rise sharply – reinforce the impression of a very fast-moving area where companies and their insurers are struggling to keep up. up.

helen.thomas@ft.com
@helentbiz

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