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Heating up

How to assess climate-related legal risk

Heating up

Climate change risk

A question of value

Companies face a wide range of changes in the laws and duties that govern their activities stemming from the drive to address climate change. Assessing the impact of these changes on a business, and how prepared management is to address them, is a tall order.

From shareholders, financiers and NGOs to mass claimants and policy makers, parties with differing agendas and appetites for change are increasingly using legal mechanisms to pressure business to re-evaluate the balance of priorities that underlie how they do what they do. The associated risks and opportunities can sometimes be difficult to predict and hard to quantify. In short – they are hard to value.

But assessing how prepared a company is to engage with these changes, and how this might translate into value, is likely to become increasingly important in the marketplace.

COP 26 – where are we now?

This Conference of the Parties session takes place at a unique juncture in the development of climate change laws.

Since the Paris Agreement was signed in 2015, there has been a substantial rise in public awareness of climate change matters, and increasing pressure to address climate change in meaningful ways. New regulatory developments have been accelerating, litigation involving climate change-related issues has become more sophisticated and the number of cases has risen dramatically.

While no case has yet come close to establishing liability of private parties for climate change-related damage, some litigants continue to focus their efforts on doing just that. And litigants are increasingly turning their focus from reparation to prevention. The impact of the recent Shell decision in the Netherlands, while still under appeal, has stimulated debate around the respective roles and duties of states and private enterprises in securing a low-carbon future.

There is a need for a clear direction in policy at national and international levels, across a myriad of fundamental questions:

  • Which resources and activities will be deprioritised, taxed or prohibited?
  • Who will receive funding – renewables, nuclear, hydrogen, industrial transformation, green buildings?
  • How will the costs of the transition be spread?
  • Who will pay for adaptations driven by changing weather?

There is significant attention at COP26 on the initial shape of these government-led solutions, which will likely evolve over time based on the degree of willingness for international co-operation, public pressure, shareholder expectations, the relative success of new technologies, the efficacy of abatement initiatives, consensus around the role of offsetting (both removals and avoidance) and the development of carbon markets.