The second instalment of the Climate Change Blog summarises news relating to litigation risk. This article series aims to cover news and events related to climate change and relevant to actuaries and the industries they advise.
What’s litigation risk?
Climate change litigation risk is the possibility that in the future legal action will be taken as a result of an individual’s or corporation’s actions, inaction, products, services or other events with respect to the effects on the earths climate.
Companies in the energy and resources industries may be exposed to litigation due to their direct actions, products and services. Considering around 90 companies are responsible for contributing to the effects of climate change over the last 200 years and new measurement models more accurately attribute the effect climate change is having on extreme weather conditions, possible settlement figures have the potential to run into the billions of dollars.
Climate Change Litigation risk requires consideration of the Appointed Actuary within their mandate to provide high level observations in relation to capital management and risk management in the Financial Condition Report. While Insurers and Financial Institutions may mitigate any direct Climate Change Litigation Risk within their own company through their ERM policies, the large potential costs of litigation for the businesses affected may have a flow on effect through the Financial and Insurance sectors. These effects are now seen as a mandatory consideration of Actuaries working in Asset Management and Superannuation as highlighted in the recent REST court case.
It is quickly becoming the growing consensus that climate change risks would be regarded as foreseeable by the courts so this risk becomes pertinent for Actuaries working with providers of ‘Directors and Officers’ Liability insurance products, both in the Product Design cycle and the underwriting process. Company Directors and fund managers may be exposed to litigation due to inaction around mitigation of physical and transition risks since the Corporations Act mandates directors to act in the best interests of their firm. Conversely, providers have an opportunity to mitigate this risk through the direct education of their policy holders.
The following section summarises a few litigation cases in Australia and other parts of the world.
Rocky Hill Coal Mine in Australian Court over Paris Agreement
In an Australian first, the Rocky Hill open cut coal mine proposal has been taken to court over the argument that its approval will negatively affect Australia’s proposed climate targets. Evidence in the case is being presented by climate scientists that shows no new mines can be approved if Australia is to avoid overspending its carbon budget under the Paris agreement. The case is currently being heard in the NSW Land and Environment Court.
“This landmark hearing, the first its kind since the Paris Agreement, will hear expert testimony about climate change, the carbon budget and the impacts of the burning of fossil fuels.”
Anne Keen – Gloucester Advocate.
News covered by a few websites:
REST in court for no climate risk strategy
Last year we saw shareholders take action against the Commonwealth Bank for failing to disclose climate risks, which was subsequently withdrawn after the bank committed to disclosing risks. This year, a member of the REST superannuation fund has similarly taken legal action against the fund for not having a climate risk management strategy.
Conversely, in a report of over 500 super funds worldwide by international organisation the Asset Owners Disclosure Project, Australian superannuation funds were found to be fifth best for addressing climate risk in the world, behind only Sweden, Norway, New Zealand and Finland. Local Government Super was ranked first in the world with a AAA rating.
The cost of not being in Paris
A team of Australian scientists from local universities and the CSIRO has mapped out the economic impact of countries complying with the Paris Agreement and found that gains far outweigh losses. They have estimated that not meeting our Paris Agreement would cost Australia $126 billion in annual losses.
“The global economic gains from complying with the Paris Climate Accord are shown to be substantial across 139 countries”
– Tom Kompas.
News covered here
Report can be downloaded here
Attribution of blame
In an important article on physical risks in Nature, Friederike Otto, a climate modeller at the University of Oxford discusses the measurement of the influence of climate change on extreme events. As Attribution science becomes routine and global warming’s influence on extreme weather events can be instantly assessed, big implications are predicted for liability risk.
Disclosure warning to directors
Companies in all industries, including finance and insurance, are increasing their disclosure of climate-related risks, but there is concern that regulation is not changing as fast as the climate. Both ASIC and APRA have made clear that where climate-related financial risks are material, directors of companies must make clear disclosures.
ASIC commissioner John Price has urged company directors to take seriously a leading barrister’s opinion that they could face lawsuits for failing to consider risks related to climate change. News covered here
According to a legal analysis paper by the Commonwealth Climate and Law Initiative (CCLI), under Australian corporate governance laws, company directors can be held liable for failing to manage risks associated with climate change.
US Kids Climate Case Goes Ahead
The Supreme Court denied the federal government’s request to halt discovery and the trial in the youth climate lawsuit Juliana v. United States. The court’s rejection on Monday of the defendants’ application for a stay means the case will likely proceed to trial as scheduled in U.S. District Court on October 29.
News covered here.
ExxonMobil and Suncor win in court
Boulder County Colorado officials voted to sue ExxonMobil and Suncor Energy for their alleged role in causing climate change. Federal judges on either coast have dismissed two of the most prominent climate lawsuits against the oil industry. Risks to taxpayers may be increased due to failed lawsuits brought by local councils compounded by the impacts of the continuance of business as usual.
News covered here.
Irish courts in climate change battle
A small group of volunteers have been to the High Court many times before, challenging regulatory authorities whose decisions or inaction, they contend, damage the environment. The case is one of a rapidly growing number of climate litigation actions around the world which is currently running at almost 1,300 a month.
News covered here
Would you like to know more?
Recent climate change articles published by members of the Climate Change Working Group:
- Climate Change Log – July 2018 by Evelyn Yong
- Climate Change Disclosure – Financial Institutions Feel the Heat by Sharanjit Paddam and Stephanie Wong
- Climate Related Financial Disclosures: The Way Forward? by Wayne Kenafacke.
- An Overview of the Actuaries Climate Index by David Hudson
- Climate Risk Management for Financial Institutions by Sharanjit Paddam, Stephanie Wong and Alison Drill
- TCFD Webinar: Climate Leadership – How to Support the TCFD
CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.