Boards increasingly at risk of climate change litigation

Board members will increasingly find themselves being held to account for reporting, regulatory and fiduciary failures linked to climate change and the fossil fuel sector, according to lawyers from Clyde & Co.

The warning came at a Clyde & Co seminar on the impact of climate change on directors and officers (D&O) insurance cover as board members are called to answer for their decisions.

The law firm said there were three types of litigation that will result from climate change:

• Companies failing to fully disclose how climate change affects their business;
• Shareholders, pension fund members or investors suing investment and pension funds for investing in businesses adversely affected by climate change; and
• Companies contributing directly to pollution and climate change.

Litigation is already under way in the United States against an energy firm for its failure to disclose the impact of climate change after it wrote down oil and gas assets in 2016. Other actions are being considered.

Clyde & Co partner Ned Kirk said: “Regulators like the SEC [in the US] have already issued guidance on climate change disclosure and are taking action against energy companies. They are also starting to look long and hard at sectors like mining, transportation and insurance.”

James Cooper, partner at Clyde & Co, added: “Underwriters need to ask themselves how they get to understand the climate change risks inherent in these businesses. They need to ask some searching questions about how companies are dealing with climate risks.”