Climate change: risks in the spotlight

Climate change poses a significant exposure for insurers. In addition to the obvious direct claims arising from climate change, insurers face further exposure from litigation arising from the impact of climate change.

The potential for litigation associated with climate change is not new. Nevertheless, the frequency of these cases globally is increasing, as the impact of climate change continues to be felt around the world. Those classes of businesses particularly exposed to such litigation include general and public liability, directors’ & officers’ and professional indemnity insurance.

Those insureds in the firing line are more numerous than one might expect. The risk of claims against oil and gas companies and their senior management might be obvious. However, last month, minority shareholders in the Commonwealth Bank of Australia (CBA) issued proceedings alleging failures by CBA to disclose risks associated with climate change to their shareholders, and probing CBA’s association with a controversial coal mining project.

Litigation in England and Wales

In July 2016, we considered the September 2015 report by the Prudential Regulation Authority directed at insurers which analysed three main areas of potential climate related liability claims. These were claims arising from:

  • A failure to mitigate.
    Such claims seek to hold accountable those directly responsible for the physical impacts of climate change. However establishing a duty of care, and a causative link between the relevant acts and damage suffered, may make such claims difficult.
  • A failure to adapt.
    Such claims may be brought against a far broader class of insured based on a failure to take climate change risk factors into account in acts, omissions or decision making. Materiality, causation, and the foreseeability of losses will all be points which claimants may struggle with when advancing such a claim.
  • A failure to disclose or comply.
    Claims of these type may be the most straightforward since they focus on the accuracy and completeness of disclosures made to shareholders by companies and their senior management. As shareholders and regulators globally appear focused on greater transparency of climate change risk factors, we expect to see more of these claims going forward.

The Companies Act 2006 imposed a new duty on directors to factor in to their promotion of the company’s success the impact of the company’s operations on the community and the environment. We are yet to see directors being held liable to their shareholders under this provision, but this is surely only a matter of time.

Further, fund managers and pension trustees may find themselves particularly exposed to claims in relation to their decision making on investments, and on the performance of different investments. Climate change is anticipated to significantly reduce the value of fossil fuels, but will have knock on effects across the financial sector as a whole. As such, pension fund trustees and managers should be carefully considering the impact of climate change across their investment portfolio in order to minimise the likelihood of claims from their clients.

The global picture

In Australia, the law firm acting on behalf of CBA’s minority shareholders (Environmental Justice Australia) have advanced a “failure to disclose” case against CBA. The proceedings focus on CBA’s reporting of climate change risk, risk associated with fossil fuels and the management of those risks in its 2016 Annual Report. The pleadings also focus on the provision of financing by CBA to the controversial Adani Carmichael coalmine project in Queensland, suggesting this funding created specific risks (including reputational risks) which should have been highlighted in CBA’s financial reports.

Elsewhere, in the US, the Attorney General of New York is continuing his investigation into whether ExxonMobil misled investors about the impact of climate change.

Further, organisations such as the US Securities and Exchange Commission (SEC) are requiring increased disclosure on climate change risks in corporate filings. In an SEC filing earlier this year, Chevron noted that “increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and, potentially, private litigation against the company”.


The potential impact of climate change on insurers’ business cannot be downplayed. Insurers face obvious risks from direct weather related claims arising from hurricanes, floods, wildfires and other extreme weather events. In the last month, we have seen the impact of hurricanes Harvey and Irma in the US, and in the recent catastrophic flooding across Nepal, Bangladesh, and India.

Insurers’ profitability is also affected by the impact that climate change will have on their investments, as we move towards a greener fuel sources and technologies.

The further risks posed to insurers from climate change litigation are uncertain and may well be unpredictable.