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The ramifications of climate change for D&O insurance

The threat of having to deal with expensive investigations and litigation relating to climate change claims is becoming a significant and increasing factor around the globe.

The claims not only involve public nuisance and general and environmental liability, but there are also serious implications for Directors and Officers (D&O) liability insurance. Climate change risk management is a board-level governance issue and directors could become the subject of shareholder actions for breaches of statutory, fiduciary duties or loss of share value.

A Climate Change Adaptation Report by the Prudential Regulation Authority in 2015 made it clear that “In future, directors and officers may face both regulatory and shareholder action if they fail to adequately consider, misrepresent or conceal climate change-related risk.”

Activists and lawyers have increased efforts to use national and international judiciary systems to advance their climate change cause and we have seen significant rulings including in 2019 State of the Netherlands v. Urgenda Foundation, which gave binding requirements for the state of the Netherlands to address climate change.

There has been an increase in activist cases being fought around the globe and in February 2020 Norton Rose Fulbright published a review identifying over 1400 cases in 33 countries. In early 2020, the most pending cases in any one country was in the United States, where more than 1000 cases were being heard.

Understandably, a growing number of institutional investors have become concerned about reputational risks associated with investing in fossil fuels with a shift to greener options being examined.

Moving forward, the focus will be on understanding the impact of a low-carbon future and preparing for changing market dynamics together with the need to  comply with environmental protection and international guidelines.

Richard Bowdidge, Director of Professional & Financial Risks at W Denis, is the contact for management liability matters. He can be contacted to discuss technical matters or to provide a quotation on 0203 713 3976 or at richard.bowdidge@wdenis.co.uk

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