Feb
13

Climate change liability risks

Climate change is shaping up as a nightmare liability issue for companies, insurers and directors.

Consider these scenarios: a utility has a power outage caused by a climate change-related extreme weather event. The entire area is plunged into darkness and chaos, businesses lose a fortune and launch a lawsuit against the utility. Or shareholders who sue a company for ignoring their resolutions calling on the business to address climate change. The lawsuit claims that company did nothing about it, and as a result the business was hit hard by climate-change related events, and the share price tanked.

Impossible? Think of the lawsuits that have hit the tobacco and fast food industries? What's different here?

Broc Romanek
editor of TheCorporateCounsel.net is holding a free webconference on impact of climate change on the duties and liabilities of boards of directors next Tuesday.

And if you want to brush up on some of these potential issues before next week, check out a disturbing paper written by Christina Ross, manager of technical services at LaCroix Davis, Evan Mills, staff scientist at Lawrence Berkeley National Laboratory, and Sean Hecht, executive director of The Environmental Law Center at UCLA School of Law.

The paper Limiting liability in the Greenhouse: insurance risk management strategies in the context of global climate change covers the insurance industry but the implications go well beyond.

Indeed as the writers point out, insurers are "uniquely positioned between the two
ends of the climate-change spectrum-the causes and impacts. Insurers insure carbon-intensive industries as well as homes, autos, and pollution-emitting airplanes that are some of the primary causes of anthropogenic greenhouse gas emissions. Many of these insured businesses will bear the brunt of the cost of climate change impacts. At the same time, insurers and their trade allies expose themselves to the liabilities faced by customers of these insured businesses, and to 'in-house' liabilities potentially arising from their own actions in responding to the challenge."

The section on directors' liability is particularly alarming.

The writers point out that 53 per cent of the largest 500 publicly held companies are doing a bad job at disclosing climate risks to investors and, as a result, are at risk of shareholder lawsuits. They warn that potential liability for breach of the duty of care will grow. And directors might even be vulnerable to allegations of fraud or misrepresentation if there is evidence that officials ignored or covered up material information.

Clearly, we are entering uncharted waters.

 

7 Jun 2007