With climate change fast-emerging as a major financial risk, a legal specialist from Clyde & Co says that company boards now have a duty to respond by considering the risk-management options available to them and to develop resilient strategies to manage those risks.
Avryl Lattin, Partner at Clyde & Co, an international legal firm specialising in insurance, energy, trade, commodities, infrastructure, and transport, is speaking on the topic at the Weather Risk Management Associations (WRMA) annual meeting in Melbourne on 5-6 March. WRMA has been dedicated to promoting the weather risk management industry to providers and end-users since 1999.
In her presentation, Avryl discusses how new regulatory frameworks and enforcement bodies, community pressure, and international opinion are firmly behind the need for companies to respond to climate change issues in their governance, their strategy, their risk management, and their metrics and targets. New laws and regulations, strategic climate litigation and emerging duties of care are giving rise to new liability risks.
Companies that fail to adapt to this changing landscape may see impacts on their profitability. In fact, Climate change is already significantly impacting companies’ assets, investments, workforce supply chains, input costs and outputs, and the cost of capital and insurance. Companies might be unable to attract investment, bear the costs of physical risks to their operations of infrastructure, keep pace with changing law and regulation, or they may simply fall below the emerging best practice standards set by their peers and become uncompetitive.
Avryl says businesses face three climate-change-related risks: the immediate physical risks arising from weather-related events, the financial risks arising from the transition to a lower-carbon economy, and the risks of actions initiated by claimants who have suffered loss and damage arising from climate change.
The good news is that risk-management resources and products that help mitigate risks are beginning to emerge. Physical climate risk consultancies, insurers, and associations are assisting companies in mapping their physical risks. International organisations, regulators, standard-setting bodies, investor groups, and asset managers are seeking to establish standards for transition risks to be integrated into investment decision-making. Resources for climate-related liability risk will develop as climate change-related litigation becomes more common.
Avryl says that boards must turn their minds to all mitigation products available, as traditional insurance products are inadequate solutions. The use of weather certificates (or parametric insurance) is fast becoming a tool for agri-businesses to help transfer weather risks away from their own businesses and onto the market. While business communities in overseas markets have regarded Weather Certificates as a sustainable solution, in Australia organisations offering weather risk transfer solutions such as Celsius Pro and Weather Index Solutions say stakeholders in agri-businesses have responded slowly, noting that there is a greater need for education in their use by all market participants.
The Weather Risk Management Associations will be held in Melbourne at 699 Bourke St Docklands, Melbourne on 5-6 March from. Visit wrma.org for more details
This post was prepared by Julia Nekich from The Ideas Suite in collaboration with Jonathan Barratt