In this Acclimatise Conversation on Climate Change Adaptation, we speak with Clyde & Co lawyers Wynne Lawrence and Nigel Brook, about the emerging field of climate liability risk and the pioneering work that the firm is doing to advise its clients about how to respond.
In September 2015 the Governor of the Bank of England, Mark Carney, gave his seminal ‘Tragedy of the Horizon’s’ speech, to the insurance market at Lloyd’s of London. In it, he highlighted the severe threats posed by climate change to the financial system and warned the problem risked being ignored because of institutional near-sightedness.
“The classic problem in environmental economics is the ‘tragedy of the commons’… but climate change is a tragedy of the horizon,” Carney said, “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors. It will impose costs on future generations that the current one has little direct incentive to fix.”
The horizon for monetary policy goes out just a couple of years, and financial stability only about a decade. Carney went on to outline the three main ways in which climate change can affect financial stability:
- Physical risks like storms and floods;
- Transition risks associated with the transition to a low carbon economy; and
- Liability risks, legal claims by those suffering losses due to climate change.
Much of the attention since then has been on the first two categories, the physical and transition risks, but a growing number of lawyers and pioneering legal firms are drawing attention to the third category, the liability risks.
Their work has been reinforced by a growing number of international regulations and national laws and a growing body of case law. One such firm is Clyde & Co, a global firm that focusses on five key sectors: insurance, energy, trade and commodities, infrastructure and transport. The firm soon realised that climate change posed risks to all of these sectors, and so they set up a cross-disciplinary team on climate resilience. Listen to the full podcast to learn more.
Download Clyde & Co.’s climate resilience reports here.