MinterEllison Australia, through a collaboration with the United Nations Environment Programme Finance Initiative (UNEPFI), have launched a report on litigation risk and adaptation finance.
Who needs to read it?
Financial institutions, particularly banks, asset owners, asset managers and insurance companies, and the financial supervisors that regulate them.
Why read it? What does the report cover?
Climate change litigation, regulatory enforcement and other legal action has long been recognised as a source of financial risk. This paper focuses on two key matters:
- how climate change litigation, regulatory enforcement and other legal action may act as a driver or consequence of adaptation to the physical risks of climate change;
- developing a framework by which institutions can consider the range of climate-related liability risks to a borrower, book, portfolio or system – both before and after the relevant physical risk crystallises.
The paper examines the potential for litigation (or the risk/spectre of liability) to help overcome some of the barriers to adaption such as weak management of physical climate risk, lack of meaningful disclosure of climate risks, and moral hazard.
Our view
Climate change litigation risk is already an issue in New Zealand. We have already seen claims against corporate entities alleging their emissions have caused environmental harm and sea level rise [1], and also a claim against a local body for failing to commit to a local government declaration that urgent leadership was needed to deal with climate change [2]. Climate litigation, regulation and other legal action is likely to grow as a driver of adaptation to climate change. This paper provides unique insights into the impacts of which boards, management and all leaders in the financial services industry should be aware to plan for their business.
Understanding the role of climate litigation and liability as a catalyst for adaption outcomes will contribute to the efficient pricing, and integration, of climate-related risk issues into financial decision-making, and assist in driving adaptation financing across the financial services sector. Conversely, if barriers to adaptation and adaptation financing are not removed, litigation may play a more prominent role as a driver of adaptation outcomes, albeit in a manner that is ad hoc, inefficient and expensive.
Footnotes
[1] Smith v Fonterra [2020] NZHC 419
[2] Hauraki Coromandel Climate Change Action Inc v Thames-Coromandel District Council [2020] NZHC 3228]
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