Climate risks creating more exposure for directors and officers

Climate change-related risks are a growing area of exposure for directors and officers, experts warn.

Even without disclosure requirements, there have already been attempts to litigate and sue “bad actors” on issues related to climate change, said William P Kelly, senior vice-president and US deputy head of management and professional liability lines at Canopius, during the recent Professional Liability Underwriting Society’s conference.

There have already been some examples of “high-profile” climate change-related matters, added Maurice Pesso, partner at Kennedys Law.

Recent cases include those filed by attorney generals in New York and Massachusetts against Exxon Mobil for its climate-related disclosures. There has also been the Volkswagen emissions scandal and the case against Vale Mining after a mine collapsed and killed more than 270 people.

“There are D&O-related climate issues out there. The question is: are we going to have a lot more?” he asked.

A new climate-related case, written about by Kevin LaCroix, executive vice-president for RT ProExec, a division of RT Specialty, in The D&O Diary, concerns a wood flooring company, Enviva Partners.

According to the D&O Diary report on the case, a securities class-action lawsuit was filed on 3 November against Enviva after a short-seller report alleged the company engaged in so-called greenwashing and its stock dropped.

“We’re going to keep seeing these things, Pesso said.

Climate has transitioned from something that “was not a big deal” in boardrooms to a big concern, and there’s a lot more exposure, said Lenin Lopez, vice-president, corporate securities attorney, at Woodruff Sawyer & Co.

“It’s not just shareholders that boards need to worry about. It’s activist investors, employees and other stakeholders, [as well as] customers,” Lopez said.

Disclosures from energy companies around wildfire risks look a lot different now than they used to, for example, he said. Climate disclosures have to be accurate, said Lopez.

The question facing underwriters is how to price the exposure without a body of facts, Kelly said. “How do we calculate what our exposure is?” he asked.

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