DAC Beachcroft predicts environmental risks facing insurers and clients in 2025

Law firm DAC Beachcroft (DACB) has launched its 2025 predictions for the global insurance market, including a number of environmental issues from litigation stemming from climate activists and shareholders to pollution wordings being revisited and new risk exposures from the transition to renewables. DACB notes that while activist litigation has been high profile across several jurisdictions in 2024, ‘polluter pays’ litigation based on contribution to harm caused by climate change will continue to progress, both in the US (City & County of Honolulu v Sunoco LP, based on the defendant's allegedly deceptive marketing and its failure to warn of the climate change impacts of its products) and outside the US (Lliuya v RWE). If successful, these claims will result in significant damages awards against carbon majors and precedent for yet further classes of action. The law firm said insurers will continue to amend their pollution and contamination (and other) exclusions following the decision in Brian Leighton (Garages) Ltd v Allianz Insurance plc, concerning a sharp object that penetrated a fuel pipe, resulting in contaminated insured property. The Court of Appeal allowed the insured to recover, even though the policy excluded “damage caused by pollution or contamination”. DACB predicts that the increase in climate and ESG-focused corporate disclosures will fuel shareholder litigation, pointing to the ‘anti-greenwashing’ rules recently announced by the UK’s Financial Conduct Authority (FCA). “With a greater focus on climate and wider environmental, social and governance issues, corporate disclosures and statements are being closely scrutinised for accuracy and they are providing fertile ground for shareholder litigation in England and Wales,” it said. The FCA is under pressure from climate activists, like ClientEarth, calling for guardrails to combat the prevalence of ‘transition-washing’ (the provision of transition finance to entities not genuinely transitioning to align with the Paris Agreement) and the rise in ‘greenwashing’, said DACB. It also noted that activists are increasingly buying stakes in companies in order to use their shareholding to hold officeholders to account and challenge corporate behaviour. The law firm also warned that ‘just transition’ claims will become more prominent. “The transition to renewable energy will generate litigation based on the environmental and pollution risks involved in increased mining and extraction of transition-necessary materials. A number of such climate-related actions have been identified as ‘just transition’ claims, directed at the behaviour of governments and companies engaged in pursuing the development of renewable energy, while aiming to protect local communities and environments from any adverse effects,” it said. Another prediction from DACB is that the transition to renewables will unearth new risk exposures. It noted that the mining and extraction of rare earth materials required may generate significant carbon emissions and create various additional risks, and litigation or allegations relating to breaches of sustainability regulations could generate financial losses for companies, either directly or as a consequence of reputational harm. Those financial losses could generate claims from shareholders who have been adversely affected, leading to claims under D&O policies. Finally, DACB said that with greater scrutiny of ESG targets by consumers, employees, investors and regulators, ESG considerations are increasingly an important focus in M&A deals. “Buyers are critically assessing sellers’ commitments to sustainability and energy conservation, operational efficiencies and social responsibility as part of the acquisition process, to ensure ESG statements stack up and their merging corporate cultures will align. ESG scoring – which uses quantitative measurements to independently verify ESG factors – is a growing market and it is expected to become more commonplace in the M&A due diligence process,” the law firm said.

DAC Beachcroft predicts environmental risks facing insurers and clients in 2025

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