Adapting to Climate Change: Directors & Officers Liability


When the U.S. Securities & Exchange Commission told U.S. public companies in 2010 to disclose climate matters, the Commission made it clear that it was not creating new disclosure obligations, but rather clarifying existing duties as respects potentially material risks—thus making the concern real and immediate for many organizations:

The Securities and Exchange Commission (“SEC” or “Commission”) is publishing this interpretive release to provide guidance to public companies regarding the Commission’s existing disclosure requirements as they apply to climate change matters.

What the Guidance Meant

As we explained in our Alert on the topic at the time, this guidance was intended to urge companies that could be helped or hurt by climate-related changes to promptly disclose such possibilities. For example, banks or insurance companies that invest in coastal property that could be affected by storms or rising sea levels should disclose these risks. Similarly, companies should consider whether any new law or international treaty limiting carbon dioxide emissions might increase operating costs and prompt a disclosure requirement.

Getting Carriers to Cover Climate Change

Even prior to the SEC’s guidance back in 2010, we’d been having discussions with major insurance carriers—asking D&O carriers, for example, how their current policies would respond when (not if) a climate change claim is ultimately made against a corporate director or officer for failure to properly manage and disclose the related exposures. In response to our urging, two major U.S. domestic insurers  responded:

  • The first added an additional insuring agreement providing express coverage for climate-change related public disclosures to its D&O policy for public companies.
  • The second boldly removed its pollution exclusion.

Other insurance markets quickly accepted these innovations (either by writing additional “excess” coverage following these terms or by integrating these changes into their own “primary” policies).

Companies React to Climate Change Management and Financial Disclosure

climate-change-business-strategyThe good news is that since the SEC’s guidance back in 2010, public companies have not been standing still on the issue of climate change. Resources have developed both domestically and globally to address the challenge.

For example, the Carbon Disclosure Project (CDP) has, among other things, evolved a methodology for integrating financial data and climate change information via a global climate change reporting framework. The group functions in over 60 countries around the world (including all of major  economies) and holds the largest collection globally of self-identified climate change, water and forest-risk data.

Since 2012, major organizations have also created the Association of Climate Change Officers, a network of decision makers that both considers original and third-party research and provides education and training on relevant topics. It, too, operates worldwide, across industries, government, academia and the non-profit community.

Think Globally and Act Locally

While legal requirements, including financial reporting, apply to specific jurisdictions, our clients have taught us that the best minds are considering the opportunities and challenges of climate change from a global perspective.

About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
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