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Climate risk reporting: silence is the most dangerous option, say experts

Newly published analysis confirms that saying nothing at all about climate issues in corporate reporting puts directors at far greater risk of being sued than disclosure would.

The report, from experts at the Commonwealth Climate and Law Initiative (CCLI), says that fear of legal action is no excuse for failure to report on climate-related risk. They argue that complying with the new reporting recommendations from the Task Force on Climate-related Financial Disclosure (TCFD) will actually protect companies from the kind of liability claims they fear.

ClientEarth corporate lawyer Alice Garton said: “It is a legal obligation for companies in most jurisdictions to acknowledge and report on material financial risks to their business, including risks posed by climate change. Rather than increasing liability, following the TCFD framework is currently the best insurance policy against legal action.

“If directors fail to reference material climate risk at all in their strategic reporting, the message to investors is that business as usual is the most likely scenario – which leaves them wide open to liability claims if they are proven wrong.”

Task Force special adviser Russell Picot confirmed to investment professionals on Friday that perceived liability risk was “no excuse” for sidestepping climate disclosure. Welcoming the CCLI report, he said: “Climate risk is present in almost all investment portfolios. Companies need to look at different scenarios and give clear indications to investors of how they believe these might play out. This kind of climate risk reporting needs to move rapidly into the mainstream – with existing safe harbour provisions, fear of liability should not be used as an excuse.”

Ben Caldecott, founding Director of the Oxford Sustainable Finance Programme at the University of Oxford’s Smith School of Enterprise and the Environment, said: “The direction of travel is clear. It is highly likely that there will be additional regulation requiring disclosure of climate risk, or, at the very least, existing laws will be interpreted as requiring robust climate risk analysis. For all these reasons, astute directors should embrace the TCFD recommendations and recognise that climate-risk disclosure is a key component of financial reporting.”

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