Climate Change: It’s Risky Business

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Aug 16, 2019

By: James Bennett

As we all know, climate change is one of the most prominent topics in the news – so much so that it is being touted as a major deciding factor for Canadian politicians in the upcoming federal election. But, what does this mean for businesses?

Where this becomes an interesting topic is the implications it has on a public company’s board of directors. I.e., what measures are the directors taking to disclose their exposure to climate change, and how can it affect their directors’ and officers’ (D&O) insurance?

As a recent article called from Davies Ward Phillips & Vineberg LLP highlights, investors and stakeholders in corporations continue to seek greater transparency when it comes to climate-related reporting and the unsatisfactory disclosure regarding these risks. The article expands on this topic and notes how the Canadian Securities Administrators (CSA) published a report in 2018 on climate change-related disclosures. Due to their findings and the increased scrutiny mentioned above, the CSA published an updated Staff Notice on August 1, 2019, on the reporting of climate change-related risks.

We don’t yet know the true impacts of these changes to reporting guidelines. However, brokers can further help their public-company D&O clients by taking a proactive approach in addressing these new exposures. For each of their clients, brokers should ask themselves, “Does this company have an exposure to climate change?” And, if the answer is yes, the next question should be, “Does the company provide adequate disclosure of these exposures in their public filing documents?” If these companies are not providing adequate disclosure, then an opportunity to provide risk management advice arises.

What exactly should brokers be looking for?

Like most emerging risks, this is not an area where you will have a one-size-fits-all answer because each industry is going to be different. For example, if your client is a mining company, you want to be looking for information on what they are doing with the mines. Some starting questions to think about might be:

  • Are they dependent on fresh water for their refining process?

  • What is the water source like? Is there the potential of it drying up and impairing the mine?

Another example would be if a public company has coastal operations. In this case, you might want to consider:

  • What happens if the sea level rises a foot?

  • How will a higher sea level impact the business?

  • Is the company disclosing these types of issues/exposures?

These are only a couple of examples of the possible scenarios that may arise from climate change. Any issues that might emerge will hover around the impacts of climate change on a business, the risk assessment on climate change risk and the disclosure of these risks. 

To learn more about what climate change means for the insurance industry, you can read the original article here.

Find out if your client’s business may be exposed by contacting your Trisura representative today!Contact us here.

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