The science of climate change is now certain, and the implications for business are clear…

IPCC Report

The Intergovernmental Panel on Climate Change (IPCC) - a UN mandated body which brings together 2,500 scientists from 130 countries - has published its latest assessment of the scientific evidence for climate change. Climate Change 2007: The Physical Science Basis builds upon three previous IPCC assessments and incorporates findings from the past six years. The report sets out the following key findings and forecasts:

  • Global warming is unequivocal. Eleven of the last twelve years rank among the twelve warmest years since records commenced (in 1850);

  • Humans are very likely to blame. There is 90% certainty that global warming is a result of human activities, primarily through fossil-fuel use, land-use change and agriculture;

  • More extreme weather events are likely. Intense cyclones, heat waves, and droughts have been occurring and more will ‘likely’ or ‘very likely’ occur this century;
  • Sea-levels will rise between 18cm and 58cm this century, although this could be up to 20cm higher if polar ice sheets continue to melt;

  • Global temperatures will rise, possibly by up to 6.4C by 2100; and

  • Longevity. Even if greenhouse gas concentrations are stabilised, anthropocentric warming and sea level rise will continue for centuries.

The assessment report is the contribution of Working Group I to the Fourth Assessment Report of the IPCC. Working Group II (Impacts, Adaptation and Vulnerability) and Working Group III (Mitigation of Climate Change) are expected to report in April and May respectively.

Implications for business

The IPCC’s findings reinforce the reality that climate change is now a significant issue for business which cannot be ignored. Climate change presents both risks and opportunities, and some key interactions with climate change risks that businesses are starting to face and will need to further consider include:

"The risks presented by climate change are too big to ignore…"

  • Investment risk: questions of existing carbon footprint and likely abatement requirements and opportunities in making investment decisions will be material– whether as part of day to day management, expansion or in the context of acquisitions or financings as part of due diligence;

  • Insurance risk: some members of the insurance industry are asking insureds to manage their climate change risk in order to benefit from comprehensive Directors and Officers liability cover;

  • Disclosure obligations: IPOs are beginning to address climate change issues as a possible risk factor. Against this backdrop, boards would be wise to consider the anticipated impact of climate change issues on their business as part of the corporate governance process; and

  • Government regulation: Currently, corporate action on climate change exceeds that of government in many jurisdictions. There is an increasingly urgent need for the development of clear and effective regulation and the removal of existing barriers to investment in relevant technology. Achieving this will require greater co-operation between supranational and national agencies on the one hand and business on the other. Businesses need to play a key role in this process to ensure its views are accounted for. Areas for action include:
    • Energy efficiency: many of the easiest wins derive from improving energy efficiency in buildings, products and vehicles. Currently, regulation is still more an impediment than an impetus, but EU directives on energy efficiency are starting to have an impact and for example this will gradually influence commercial property values.

    • Carbon capture: this is a key technology for the energy sector, which accounts for 30% of global carbon dioxide emissions. Not only is new regulation required to permit the financial support necessary to enable energy from carbon capture projects to compete with brown energy, but a regime to address longtail liability issues and to amend existing regulation will need to be developed.

    • Forestry: protecting, maintaining and expanding tropical rainforest across the developing world is one of the cheaper abatement mechanisms. Historically it has not received as much focus because the emission reductions this generates are priced at a lower level than other abatement measures and have not been accepted within EU-ETS.

This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters, or contact the editors.

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