Climate-related risks will affect most stakeholders in a property transaction and government must consider these inherent risks prior to beginning a new infrastructure project, when planning any demolition works, before redeveloping parcels and rezoning land. When considering any property transaction, government departments should be aware that there is an evolving duty of care owed by lawyers to the department to advise on these climate-related risks.
In this edition, we examine two types of climate-related risks (physical and transition risks) associated with purchasing and developing land during a climate crisis and demonstrate how lawyers can mitigate these risks to ensure the success of future projects.
What are physical risks?
Physical risks are real and tangible impacts of climate change, such as rising sea levels, coastal erosion and extreme weather events like floods, hailstorms, bushfires and heat waves. These risks drastically impact land and thus have the ability to stagnate development plans.
Before commencing new infrastructure projects or land redevelopments, parties must ensure proper legal due diligence is carried out. This process involves seeking advice on the unfolding implications of climate change and its consequences on parcels of land subject to any development works. Beginning works in an area affected by coastal erosion or on bushfire prone land without conducting comprehensive climate-related due diligence could directly impact the value of the land and its insurability, rendering the land unfit for its intended development purpose for which it was initially purchased or acquired.
What are transition risks?
Transition risks are changes in the behaviour of the government, regulators, commercial institutions and the community as a whole. These risks are institutional behavioural changes which may arise as a result of new legislation, regulation, targets or renewed customer and supplier expectations. For example, transition risks may arise as a result of the government's Net Zero Plan and 2035 emission reduction targets.
In today's climate conscious society, governments and lawyers alike must be aware of current regulatory and legislative regimes concerning climate change and emerging climate regulations. Obtaining advice relating to transition risks will ensure government departments are aware of any upcoming reporting requirements which may emerge as a result of new regulation.
Being conscious of transition risks is the key to understanding how government development and infrastructure projects will be affected. For example, transition risks may impact land value and increase the anticipated operating costs.
How can the government navigate these risks?
Before developing or purchasing land, government departments must undertake extensive property due diligence. The Law Society of NSW's 'Climate Change Practitioner Guidance' is a useful resource for government lawyers and the legal profession to understand their evolving duty of care when providing legal advice related to climate change issues. Lawyers should restrict their advice to areas within their expertise – for in-house lawyers, this may mean obtaining external legal representation to offer counsel on their behalf.
Climate-related advice should take into account the essence and overall purpose of the property transaction. This includes considering the government's operations and interests, an analysis of climate risks disclosed in transaction documents, limitations of disclosure obligations in relation to climate risks and how they impact land use (such as accessibility, insurability and availability of capital investment).
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
