Climate change adaptation

Expert comment by Vanessa Havard-Williams, Linklaters

Recent years have seen policy makers and business become more proactive in taking action to contain and reduce greenhouse gas emissions. There has been a range of regulatory interventions, most notably the EU's emissions trading scheme but also the adoption by the UK and others of binding midterm and longer range emission reduction targets. Business has started to recognise costs associated with carbon emissions and some companies now integrate a carbon price into their business models. However, while there is a broad scientific consensus that an increase in temperature as a result of climate change is inevitable, and that adaptive behaviours will be required, there has been little focus to date on how to drive that adaptation.

A changing regulatory and physical environment

That position is set to change. In the UK, the Climate Change Committee, established under the Climate Change Act 2008, is in the process of setting up a subcommittee on adaptation which will report on the issue to Parliament, and this week the EU Commission published a White Paper on Adaptation.

While legislators contemplate what regulatory changes should be made to factor in adaptation issues to environmental and other legislation, the risks will continue to subsist and increasingly will need to be addressed as a commercial matter or to discharge more general legal or fiduciary obligations.

This may come as something of a surprise to many. There has been a sense that the two degree predicted rise in average global temperature is within the parameters of a 'business as usual' scenario. In fact the figure is seen by scientists as the tipping point at which significant change starts to occur. It also seems to be the most benign of the likely outcomes. Professor Bob Watson, chief scientist at Defra, former chief scientist at the World Bank and former chair of the Intergovernmental Panel on Climate Change has suggested that we should aim for two degrees but that in adaptation terms we should plan for a four degree increase.

Cross-sector implications

What does this mean? For utility providers who are under a regulatory obligation to provide a secure supply, it is likely to mean re-assessing the extent to which networks are climate proof. Some are already building flood defences to address this issue. Other businesses may find this a question of growing interest to institutional investors, insurers and lenders. It is likely to be an area of particular focus on new build projects.
Corporates and their advisers therefore need to be conscious of the need for climate proofing of the assets and operational arrangements of the business. The issue needs to be considered not just in the context of new projects or acquisitions, but more broadly in relation to existing facilities, supply chains and customer base. Doing so is not just a question of long term commercial prudence, it also positions a business for the regulation that is likely to develop over the next few years.

Vanessa Harvard-Williams, Partner and Global Head of Environment, Linklaters, is Chair of the Legal Sector Alliance Policy Working Group.