James Thornton, Founder & Chief Executive, ClientEarth
Please give us some background information on yourself and how your organisation plays a leading role in the climate risk agenda?
Formerly a Wall Street lawyer, I now lead one of Europe’s most powerful environmental organisations. ClientEarth are non-profit lawyers, helping to shape great laws to protect people and the planet, and enforcing them when countries and companies fail to fall in line.
Our climate programme has been an instrumental part of getting the management of climate risk recognised as a business imperative – and more to the point, that this is an existing legal requirement across many jurisdictions. Many business and financial leaders have been failing – or refusing – to acknowledge this.
From our advocacy with international coalitions to our legal complaints against corporations failing to recognise their requirements under company and financial laws, we have been setting the agenda on climate risk.
How do you see climate change affecting your organisation/the organisations you work with?
Businesses are exposing themselves to vast legal risks in the way they look at climate change risks. This is not something for a glossy CSR brochure. Corporate management of climate risk needs to be embedded in accounts, annual reports, investment decision-making and strategic planning. This is a cross-industry, cross-discipline threat to individual businesses, and financial stability at large.
How should companies manage climate-related risks?
The first thing to understand is that considering how climate change will financially impact your business is a legal requirement and there are not many businesses for which that won’t be true.
The key way to do this is via reporting. You need a solid framework – best practice is using the guidelines provided by the Task Force on Climate-Related Financial Disclosures – and dedicated resources.
At this crucial moment in time, we would argue that companies which aren’t working towards a ‘Paris-compliant’ business model – i.e. one that strives to keep the world in line with the 1.5 degree warming limit – are kidding themselves, jeopardising their own future and the economy’s.
And yet new analysis indicates that just 15% of the world’s top 500 companies are in line with the Paris goals and that will have to change.
As well as looking internally, companies should be asking governments for the change we need to see – positive energy and environment policy must be in place so that industries can innovate with certainty.
Many of these policy changes are happening already and companies are recognising them. We only need to look at coal phase-outs and sunset dates for the internal combustion engine for very obvious examples of governments that have categorically decided to move beyond a hydrocarbon economy.
But while they recognise these ‘transition risks’, many companies are – surprisingly – not looking at the physical risks posed by climate change: facilities and supply chains could be jeopardised by extreme weather, flooding or erosion, for example. Recognition of climate risk in all its guises is crucial.
What will you be discussing at The Economist’s Climate Risk Summit?
The use of the law to address the risk of climate change – specifically the duties of companies, directors, investors to manage climate change risk; and how citizens need to use the law, ‘taking the law into their own hands’, through use of litigation and other legal actions when governments and companies are not following the law. The unique role of citizen legal activists will be a main point.
What’s the one thought you would like attendees to take away with them from the Climate Risk Summit?
Your business needs to be ready to respond to a warming world, and plan to be part of keeping catastrophic climate change at bay.
You need to be truthful with your investors and stakeholders about this. Legal consequences will follow if you are not aware, and not acting. And you will be judged against evolving standards – what are other companies/trustees/insurers doing? What evidence has come out that undermines your complacency?
What are the biggest risks facing businesses when it comes to facing/dealing with climate change?
The risks of dealing with climate change and all that comes with it pale in comparison to what will happen if you don’t. It’s quite simple. Your company, even if temporarily fruitful, will founder. The economy at large will stumble. And you will get sued.
Because of our lack of ability to predict exactly what climate change is going to change, and at what point, business leaders are hesitant to make projections, and changes. In fact, many seem to think it’s a ‘damned if you do, damned if you don’t’ situation – ‘but what if I get it wrong?’ But this isn’t the case. If you report in line with a solid, internationally approved standard – like the TCFD – this is currently your best insurance policy against legal action.
If you fail to, it’s not just you that’s at risk – you are passing those risks onto your investors and savers. A huge example that we may end up seeing relatively quickly is pension savers.
Companies and financial actors ignoring climate risk are acting against everyone’s interests, including their own.