The Cost of Inaction 2024

Tipping points in public opinion shifts are difficult to predict. You need to anticipate future trends, or you might be late and forced to catch up under pressure. Pascal Soriot, Chief Executive Officer, AstraZeneca Litigation risks BOX 1 Litigation and reputational risks are becoming increasingly significant. Class action lawsuits seeking compensation for escalating climate impacts, including a failure to manage relevant physical or economic risks, are becoming more likely. “Superfund laws”, which legislate responsibility for the cost of climate adaptation onto large emitters, are being enacted in certain US states. Additionally, companies with climate targets face reputational and legal risks if they fail to meet their commitments. “For diligent and well-advised companies, the perceived legal risks of missing climate targets often exceed the reality. In many jurisdictions, liability depends on whether there were reasonable grounds for the targets at the time they were set. Businesses must develop transparent roadmaps that clearly outline areas of uncertainty, dependency and known implementation gaps and credibly pursue their targets,” says Sarah Barker, Managing Director, Pollination Law. Anti-adaptation litigation is also becoming a key legal risk. Companies are increasingly being held liable for failing to address physical climate risks. In a 2021 report, the United Nations Environment Programme (UNEP) Financial Initiative highlighted how legal action can drive better climate adaptation, with lawsuits serving both as a consequence and catalyst for action. For example, McVeigh v. REST set a precedent for fiduciary responsibility by holding an Australian pension fund accountable for not managing and disclosing the climate risks, including physical climate risks, to its investments.39 Whether transition risks are increasing is uncertain, but it still seems prudent to assume they are Ambitious national targets present tough choices and regulations are often contentious. They can also be non-linear when different political parties fail to agree on the need for ambitious climate action. The US pulling out of the Paris Agreement was a very visible example of this and Trump’s re-election will likely result in more climate headwinds. Beyond the US, Australia repealed and later reintroduced carbon pricing under its Safeguard Mechanism in 2016.38 The EU pushed forward with a very ambitious regulation agenda, but now key policies face delays and resistance from incumbents. In the corporate world, some businesses, including four major banks, have recently withdrawn from climate initiatives such as SBTi (Science Based Targets initiative). However, we still live in a world where current national targets are insufficient to achieve a 2°C path, let alone a well-below 2°C path, and today’s policies are insufficient for meeting even those targets. Making the assumption that global progress will stagnate or slow down is equivalent to assuming that humanity will not even try to address its most existential threat, despite all the enormous impacts already described. From a sound management perspective, therefore, it seems prudent to assume that global progress will accelerate. Shifts in public sentiment could also drive more rapid progress on climate policy. Demand for action may be triggered by a series of catastrophic heatwaves or deadly floods, or from new data revealing significantly greater short-term risk from, for example, the slowing of the Atlantic Meridional Overturning Circulation (AMOC), or more specifically from a massive US class action lawsuit against the fossil fuel industry from homeowners facing damage due to storms and floods. 25 The Cost of Inaction: A CEO Guide to Navigating Climate Risk