Skip to main content
Article

Climate liability: A deep dive into disclosure and greenwashing

Risk Management Consulting
Climate Risk and Resilience

September 13, 2021

On a recent roundtable hosted in collaboration with MinterEllison we explored climate liability risk. This article looks in detail at climate disclosure and greenwashing.

Willis Towers Watson recently hosted a roundtable in collaboration with Airmic and MinterEllison exploring climate liability risk. Attendees took part in group discussions on some of the key issues around businesses managing these risks. We summarise the experiences and opinions of participants:

Greenwashing is once again in the news. Greta Thunberg has accused clothing manufacturers of greenwashing their advertising while being ‘a huge contributor to climate change’ worldwide1. In our roundtable, we explored this key driver of climate-related liability exposure: misleading disclosure in annual reporting and greenwashing in advertising and corporate policies and publications.

Questions raised

Organisations are starting to identify and assess the financial implications of climate related financial risks, now they face questions on what to do with that information, we considered:

  • What should management and the board disclose?
  • What processes should they undertake today?
  • What are the pitfalls to be avoided?

Challenges

Understanding what your organisation needs to be reporting is a grey area. What and how much do you disclose? Climate change is forward looking and there is a nervousness among boards when signing off disclosures. Because of this, there is an additional level of rigour and proof from management beyond what they would usually require in strategic reports.

There is also a fear of misguiding and misrepresenting or of disclosing too much and concern over self-certification on accountability and responsibilities and how it might impact against an action at a later date.

What are current disclosure expectations/obligations and how far do you disclose?

Organisations tend to only disclose the required minimum so as not to expose their balance sheet. As the insurance industry shifts, organisations are starting to declare enough to be responsible but not too much that they jeopardise their future.

When deciding how much to disclose, organisations can use benchmarking as a barometer. By extracting 90 indicators and looking at public disclosures organisations can understand what their competitors are doing.

Organisations must devise a plan for transition. In doing so, they’ll be able to identify any challenges ahead, and can then revise the plan, taking these challenges into account.

To do this, organisations will need to be honest about where they are and what they are doing with regards to climate change. By using robust and scientific foundations, you’ll be able to create a roadmap that illustrates your transition.

The risk of greenwashing

If an organisation overpromises and can’t fulfil its obligations, it can be sued for being misleading or misrepresenting the truth. It’s best to be realistic and honest about what your organisation is doing, as accusations of greenwashing can have far reaching repercussions including legal costs, fines, and reputational damage.

If an organisation wants to disclose more than the minimum obligations, they will need to ensure they understand exactly what it is they’re disclosing and why.

Becoming the greener future

As targets and legislation come into play, risk departments have a lot of work to do to manage the risks involved with meeting them. The expectations on organisations are increasing rapidly, but the skills aren’t in place to meet them, therefore, recruitment and investment will be needed.

However, investor expectations are rising just as quickly, as they look to invest in forward-looking, green organisations that are meeting or exceeding expectations.

Organisations must understand these expectations in granular detail so they can begin to address them. By showing commitment, they’ll be more likely to recruit people with the skills they need and attract investors’ attention.

For further insight into climate liability risk, read our climate liability whitepaper.

Footnote

1 https://www.bbc.co.uk/news/world-europe-58145465

Related content tags, list of links Article Risk Management Consulting Climate Change

Related Capabilities

Contact Us