Insurers and courts – coming for a board near you  

“Weather attribution science”. It’s a bit of a mouthful but pay some attention to it as it could do more to shape corporate governance in the next decade than any code or piece of legislation.

Apparently, there have been “extraordinary advances” in the science of weather attribution in recent years. To the extent that courts are now able to allocate reasonably specific damages to carbon emitters in the event of a particularly destructive weather event. At least that’s what Rome-based corporate lawyer and ESG expert Clara Cibrario Assereto reckons.

In a recent paper on the ECGI blog, Asserto explained the maths involved by reference to a 2023 flood in Italy. The flood caused €9bn in damages and resulted in claims against one of Germany’s largest energy companies – RWE.

“Conservative attribution methodology assigns 30% (€2.7bn) to anthropogenic warming; RWE’s historical share of global emissions is 0.47% making it responsible for €12.7m from that event alone; across the top 20 emitters, aggregate exposure comes close to €1bn.”

An identifiable set of defendants

As Assereto puts it, the application of weather attribution means “every major climate disaster becomes a replicable claim against an identifiable set of defendants.”

In other words, the science of weather attribution aims to hold companies accountable for their part in global pollution. In so doing, it hopes to ensure companies and their shareholders no longer benefit from polluting the atmosphere that belongs to all of humanity.

And – this should send shivers through the Sasol board – regulatory compliance will provide no immunity. In future, being able to bend the government’s regulatory arm, as Sasol has done for decades, will be of no use.

“What matters is not the unlawfulness of the conduct, but the injustice of the outcome. Energy producers like RWE (or Sasol) should have known of the consequences of their emissions since the mid-1960s,” writes Assereto.

Rather like tobacco and asbestos companies can no longer defend themselves by claiming they were compliant with the law.

In future, powerful multinationals headquartered in the US or Europe may not be able to walk away from the environmental damage wreaked by their subsidiaries dotted across the globe.

Not-so-futuristic

This may all sound pointlessly futuristic to South Africans who tend to regard environmentalists as a disaffected fringe group but, based on cases currently being filed in Germany, Switzerland, the UK and Italy, Assereto is confident emission claims will be coming to a jurisdiction near you in the not-too-distant future.

Unsurprisingly, if you think about it for any length of time, insurance companies are expected to play a major role in pushing these legal claims and thus forcing businesses to take responsibility for the damage caused by their emissions. And that is entirely down to the fact that governments and citizens across the globe, including the supposedly wealthy ‘developed’ states, don’t have the sort of money needed to patch up the consequences of the damage wreaked on the environment.

In addition, governments and citizens tend not to have the capacity to persuade corporates to do the right thing by dragging them through complicated court battles. But large insurance institutions do.

And it’s not just environmental issues that are expected to end up in court. In a second ECGI blog paper, lawyers and ESG experts Roy Shapira, Asaf Eckstein and Ariel Shillo argue that legal action rather than laws and compliance codes will likely end up prioritising the growing compliance burden facing corporate boards and their directors.

As the authors point out, there’s been a dramatic increase in board responsibilities over the past 30 or so years. Firstly, because of government-originated compliance demands, which were an attempt to compensate for the fact that regulators didn’t actually have the capacity to enforce their regulations.

So, boards were exhorted to comply with a flurry of principles. And for a few years it seemed boards were playing ball. Then came the growing realization that much of the compliance was in the form of box-ticking; there were enormous gaps in substantial adherence.

The ESG boom

Governments tried to up the ante. Directors were increasingly required to vouch for the board’s adherence to regulations and principles. The belief was that if the directors vouched for compliance efforts there was a greater chance of companies truly buying in.

And it wasn’t just governments imposing demands on companies. As the three authors point out, a “booming ESG movement” was also pushing environmental and social issues to the top of the board agenda.

As Shapira, Eckstein and Shillo note, “boards in 2026 face many more items that “must” be on the agenda relative to their predecessors in say 1996. Yet the capacity of boards has not grown correspondingly.”

So, how should directors prioritise a growing list of demands? The three authors believe the most likely way will be through the courts as different stakeholders use the law to press their claims. This will be a welcome development according to Shapira, Eckstein and Shillo.

“Unlike regulators, who demand that boards dedicate agenda slots to specific issues before a compliance violation, courts assess boards’ decisions to allocate agenda slots after the fact.”

The legal approach, say the authors, is preferable as it allows for more flexibililty. The courts evaluate what the boards have priorirised against the backdrop of a specific company’s context and tradeoffs rather than on strict adherence to a one-size-fits-all compliance requirement.

Ultimately, it seems the corporate governance industry and their legal advisers are going to be kept extremely busy into the forseeable future.

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