Climate change litigation increase predicted

By Resolve Editor Kate Tilley

New Zealand, like Australia, will see an increase in liability claims for climate change, particularly against corporates that are large greenhouse gas emitters.

That’s the prediction from Helen Smith, partner and insurance practice lead at Simpson Grierson.

She was a panellist for an NZILA webinar on climate change and environmental liability with Dr Andrew Tait, chief scientist, climate atmosphere and hazards at the National Institute of Water and Atmospheric Research (NIWA); and Martin Stroud, national liability manager at NZI.

Ms Smith said nations must understand climate change and do something about it before liability exposures force their hand. “The focus so far has been on what insurers are doing, but we must refocus because it’s not just an insurers’ problem, the responsibility is broader,” she said.

A United Nations report showed a rising number of international claims, mostly in the US, but Australia had the second highest volume of climate change litigation claims globally.

Litigation a weapon

Ms Smith said claims would definitely increase in NZ but she was unsure how high they would be or how swiftly that would occur.

Litigation was being used as:

• a weapon by climate activists
• a recovery mechanism by organisations or individuals out of pocket after an event who wanted to take action against those they perceived contributed to the event, and
• as an enforcement tool, with an increasing focus from regulators.

Litigation stemmed from failures to:

• mitigate against climate change impacts
• adapt or plan for climate change, and
• disclose climate change risks or comply with governance and regulatory requirements.

The latter included mounting claims of greenwashing. The Australian Securities & Investments Commission had made greenwashing actions a priority and NZ was likely to follow suit.

Ms Smith said NZ’s first greenwashing claim was filed in 2023. In Consumer NZ Inc v Z Energy, the complaint detailed claims Z Energy had made that it was taking action to reduce its greenhouse gas emissions. The complainants argued Z Energy’s statements did not align with its actual policies and actions.

Glaciers melting

NIWA’s Dr Tait said climate change was “not the future, it’s now”. Average temperatures in NZ were up 1deg C since 1909; NZ’s Southern Alps glaciers had lost 35% of ice volumes since 1978; and there had been a 20cm sea-level rise since 1990, which was consistent with global rises.

Dr Tait said marine heat waves were now more common, the oceans around NZ were more acidic because they absorbed more carbon dioxide from the air, and record or near-record high temperatures were set “almost every month”.

He said unless greenhouse gas emissions were abated at least in accordance with the Paris Accord, temperatures could be 3deg C or more higher than they are currently, which could have “dire consequences” by 2090.

“Countries around the world will decarbonise, but how fast or slow and by how much is uncertain so a range of global emission scenarios have to be considered.”

Scientists developed varied scenarios but had to consider the risks of mid and high-level options. For example, if mid-range scenarios occurred, Wellington could have 10 additional “hot” days annually but with high-range predictions that would increase to 25-30 days.

Power generation

Dr Tait said winters will be wetter, particularly in the west of the North and South Islands. Warmer air holds more moisture, so heavy rainfall totals will be higher everywhere.

Almost counterintuitively, there will be more droughts as temperatures rise because of increased evapotranspiration from the soil, and they will last longer.

Dr Tait said with lake and river levels being consistently lower in summer, there will be issues for water storage and hydro electricity generation.

Sea levels rise because warming water expands in volume and NZ has many communities, infrastructure and natural habitats in coastal locations. Melting ice from glaciers will also increase water volumes.

Dr Tait said the snow line will get higher and, as oceans became warmer and more acidic, ocean nutrients will decrease, impacting on agricultural and fishing industries.

“We must use every mechanism we have to reduce climate-related vulnerability and increase resilience,” he said.

Modelling under strain

NZI’s Martin Stroud told the webinar risk-based rating enabled insurers to consider the impact of factors like changes in land use and water courses, the desirability of land with water views, changes in housing density, increasing home values, and ageing infrastructure.

The frequency and severity of weather-related events was putting insurers’ modelling “under enormous strain”.

Climate change was altering the historic view that a non-correlation of risk enabled insurers to balance their portfolios.

Reinsurance was a massive cost, with IAG purchasing NZ$10.5 billion for catastrophe reinsurance and Suncorp NZ$6.4 billion.

Mr Stroud said by 2050, two thirds of humanity would live in cities and the infrastructure was insufficient to support that.

Insurance affordability was a big issue. For example, insurers were pulling out of Florida, which saw premium rates rise. “Some people are fleeing Florida because they can’t afford to insure; the same is happening with Californian fire risks. It’s changing at an extremely fast pace.”

Mr Stroud said managing tomorrow’s risks was not just an issue for insurers. Councils had to consider land use and zoning; banks were imposing lending criteria for high-risk locations; and governments had to consider building codes, managed retreats and mitigation.

“We need a consensus plan to go forward. Will insurance always be available? In the short term yes but premiums will reflect true exposures.”

Mr Stroud said all parties needed to work together. If insurers decided not to insure construction in risky areas and banks refused to lend the funds, “it won’t happen”.