Key takeaways of the study include:
- Liability risks can alter the breadth, and temporal materiality, of associated physical risks for any given borrower, book, portfolio or system.
- Liability risks can act as a mechanism to transmit climate-related risks and direct costs from individual market actors, with secondary impacts at portfolio (sectoral) levels and, potentially, tertiary impacts on financial systems.
- Legal action can reduce barriers to the deployment of adaptation finance at the necessary scale.
- The magnitude of climate liability risk will vary significantly across borrowers, books, portfolios, institutions and financial systems. Robust risk assessment and development of pricing models remain a complex future task, requiring collaboration between lawyers, sustainability and risk professionals. A work program to develop a framework of threshold risk materiality indicators is suggested as a priority next step.