Category: Climate insurance · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-10
Liability climate risk is the third TCFD climate risk category and describes the financial exposure of companies, directors and professional advisers to legal claims arising from contribution to climate change, failure to adapt, or failure to disclose climate-related information adequately. In the UK market it is principally underwritten through directors’ and officers’ (D&O), professional indemnity (PI) and environmental impairment liability (EIL) policies.
Category: Climate insurance Also known as: Climate liability risk; Climate-related liability; Climate litigation risk Established / Date: Concept formalised in TCFD Final Recommendations, June 2017 Related concepts: Climate change insurance, Transition risk insurance, TCFD
Liability climate risk encompasses claims brought by shareholders, regulators, customers, employees, NGOs and government bodies against companies and their officers in connection with climate change. The TCFD identifies three sub-streams: failure to mitigate (claims that the defendant’s emissions or activities contributed to climate change), failure to adapt (claims that the defendant failed to protect assets, employees or counterparties from foreseeable climate impacts) and failure to disclose (claims that climate-related risks were misstated or omitted).[1]
In the UK, liability climate risk crystallises through derivative claims under s.260-264 Companies Act 2006, securities claims under s.90 and s.90A Financial Services and Markets Act 2000, judicial review of public authorities, and tort claims in nuisance and negligence. The Climate Change Act 2008 and the Net Zero Strategy (October 2021, revised 2023) provide statutory backdrops.
Liability climate risk is the slowest of the three TCFD categories to crystallise in measurable insurance losses but is regarded by the PRA and Lloyd’s as the most uncertain in long-tail impact.
UK directors owe statutory duties under s.172 Companies Act 2006 to promote the success of the company, having regard to the impact of operations on the environment. Failure to identify and manage material climate risk can engage this duty. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31), in force for periods beginning on or after 6 April 2022, inserted s.414CB(A1) requiring TCFD-aligned disclosure by large companies and LLPs.[2]
Listing Rule LR 9.8.6R(8) requires premium-listed issuers to publish a “comply or explain” statement against TCFD recommendations under FCA PS20/17 (December 2020), extended to standard listed issuers by PS21/23 (December 2021).[3] FCA Handbook ESG 4 requires asset managers to disclose at entity and product level. IFRS S2 (June 2023, effective 1 January 2024) requires connected, audit-grade climate disclosures.[4]
UK D&O insurers price liability climate risk through the underwriting submission, requesting evidence of board climate governance, scenario analysis, transition plans and TCFD-aligned disclosure. Side A capacity is generally preserved, but ABC towers may carry climate-related sub-limits or, in some hardening segments, narrowed pollution wording. PI insurers underwriting advisers (auditors, actuaries, lawyers, ESG consultants) increasingly request methodologies and reliance frameworks for any sustainability assurance work.
Environmental impairment liability policies remain the principal vehicle for sudden and gradual pollution incidents, including those exacerbated by climate. Greenwashing risk — claims that sustainability or net-zero statements were misleading — is generally covered under D&O for individuals but may be excluded under entity cover. Lloyd’s syndicates have published market bulletins reinforcing the need for clear wording on emissions-related claims.
UK businesses face liability climate risk regardless of sector. Listed parents and large private groups subject to s.414CB must ensure board minutes evidence engagement with the climate-related disclosures. Pension trustees regulated under the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (SI 2021/839) carry separate fiduciary exposure addressed by trustee liability cover. SMEs in supply chains face contractual exposure where customers cascade climate commitments downwards.
Brokers should review D&O, PI and EIL renewal wordings for climate-specific exclusions, ensure entity emissions and disclosure data is consistent with regulatory filings, and consider standalone greenwashing or net-zero plan endorsements where market capacity allows.
A UK-listed retailer publishes a “carbon neutral by 2030” claim later challenged by the Competition and Markets Authority under the Green Claims Code (September 2021). Shareholders bring a s.90A FSMA claim alleging misleading transition statements in the annual report. The D&O insurer responds for the individual directors’ defence costs and a portion of the entity securities entitlement, subject to an aggregate sub-limit for climate-related disclosure claims negotiated at renewal. The strategic report disclosure under s.414CB and the IFRS S2 transition plan disclosure form the central documentary evidence.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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