Issue 1 Q1 2025
FEATURING
Geopolitical strategist Tina Fordham’s outlook for 2025
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INTRODUCTION It is a great pleasure to introduce the first edition of Risk Quarterly, a publication designed to provide insights on the ever-changing risk landscape and its implications for business. Risk Quarterly draws on our annual Corporate risk radar report to bring thinking from Clyde & Co lawyers around the world on the risk areas we know are top of mind for c-suite, in house legal and claims departments. We will also have contributions from guest authors, with whom we work closely, in each edition, and in this we include an analysis of geopolitical risk from Tina Fordham, a renowned geopolitical strategist and founder of Fordham Global Foresight. Tina’s article explores the implications of recent global developments and what they mean for global businesses in the year ahead. At Clyde & Co we believe that nobody handles risk like we do. With Risk Quarterly we hope to bring to life the expertise we have managing emerging risk and handling new commercial complexities borne out of nearly a century operating at the heart of global commerce. We hope you find real value in exploring the risk landscape with us each quarter. If there are topics or themes you would like to see covered in future editions, please let us know at riskquarterly@clydeco.com.
Carolena Gordon Global Senior Partner and Chair of global management board, Montreal
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The role of companies in shaping Africa’s sustainability and climate resilience
Amalia Lui
ESG challenges in emerging markets
Cross-border remote work Growth area to continue watching
Heidi Watson, Guest: Chris Anderson
William Ferris, Lucia Williams
COP29 – Review of outcomes and the road to COP30
Around the world in 90 minutes Recent corporate and regulatory developments.
Eva-Maria Barbosa, Nicole Britton, Peter Hodgins, Andrew Lucas, Joyce Ma, Marc Voses
A global snapshot The regulatory exposure landscape for professional firms
James Roberts
The realities and risks for professional services
Steven Bird
Understanding AI regulations
Vyasna Mahadevey, Lucy Nash Guest: Rebecca Keating
Cyber threats in the aviation industry
Rosehana Amin, Aron Dindol, Danielle Rodgers, Tom van der Wijngaart
Cyber threat and geopolitical risk
Ian Birdsey, Helen Bourne, Danielle Rodgers, Shanaka Wijetunge
Flight path: The ‘No Russia’ clause
Aron Dindol, Anna Falk, Nicholas Harding, Kirstin MacDougall
Indigenous rights
Neil Beresford, Miguel Lozano salazar
Is the UK becoming a hellhole jurisdiction for insurers?
Neil Beresford, Melissa Gardner, Natasha Lioubimova
Emerging risks
Corporate risk radar
New horizons–Business risks to monitor (and mitigate) in 2025
Eva-Maria Barbosa, Rebecca Kelly, Ben Knowles
Finding opportunity in risk
Eva-Maria Barbosa, Roshanak Bassiri Gharb, Ton van den Bosch
In this issue...
This content was first published between October 2024 and January 2025 and reflects the information available at the time.
Introduction by Carolena Gordon Global Senior Partner and Chair of global management board
geopolitical outlook: Chaos theory
D
onald Trump’s return to the White House has sent shockwaves around the world. After a period of post-election market and
business optimism amid expectations of the revival of “animal spirits”, tax cuts and de-regulation, the new administration’s flurry of Executive Orders, threats of trade tariffs against allies and neighbours as well as adversaries, and a series of unexpected announcements ranging from eliminating the US humanitarian aid agency to making Canada the “51st state”1, ‘taking’ Greenland2 and re-locating Palestinians3 from Gaza have highlighted the extent to which Trump 2.0 marks the beginning of a distinctly new era in politics and in business, with global implications.
Tina Fordham is on a mission to transform how the C-Suite, multinationals, and institutional investors think about geopolitics and social change. A trailblazer in the field of geopolitical risk, Fordham was Wall Street’s original Chief Global Political Analyst, spending 17 years at Citigroup. She created Eurasia Group’s financial markets research business, was appointed to the United Nations’ first High-Level panel on Women’s Economic Empowerment, and has served as a Senior Advisor to the UK prime minister and 3-star generals during her 25-year executive career. Tina founded Fordham Global Foresight in the weeks after Russia’s invasion of Ukraine in 2022 after realising that boards and C-Suite leaders were under-prepared for the new era of geopolitical dislocation. Her clients and readers of her column for Forbes are familiar with her signature thesis on The New Geopolitical Risk Supercycle and the concept that business leaders need to raise their PQ (Political Quotient) to be prepared for the challenges and opportunities ahead. Tina is a member of the International Advisory Board for the Columbia University School of International and Public Affairs, her alma mater, and of Concordia’s Advisory Council. She frequently appears on Bloomberg, CNBC, CNN and Monocle Radio, and hosts The Navigator, a global affairs video series produced in collaboration with the London Stock Exchange Group. Tina has been named the FN100’s Most influential Women in European Finance 5 times, most recently in 2024.
Expectations for Trump 2.0 diverge markedly between constituencies, like a strange case of parallel universes. For market participants, the focus is on the positive jolt to the economy expected by extending tax cuts and the anticipation of reducing the US regulatory burden. For political analysts, concerns about the risk of the erosion of checks and balances, respect for rule of law, and the independence of institutions takes centre stage. Many US voters hope for quick improvements in the cost of living and reversing illegal immigration. For some, it’s about whether Trump will reverse the Tik Tok ban (having initially supported it). It is as if we are living in a ‘choose your own ending’, but for the second Trump era. For the legal industry, the dismantling of the US-led, post-War global system presages an extended period of unravelling and re-consolidation along new, as-yet-to-be determined, lines. How can business leaders mentally prepare for a likely range of possible scenarios and outcomes in the next four years? Raising your “PQ”–Political Quotient–will help. This means mentally preparing for, and stress-testing, a wider range of plausible outcomes, beyond the standard delineation of base case and tail risk. Our advice is to be mindful of the constraints that any US president faces; in this case, the Republican’s razor-thin Congressional majority and the likelihood of pushback in many cases from the courts, and popular opinion. Indeed, the US Constitution was designed to limit the power of any one branch of government, including the Executive. Although Trump’s win was decisive, it was by a relatively small margin–not a landslide.
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Global conflict will also play a major role in the 2025 Outlook, with peace negotiations in the Middle East and between Russia and Ukraine considerably more promising than last year, but still likely to follow a slow trajectory, and diverting attention away from other matters. Having previously said that he would end the Ukraine war “on Day 1”, the timeline has now been extended, and the administration has passed additional sanctions on Russia. The potential for heightened tensions with Iran–so called ‘Maximum Pressure’ –has increased since Israel’s Gaza offensive and the marginalisation of Iranian proxies, while the sudden collapse of the Assad regime in Syria has left a power vacuum at the heart of the Middle East. These challenges pose serious threats to global stability and may become more urgent if left unresolved. Trump’s suggestion that Gaza Palestinians could be relocated to Egypt and Jordan has not been welcomed by their governments; it would not be surprising if this proposal was followed by threats to revoke US aid. Issues like the political backlash to the ESG and DE&I agendas (at the state level, at least) and greater tensions over energy security underscore the broader challenges related to addressing the climate change and equality agendas. This may prompt a sigh of relief from the C-Suite but may not make the challenges faced by senior leaders with maintaining cohesion with cross-generational teams any easier. The quiet part has now been said out loud, at least in the US, and the ensuing “vibe shift” feels in many ways a more outsized change in trend than the actual policy pronouncements. The conversations at Davos 2025 likely reinforced this, with an official embrace of the challenges of AI in the gathering’s title (Collaboration for the Intelligent Age) and the likes of activists such as Greta Thunberg very much on the sidelines–or not present. The fallout from Trump’s inauguration has set the tone for a hectic year, but even fast-paced change will bring a combination of unintended consequences, silver linings, and, most importantly, opportunities to be seized during global change and transformation. Not all of it will be directed by Washington, and unexpected “wild cards” are guaranteed. Perhaps one of the biggest questions is whether the gains that Trump hopes to realise will be zero-sum, benefitting the US to the detriment of other nations. On this topic, the consensus among economists is far from settled.
The Trump administration is clearly signalling that it intends to throw out the playbook that has governed the US role in the world since the post-War era. This will not happen in an orderly fashion and takes us into entirely uncharted territory. The idea of taking Donald Trump ‘seriously but not literally’ has been invalidated by the developments of the past week. Even so, he will not be able to execute everything on his wish list–and the rest of the world will react. Assessing the new power dynamics will be crucial for business strategy and will be guided by geopolitics more than commercial considerations. Given that Trump ran on a platform defined by his intention to disrupt the status quo, with the objective of “Making America Great Again”, perhaps no one should be surprised. As Trump begins his second, non-consecutive term as US president, he has already accomplished something rare in electoral democracies: his popularity has risen compared to when he left office in 2020. According to You Gov,4 60% of Americans are “optimistic” about the next four years with Trump as president. Having said that, Americans are less supportive of his administration’s recently announced policies, such as tariffs on Canada and renaming the Gulf of Mexico the “Gulf of America”. The optimism of the US public as Trump begins his second term contrasts with the concerns expressed by America’s traditional allies, whose views, according to survey data by the EFCR (Figure 1), suggest a considerable degree of trepidation. The survey also highlights the extent to which many citizens of BRICs nations–including adversaries like China and Russia–think that Trump’s election will be “a good thing” for their country.
Geopolitical strategist and founder, Fordham Global Foresight prepared for Clyde & Co
By Tina Fordham
According to You Gov, 60% of Americans are ‘optimistic’ about the next four years with Trump as president
The narrow Republican Congressional majority explains in part why Trump has issued so many Executive Orders–more than 40 at last count, suggesting a lack of confidence that they would be supported by Congress. Indeed, many are already encountering court challenges, while Democrats and civil society did manage to reverse the announcement from the Office of Management and Budget (OMB)5 that it would “temporarily pause” federal grants, loans and assistance programmes to “ensure they are aligned with the President’s priorities”. Elon Musk’s move to close6 down US AID has also encountered some pushback from Secretary of State Marco Rubio, underscoring internal tensions between Trump personnel. Two key casualties of the disarray will be predictability in the market and business environment, and the sense of the US as a reliable business partner. The main beneficiary of the latter would be China. The fact that Midterm elections are only two years away also accounts for the drive from the White House to make change fast. History shows that the incumbent party usually experiences significant losses. The courts will push back on many of Trump’s more dramatic executive orders, such as mass deportations and the “war on woke”, likely leading to long periods of limbo. There will also be divisions within the Trump coalition–already emerging between the MAGA wing and the tech-right–as is the case with any multi-factor coalition, especially one with “revolutionary” orientation (hence the old saying “the revolution eats its own”, attributed to the French Revolution).
Trumponomics: The Sequel One of the greatest sources of domestic support for Trump is the expectation that his policies will unleash the “animal spirits” of financial markets and boost US growth, occasionally punctuated by worries that said policies may also re-ignite inflation. The appointment of Scott Bessent as US Treasury Secretary largely quelled pre-inauguration market jitters, and little has been said recently on the topic of US Fed independence. Nevertheless, we think markets may be too sanguine about the risk of the inflationary impact of the Trump agenda and are underestimating his resolve, bearing in mind the aforementioned institutional constraints. We have identified five key areas of economic policy uncertainty to monitor while Trump makes himself at home in the West Wing once more, according to our Senior Advisor for Geo-Economics & Markets, Ebrahim Rahbari:
1
2
3
4
5
Overestimating upside potential can always worsen downside risk, and we caution that overenthusiasm for Bessent could trigger a rude awakening should he leave the post prematurely. It is worth remembering that senior turnover was very high in Trump’s first term (though Treasury Secretary Mnuchin lasted the whole period), Bessent has not worked closely with Trump before, and is understood to be slightly less hawkish on tariffs, putting him at odds with Trump’s initial campaign pledges, and several key economic confidantes, like Peter Navarro, Howard Lutnick, or Larry Kudlow.
Trump’s remarks about Greenland, Canada and the Panama Canal have their roots in the 19th century Monroe Doctrine... After winning the 2024 election, a new set of policy pronouncements emerged from the Trump team, not mentioned on the campaign trail and rattling US allies. These included suggesting Canada could become America’s 51st state, re-naming the Gulf of Mexico the “Gulf of America”, “taking back” the Panama Canal, and annexing Greenland8. As surprising as this may seem, the roots of some of these ideas can be found in American history. The Monroe Doctrine9 was drafted amid opposition from the fifth President of the United States to European colonialism, ultimately becoming the centrepiece of US 20th Century grand strategy. It was later reinterpreted by presidents Roosevelt, Kennedy, and Reagan, and more recently revived by Trump. A policy initially designed to assert US influence in the Americas and to prevent Latin American nations from European recolonisation became a pretext for US hegemony across the Western Hemisphere. Barack Obama sought a re-branded version of US hegemony, stating that “We must lead the world”. Also making a comeback may be the notion of Manifest Destiny10, the ideological framework for westward expansion that resulted in the annexation of Texas, Oregon, and later Alaska. The Greenland discussion initially emerged during Trump’s first term11, while the Panama Canal remarks likely reflect that China has become increasingly linked to the Panama canal’s infrastructure12 with influence over ports and cruise terminals, alarming Washington given its importance as a shipping route. We regard it as highly unlikely that military force would be invoked in pursuit of these claims, even though Trump has pointedly declined to rule it out. Instead, this rhetoric underscores a shift back to the notion of “spheres of influence” that are reminiscent of the Cold War era. Although a popular refrain in commentary, it is not our view that the US has entered a new Cold War, neither with China, nor Russia. But elements of the 19th century “Great Game” appear to be making a comeback, with the pursuit of rare earth minerals and the control of geo-strategic zones like the Arctic taking the place of counterparts from 200 years ago, bearing significant implications for Taiwan and contested territories around the world. More narrowly, the discussion over Greenland, an autonomous territory administered by Denmark (a founding NATO member) somewhat shifted the EU’s agenda for the February 3rd summit, which covered how the bloc might contend with the myriad challenges presented by Trump’s tariff threats, demands for increased military spending, and the coming “squeeze” over China, with growth-challenged Europe (including the UK) likely to struggle to with US insistence on reducing trade volumes. Among the implications will be less oxygen for the UK-EU reset (read our note here13) that UK Prime Minister Keir Starmer had hoped to pursue during the summit meeting.
German Elections: Political Signpost of the Year After the flurry of elections that took place in 2024, 2025 features a much slower pace of political contests. We have highlighted German Elections as our political signpost of the year. The spotlight on Germany’s early elections on February 23 has grown more intense amid concerns about Europe’s economic and political prospects in the face of US tariffs, combined with security challenges posed by Russia. Who next leads Germany bears outsized importance in the direction of the EU as a whole. Despite the well-documented headwinds, we are constructive about the future political outcome in Germany, including the likelihood of an improved policy trajectory under a new centre-right-led government, and the potential for loosening fiscal policy, such as the debt brake. A centre-right CDU-led government under Friedrich Merz would be relatively market-friendly and beneficial for EU cohesion on several challenges, offering a welcome contrast to the cautious approach of Scholz’s centre-left SPD government. To this extent, broader concerns about European political risks may be overstated. In fact, we see the potential for “silver linings” to emerge, partly due to Trump-induced pressures acting as a forcing mechanism.
Germany’s next government is likely to be led by the centre-right CDU/CSU, with a mandate for reform and moderate fiscal easing. Germany’s rigidities and fiscal buffers cap its downside in the near term. Selective new opportunities are emerging, such as pan-European defence integration. While the path to recovery may be slow, Germany has historically demonstrated resilience and capacity for reform under economic pressure, as seen with the Agenda 2010 reforms of the early 2000s.
A new political outcome in Germany will take some time before it bears policy fruit. Coalition negotiations typically take months and could well delay government formation until mid-2025. During this time, economic challenges may worsen, with rising job losses and leading indicators pointing to further declines. President Trump’s likely announcement of additional tariffs on EU imports could disproportionately target Germany due to its large bilateral trade surplus with the US. Additionally, fiscal policy is set to tighten slightly by default in the absence of an agreed budget, and the new government may adopt a hawkish stance on China, further complicating economic prospects. Nonetheless, the CDU’s promises of modest fiscal stimulus, public investment increases, and some deregulations offer hope for a gradual recovery. The performance of the far-right AfD (currently running in second place in the polls but not expected to enter a new government coalition) could upset the likely political landscape, with momentum fuelled by familiar grievances: dissatisfaction with the government, mainstream parties, and immigration policies. Although the rise of the populist right remains a significant cause for concern in Europe, the AfD’s direct influence on German policy remains limited for now. Concerns over its extremist inclinations and a perceived lack of credible leadership serve to cap the AfD’s support, with all mainstream parties refusing to cooperate with them. Still, three risks are worth monitoring: Trump follows Musk in full support of the AfD. Musk’s activity on X, like proclaiming “only the AfD can save Germany”14 and hosting a livestream15 with chancellor candidate Alice Weidel, is unlikely to shift mainstream German sentiment, but could have unintended consequences like the tightening of the EU’s Digital Services Act. The AfD’s revival of “Dexit” rhetoric, historically damaging to its support, could stir short-term scepticism toward deeper EU integration. Failure by the next German government to stabilise the economy and improve the national mood could empower the AfD in future elections, echoing trends seen in France, the Netherlands, and Austria.
Key Risk: The Russia-Ukraine Conflict and Grey Zone Ops A potential bright spot for 2025 is the likelihood that diplomatic talks will finally begin between Russia and Ukraine, three years after the conflict began. Trump’s initial remarks on the campaign trail that he would end the conflict on “Day 1” have since been postponed, reflecting the gravity of the challenges ahead. Trump has indicated he would telephone Putin within days of taking office, but the Russian President has proven less cooperative than anticipated, leading to threats from Trump to increase Russia sanctions and negotiate with OPEC to lower oil prices, as ways to create leverage. He has also had several conversations with Ukrainian president Zelensky, including some reassurances of continued support for Kyiv. Although Trump’s patience when it comes to diplomacy has not been evidenced much, his nominee for Special Envoy to Ukraine and Russia, Keith Kellogg, a former member of the National Security Council, has published some indications of where the direction in policy could lie, including the notion that any discussion of Ukraine joining NATO be postponed by as long as 19 years. The parameters and sticking points to a resolution of the conflict are well-established, as is typically the case in conflict zones. The willingness to make concessions, particularly surrounding the security guarantees demanded by Ukraine to prevent future attacks from its larger and better-armed neighbour, will soon come into focus, though expectations are being managed for a period of months of negotiations. A likely end state for the Russia-Ukraine conflict will include some combination of a de-militarised zone and security guarantees for Ukraine. The worst-case scenario would be an unresolved “frozen conflict” that would mean that a cease fire was simply an opportunity for Russia to re-arm, and that the Kremlin paid no price for its invasion—something that not only Poland and the Baltic states, but every other country that has border disputes would not wish to see. With an estimated 85% of the world’s conflicts being fought over territory, the stakes are high. With this in mind, we do not expect a significant rollback in sanctions against Russia, although some relaxation of sanctions would be expected to feature in any negotiated settlement. Biden’s outgoing move to increase sanctions on Russia also serves to increase the Trump administrations headroom to “reward” Russia for cooperating. We also do not rule out the confiscation of frozen Russian assets to fund Ukraine’s recovery. The shape of diplomacy with Russia on Ukraine will also be relevant as Europe continues to contend with an escalation in “grey zone” (below radar) operations, which have accelerated since late 2024. These include reports from the Finnish authorities of a Russian-linked tanker16 sabotaging an undersea cable in the Baltic Sea, highlighting willingness to target civilian infrastructure in the region, despite both Sweden and Finland now being NATO members. However, this trend has been ongoing for some time, back in October, MI5’s Director General alerted Brits of a “staggering rise”17 in subterfuge attempts from Russian and Iranian-backed groups.
Conclusions and Implications: Black Swans and More An additional feature in the global outlook is China’s economic slowdown, which looks set to continue this year, and the uncertainty around how Beijing will respond to a hawkish US administration, including threats of 60% tariffs (at this writing, tariffs have initially been set at 10%). It is safe to assume that Chinese leaders will also have plans to respond—or pre-empt—tariff threats from Washington. It is also plausible that both sides would benefit from a “grand bargain” of sorts, taking the pressure off. Recent developments in the Middle East, like the sudden end of the Assad regime in Syria after 50 years in power and the long-anticipated ceasefire agreement between Israel and Hamas, offer space for negotiations and a re-balancing of regional power dynamics. But the lynchpin for the Middle East outlook will be Iran: its internal stability following the undermining of its proxies, its aging leadership, and the stance that the Trump administration takes in consultation with Israel, where Netanyahu has long advocated for eliminating Tehran’s nuclear capacity.
The human desire for a “return to normal” is better-understood as the triumph of hope over experience–more akin to “nostalgia bias” –or what investors call Mean Reversion. I’ve coined the term Geopolitical Denialism–the assumption that geopolitical risks are distant, faraway phenomena, referring to the now-obsolete sense that it is possible to ignore geopolitics. Many of us grew up during the peaceful and prosperous globalisation period, and a lack of personal experience with conflict or upheaval can lead to underestimating adversaries and underinvesting in preparedness. Indeed, our research on the “Geopolitical Risk Supercycle”18 affirms that geopolitical risk drivers have steadily intensified over the past 15 years, and barring an outbreak of global goodwill, will exert more influence over the global business environment in the coming years. The question I’m asked most frequently is what “hidden risk” we’re not looking at closely enough. My reply to this–based on 25 years of assessing the relationship between geopolitics and markets–is that there are very few genuine “Black Swans”–most risks are hiding in plain sight. If we don’t see them, it’s usually because we’re either not looking–or in denial.
Fortune favours the brave, but chance favours the prepared mind Louis Pasteur
Many countries outside Europe think Trump will be good for them
Do you think the election of Donald Trump as US president is a good or a bad thing for your country?
Guardian graphic. Source: European Council on Foreign Relations. Note: EU11 refers to the 11 countries which joined the EU between 2004 and 2013
India
Saudi Arabia
Russia
China
Brazil
South Africa
Turkey
Indonesia
Ukraine
Switzerland
EU11
UK
South Korea
0%
Good
Neither or don’t know
Bad
50%
100%
Figure 1
China slowdown/
Taiwan tensions
EU cohesion
German elections
Energy security
ESG/DEI backlash
Wild cards
Inflation/rates
yield curve
USD strength
Trump 2.0
Tariffs
Regulation
Transactional foreign policy
US security role
2025 OUTLOOK GLOBAL RISK MAP
Populism
Authoritarianism
Techno-libertarianism
NEO-liberalism
Iran
“maximum pressure”
Ukraine–Russia
diplomacy begins
Israel–Gaza
war continues
We view tariffs as a policy tool, but their objectives–immigration, revenue, security, or trade–remain uncertain. Europe will likely be targeted soon, with tariffs and security arrangements leveraged to gain increased market access and purchases of US goods. America’s NAFTA partners have already faced threats on both these fronts as well as China; at this writing, Canada and Mexico have been granted a 30-day reprieve7 in exchange for an agreement to increase border security, but the threat remains that they will be levied. Escalatory responses from Brussels and Beijing are in progress and should be expected. The risk of an all-out trade war is material in our view. Efforts will likely focus on extending the expiring Trump tax cuts without significant additional fiscal stimulus. Major corporate or personal tax cuts are unlikely, with modest spending cuts balancing the fiscal equation. Tighter border policies have already sharply reduced immigration, creating uncertainty for US labour force growth. Changes could significantly impact labour costs and availability, driving up wages and impacting employers. High expectations surround deregulation in finance and energy, with modest increases in investment likely. Governance reforms carry both upside and downside risks. Trump-Fed tensions may be less confrontational initially, but future Fed policies remain uncertain, particularly around interest rates and regulatory roles.
TRUMPONOMICS VS. THE WORLD
America first
Political instablity
Frenemies
Allies
Foes
Inflation, rate-cutting cycle,
yield curve, USD strength
Government
efficiency or
unbearable tradeoffs?
FED independence?
DOGE + US public debt
It is also important to recognise that the economic context between 2016 and 2025 is markedly different. Then, growth was weak, inflation and the budget deficit moderate, and US corporate taxes high, leaving tax cuts and boosting growth at the top of the agenda. Now, the US stock market consistently reaches new highs, the use of tariffs has been normalised, and immigration is a major voter concern on both sides of the political aisle. The context is further complicated by the fact that the US economy is the envy of the world, but the US public continues to espouse uncharacteristically high levels of economic pessimism. These shifts suggest less appetite for additional tax cuts but more focus on border tightening, state reform, or enhanced security measures, each with underappreciated economic implications, not only as direct disruptors to, say, the labour market, but also by catalysing geopolitical events that may present unforeseen challenges. For this reason, we emphasise that it is as important, if not more, to focus not just on what Trump will do, but how the rest of the world reacts.
POLITICAL SIGNPOST OF THE YEAR:
GERMAN ELECTIONS
German economic
model
Autos & electric
vehicles
France–German
axis
European populism
(23 February)
China trade
Ukraine support
NEXT ADMINISTRATION’S ‘TO-DO’ LIST
Amend the
debt brake
Lower social
transfers
Boost defence
Manage US/China
trade tensions
(Nuclear?) energy
Boost public
investment
Tax cuts
Deregulation
Immigration
EU policy
RUSSIA–UKRAINE CONFLICT
Escalation
Cease fire
Lowintensity
conflict
Greyzone/
proxies
EU/NATO Ukraine
Partition/DMZ
Ukraine nuclear
escalations
Russian assets to
Peacekeepers
US military aid?
Russia pays
Ukraine preparations?
Russian sanctions
reversed?
Ukraine deal
for G7
Political
Economic
Military
MEET THE Author
Reference list
Samuels, B. (2025, February 3). Trump doubles down on floating Canada as 51st state amid tariff dispute. The Hill. https://thehill.com/ Gozzi, L. and Greenall, R. (2025, January 11). Trump wants to take Greenland: Four ways this saga could go. BBC News. https://www.bbc.co.uk/news/ Baker, P. et al. (2025, February 4). Trump proposes U.S. takeover of Gaza and says all Palestinians should leave. NY Times. https://www.nytimes.com/ Salvanto, A, et al. (2025, January 20). Trump’s return to office greeted with optimism, high expectations — CBS News poll. CBS News. https://www.cbsnews.com/news/ Megerian, C. and Whitehurst, L. (2025, January 29). Federal judge temporarily blocks Trump administration freeze on federal grants and loans. AP News. https://apnews.com/ Amiri, F. et al. (2025, February 4). Trump and Musk move to dismantle USAID, igniting battle with Democratic lawmakers. AP News. https://apnews.com/article/ Halpert, M. and Murphy, J. (2025, February 4). Trump agrees to pause tariffs on Canada and Mexico but not on China. BBC News. https://www.bbc.co.uk/news/ Doyle, K. and Hillyard, V. (2025, January 7). Trump suggests he could use military force to acquire Panama Canal and Greenland and ‘economic force’ to annex Canada. NBC News. https://www.nbcnews.com/ Monroe doctrine (1823). (2022, May 10). National Archives. https://www.archives.gov/ Pratt, J. W. (1927). The origin of “Manifest Destiny.” In The American Historical Review (Vol. 32, Issue 4, pp. 795–798). Oxford University Press on behalf of the American Historical Association. https://www.jstor.org/ Milne, R. (2025, January 9). Why Donald Trump wants Greenland. Financial Times. https://www.ft.com/ Parker, S. (2024, January 22). US, China clash over neutrality of drought-hit Panama Canal. (n.d.). Riviera. https://www.rivieramm.com/ Fordham, T. (2025, February). A UK-EU Reset? (Not So) Great Expectations. Fordham Global Foresight. https://142403526.hs-sites-eu1.com/a-uk-eu-reset-not-so-great-expectations Elon Musk. ((2024, December 20). X (Formerly Twitter). https://x.com/ ITV News. (2025, January 10). Only AfD can save Germany Elon Musk in conversation with far-right party leader. ITV News. https://www.itv.com/news/ The Economist. (2025, January 1). Finland’s seizure of a tanker shows how to fight Russian sabotage. The Economist. https://www.economist.com/ Lawless, J. (2024, October 8). MI5 spy chief says Russia and Iran are behind a “staggering” rise in deadly plots. AP News. https://apnews.com/ Fordham, T. (2023, April 3). Get ready for the new geopolitical risk supercycle. Forbes. https://www.forbes.com/
2025
Q1 2025 GEOPOLITICAL SIGNPOSTS
Jan 20
US President
inauguration
Jan 20–24
WEF summit
Jan 26
Belarus GE
Feb 3
UK–EU defence
meeting
Feb 10–11
AI action
summit
Feb 23
Germany
GE
March 20–21
EU council
Feb 14–16
Munich security
conference
Feb 24
Russia–Ukraine
3-year anniversary
And lastly, unexpected events will always impact the trajectory of a presidency, whether war, disaster, default or other surprises. It is worthwhile recalling that George W. Bush campaigned on education and Latin America engagement until the 9/11 attacks took place, while Barack Obama campaigned on withdrawing US troops from Iraq–until the Global Financial Crisis stuck in 2008, changing the trajectory of his time in office. For many outside the US, the notion that the world’s richest nation feels itself to be the victim of the system it constructed is perplexing. Sir Ivan Rogers, Fordham Global Foresight’s Senior Advisor for Global Trade & European Affairs and a former UK trade negotiator and diplomat notes: “When the hegemon concludes it is the primary victim of the economic system almost entirely built by itself, we are approaching big changes in the global order sooner than we collectively realise.”
What will it mean if the US no longer believes in free trade? The short answer, according to Rogers, is a return to early 20th century petty rivalries, more hard power projection–and more disruptions. The demise of the “liberal” (in the institutional sense) rules-based system also means more opportunities for bureaucratic blockages and cronyism, all of which tend to reduce transparency and throw sand in the gears of dealmaking. Having said that, a period of intense dealmaking and jockeying for position in a re-balancing order will also offer many new windows of opportunity for the agile, and it may well take several years for this new order to emerge. Although forecasting will be harder than ever, our 2025 Global Risk Map sets out a conceptual framework for the geopolitical landscape for the year ahead. Trump’s ‘America First’ policies sit at the centre, as they promise to put global trade higher on the policy agenda than it has been in recent memory, with the very real risk of increased trade tensions but also acting as a possible catalyst for some positive changes, like greater European integration.
New horizons
The start of the business year is traditionally for contemplating the past year and the one ahead. What business and legal risks are likely to dominate 2025? And how should General Counsel (GCs) and board directors attempt to mitigate them? We asked our partners – Eva-Maria Barbosa, Rebecca Kelly, and Benjamin Knowles – for their predictions.
The evolving risk landscape through the lens of leading decision-makers
Business risks to monitor (and mitigate) in 2025
TRADE WARS AND TARIFFS Despite a strong end to the year, global stock markets and many governments worldwide are braced for a trade war in 2025. All eyes are on whether President Trump ultimately enacts the high tariffs so far announced for China, Canada, Mexico and others. And, if so, how will these US trading partners respond? In November, German carmakers’ share prices fell in response to fears that Trump will impose steep tariffs on the industry. The ‘complicated’ relationship between China and the rest of the world is having a real-life impact on business, including legal departments, says Benjamin Knowles, Chair of Clyde & Co's global arbitration and dispute resolutions practice group. For GCs and their compliance department colleagues, the possibility of trade tariffs, will likely mean scenario planning, he adds. “If [a business is] going to face additional tariffs, that’s a commercial issue,” he says. “Then there’s how you have to deal with them, where you have to pay them and how they’re collected, which will involve compliance staff.” Trade tariffs between countries and regions are likely to loom large in 2025, complicating corporate decisions about where and what to invest in, and also possible restrictions on access to data and the sharing of data between countries engaging in tariff skirmishes. Companies will worry about being kicked out of a country or losing parts of their investment, says Knowles. He adds: “Will they face tariffs or other duties − meaning that the risks of operating in a particular country or region far outweigh the benefits.” In response to tariff worries and geopolitical tensions, GCs and their legal departments may review office locations and procedures for removing expat workers from countries caught in the crossfire of trade wars.
Risk one
Regulation and compliance The divergence of financial, economic and environmental regulations between Europe, the US, China and other parts of the world, is set to create a headache for corporate compliance and legal teams in 2025, says Eva-Maria Barbosa, a leading corporate insurance Partner at Clyde & Co. Barbosa gives a hypothetical example. For global companies, different environmental regulations could cause problems if they produce goods cheaply in China, Bangladesh or Pakistan, and then try to import them to the European Union, which has tougher environmental regulations on, say, recycling and repairs or worker rights than the countries the goods were made in. “It’s not the regulation itself that’s the problem. It’s the differences that we’re going to see in regulations that are going to be difficult for companies to manage,” says Barbosa. It can be hard for companies to keep up with regulatory changes, says Rebecca Kelly, Clyde & Co’s managing partner in Australia. Moreover, social media and the 24-hour news cycle make it more likely that any corporate breaches of regulations will be reported on. “We have seen companies doing business in various jurisdictions getting fined for regulatory non-compliance and it has a direct knock-on effect on their operations in other jurisdictions,” says Kelly. Breaches in compliance and the consequential damage to corporate reputation are far more contagious than five years ago, she adds.
Risk two
The divergence of financial, economic and environmental regulations between Europe, the US, China and other parts of the world, is set to create a headache for corporate compliance and legal teams in 2025
Europe’s economic slowdown (although there are some economic bright spots further east) Within Europe, political upheaval and slowing economies in Germany and France − the two largest economies in the European Union − may also create headaches for companies and their legal departments doing business in the region, says Knowles. “The whole European thing is really difficult,” he says. “A lot of that is economic. If the German and French economies are generally depressed or their political systems are somewhat chaotic, that always hinders things like consumer spending. “And that will also paralyse decision-making within Europe, including about legal issues, such as the recognition of UK lawyers within the EU. Is that really going to happen if France and Germany are both in political turmoil?” There are some economic bright spots, though. Despite the military, social and economic turmoil in some of the Middle East (due to the Israel-Gaza conflict) – most notably Dubai and Saudi Arabia − are economically vibrant and stable. These parts of the region may offer business opportunities that can offset slowing growth in Europe and fears about an incoming trade war, says Knowles. A pro-business environment in parts of the region creates a lot of investment opportunities, he adds.
Risk three
AI Artificial Intelligence (AI) creates several business risks, including generative AI fabricating information (so-called ‘hallucinations’), which is then used as the basis for business decisions. “AI is a bit of a black box,” says Kelly. “It’s often hard to know how an AI system reaches its decision.” As AI becomes more widely used in business, even if companies try to roll it out in a controlled and cautious way, there is a risk that employees will use AI in unauthorised ways “without the knowledge of their employees,” says Kelly. Company boards and HR need to provide more guidance on AI just as they provided guidance to employees on bringing your own computer devices to work or flexible working, Kelly adds.
Risk four
2024 business risk recap
Every year, our global Corporate risk radar surveys C-Suite decision-makers, their in-house legal teams and General Counsel (GCs) about their changing business and legal risks. Our Corporate risk radar, published in three instalments in 2024 found that business has become more unpredictable than ever. According to our survey, business leaders told us that bold decision-making is being impeded by complex business risks, including economic volatility, geopolitical turbulence, and the accelerating and disruptive force of AI. Economic threats topped ‘high impact’ risks, with 82% of respondents citing inflation, rising interest rates and currency volatility as critical concerns. Increasing – and sometimes contradictory − regulatory/compliance obligations − and ‘people challenges’ (recruiting the best workers from a global labour pool) were in joint second place. Geopolitical risks − fuelled by continuing conflict in Ukraine and Gaza, and a calendar year of elections in key markets around the world including the US, India and UK − were another concern for respondents. According to our second Corporate risk radar (Adapting to polycrisis: navigating geopolitical and technology upheaval2), many companies are struggling to respond promptly and effectively to business risks.
Less than half (48%) of respondents believe they can adapt their strategies to changing circumstances. Only 37% said they felt equipped to modify operations. Technology was another weak spot. Only two in ten (22%) of respondents said they were confident in implementing new technologies, including AI, rapidly. Among the companies we surveyed, risk-mitigation measures included ‘nearshoring,’ (relocating business operations to a nearby country to reduce dependency on potentially unstable supply chains) and strengthening supplier relationships. Our final Corporate risk radar4 for 2024 focused on GCs’ business role and growing influence within business. GCs are spending more time advising boards on wider business projects, and departmental management matters alongside traditional legal responsibilities, our research found. There is still room for improvement of course − including using technology to improve service delivery and encouraging colleagues outside the legal department to use ‘self-service’ online technology to handle more straightforward legal and compliance queries/tasks.
Jolly, J. (2024, November 6). German carmakers’ shares slump on fear Trump will impose steep tariffs. The Guardian. https://www.theguardian.com/business/2024/nov/06/german-carmakers-shares-slump-fear-trump-tariffs Corporate Risk Radar 2024: Part one. (2024). FlippingBook. https://online.flippingbook.com/view/846691245/ Corporate Risk Radar 2024: Part two. (2024). FlippingBook. https://online.flippingbook.com/view/826332789/4/
Jolly, J. (2024, November 6). German carmakers’ shares slump on fear Trump will impose steep tariffs. The Guardian. https://www.theguardian.com/ Clyde & Co (2024). Corporate risk radar 2024: Part one. Clyde & Co. https://www.clydeco.com/ Clyde & Co (2024). Corporate risk radar 2024: Part two. Clyde & Co. https://www.clydeco.com/ Clyde & Co (2024). Corporate risk radar 2024: Part three. Clyde & Co. https://www.clydeco.com/
MEET THE Authors
Ben Knowles Partner and Chair of the global arbitration group, London
Rebecca Kelly Partner, Brisbane
Eva-Maria Barbosa Partner and Chair of the global corporate and advisory group , Munich
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The volatile geopolitical landscape means agility is more important than ever. However, as Barbosa explains, the Corporate risk radar report identifies an “agility deficit”, with less than half of respondents (48%) saying their organisation can adapt to rapidly changing circumstances. Addressing this means “all those risks must be opportunities,” says Barbosa. She probes guests on how this trend is playing out within their regions, across issues spanning regulation, trade and manufacturing shifts, and funding. Both the Middle East and Africa (MEA) and Southeast Asian markets are experiencing rapid growth, despite geopolitical tensions around the world. In MEA, Bassiri Gharb points to opportunities arising from the diversification away from oil and gas, and the dynamic regulatory environment. In Southeast Asia, van den Bosch says huge, young populations, and an increasing middle class mean that “we’re actually very bullish on the region as a whole.” Discussing the impact of regulatory change, Bassiri Gharb argues that prioritising international best practice in MEA, through initiatives such as Mission 2030 and the Digital Economy Strategy, has opened the door to more international investment. Greater regulatory clarity and aligning with international standards provides “more space for investors, reducing uncertainty, and offering a stable environment,” she says.
Finally, regarding digital infrastructure and regulation, Bassiri Gharb explains that in MEA, investments in high-tech ecosystems have sparked cyber and privacy regulations, to allay any investor concerns. However, as in other areas of risk mitigation, she says the key is “finding the right balance; you don’t kill the opportunities, but also make sure the safeguarding is there.” For van den Bosch, the future is bright in Southeast Asia: “Asia is the future. With a growing population, growing economies, generally stable governments, I think it’s where we will find the best opportunities.”
In Southeast Asia, geopolitical tensions have brought opportunity through the relocation of manufacturing to the region. This, combined with the easing of foreign ownership restrictions, is driving increased demand for logistics services, including the expansion of warehouse and distribution centres, and investment in infrastructure such as ports and terminals. Energy is a key sector for Clyde & Co and van den Bosch raises challenges currently faced by clients in securing financing for oil and gas projects. Sparked by ESG concerns amongst primarily UK and European banks, this is hitting upstream suppliers, contractors, and FPSO (Floating Production Storage and Offloading) companies, forcing them to adapt by seeking funding via US and Japanese banks, alternative credit, prepayment financing or other structures. Returning to MEA, Bassiri Gharb explains how sector diversification is creating opportunities for foreign companies and investors. She mentions the UAE’s Green Economy strategy and Neom in Saudi Arabia, as two examples, stating: “You can easily see how partnerships between Middle Eastern and Western players can form into great joint ventures.”
(...) the key is finding the right balance; you don’t kill the opportunities, but also make sure the safeguarding is there
he Corporate risk radar podcast is back for a second series to explore the findings of our annual risk report. In this first episode, host Eva-Maria Barbosa, explores the opportunities
arising from the biggest risks facing organisations today, and how they can take advantage. Barbosa is joined by Ton van den Bosch, a Partner specialising in the Asia Pacific region, and Roshanak Bassiri Gharb, a Partner based in Dubai.
T
MEET THE Hosts
Roshanak Bassiri Gharb Partner, Dubai
Ton van den Bosch Partner, Singapore
Eva-Maria Barbosa Partner and Chair of the global corporate and advisory group, Munich
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Where the US leads, will the UK follow – into an insurer-hostile litigation landscape?
t has long been true that, where the US leads, the UK follows inevitably. Except, of course, in the field of litigation. US courts are famously hostile to corporate defendants, owing in no small measure
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The Courts of England and Wales have had a proud reputation for commerciality and the balanced treatment of commercial disputes. However, in recent years, there are signs of established doctrines being cast aside in favour of a consumer-driven approach, mirroring aspects of the federal court system in the US. In this session, we consider the notable developments of the last five years and ask whether the English jurisdiction has become problematic for commercial insurers.
to their willingness to embrace massive class actions, no-injury liabilities, litigation funding, forum-shopping and nuclear jury verdicts running to the billions of dollars. In comparison, the UK has always been a gentle litigation environment. Class action procedures are heavily restricted, no-injury liabilities are uncommon and judges, not juries, define the appropriate level of damages. Recently, developments have begun taking place in the UK which cause us to question whether we might be on a path towards US-style litigation. There are certainly some warning signs. A bump in anti-insurer decisions The last five years have seen an uncharacteristic bump in anti-insurer decisions emanating from the English courts. In the Covid-19 business interruption claims, non-damage coverages and associated causation rules were stretched beyond a point that was previously thought possible. Elsewhere, pollution clauses have been narrowly construed and new doctrines of waiver have evolved.
We should remain alert to developments in litigation funding and forum shopping, as these could significantly alter the landscape in the next five years.
The rising cost of claims Litigation funding has gained traction on both sides of the Atlantic, significantly improving access to justice, while on the other hand, creating new sources of (largely unregulated) risk and exposing defendants to a significantly greater cost of claims. This is a trend that shows no signs of slowing down on either side of the Atlantic, and it is notable that US investment funds are beginning to arrive in Europe with the goal of funding and monetising litigation. On the plus side for UK insurers, the ‘nuclear’ verdicts now stalking the US tort litigation landscape are simply not a problem over here. Damages awards are kept at a reasonable level by judges applying technical guidelines.
Our research shows that these are exceptional cases. When looking at the full picture from the last five years, especially in commercial and marine insurance, the English courts are continuing to approach insurance policy wordings in a fair and even-handed way. English law and jurisdiction clauses are consistently being upheld through the issuance of anti-suit injunctions. Conditions and warranties are being consistently applied and orthodoxy appears to be prevailing once again in the application of causation rules. The emergence of ‘no injury’-style lawsuits There is legitimate concern about the rise of ‘no injury’ lawsuits in England and Wales. Litigation funders are backing increasingly extreme types of no injury litigation, particularly around cyber and anti-trust, and GDPR has opened the door to claims for distress. In the meantime, the courts have actively developed the law of privacy to the extent that overlooked neighbours now have a viable cause of action in nuisance. Encouragingly for insurers, however, the English courts appear so far to have closed the door to mass tort litigation for no injury claims. The Supreme Court decision in Lloyd v Google firmly closed the door on the use of the representative action procedure where individualised damages assessments are required.
Forum shopping One area where England is arguably moving ahead of the US is forum shopping. English courts are increasingly willing to entertain claims where the claimant and principal defendants are based abroad, all the relevant facts occurred abroad and the governing law is not English. The existence of a UK-based holding company becomes a jurisdictional hook which is used to justify exercising jurisdiction over the entire claim. A notable example is the Mariana Dam case, involving more than 700,000 Brazilian claimants seeking damages for the collapse of a tailings dam in Brazil. The case is now proceeding in the English High Court, with the backing of US-based litigation funders. The outlook ahead Overall, England remains an infinitely preferable tort litigation environment than most parts of the United States. We should, however, remain alert to developments in litigation funding and forum shopping, as these could significantly alter the landscape in the next five years.
Latest insurance news and opinions to help you navigate the unknown
Melissa Gardner Senior counsel, Phoenix
Natasha Lioubimova Legal director, London
Neil Beresford Partner, London
n the fourth podcast episode of our third Emerging risks series, we explore the growing significance of Indigenous rights as an insurance risk. This episode explores how Indigenous rights intersect with
ESG is now an essential consideration for all companies. For those with international operations, the existence and protection of Indigenous rights is a significant emerging risk. Indigenous peoples make up 5% of the world’s population and own or manage over a quarter of its land.1 Unless global businesses take steps to familiarise themselves with the specific protections which exist under domestic and international law, they risk increased project costs, wasted investments, reputational damage and litigation. Their insurance programmes may also be exposed.
emerging risks like climate liability and extraterritorial litigation. Drawing on real-world cases, including examples from Colombia, the episode highlights the financial losses and legal liabilities corporations may face when Indigenous rights are not respected.
If we think about where Indigenous rights sit, they do sit at this junction between environmental, climate, and ESG-related liabilities. They sit at the junction with social inflation, where claims are being brought into head office courts. They touch upon extraterritorial liability. It is really, I think, quite important for insurers to have at least a background knowledge of the content and the relevance of Indigenous rights.
Risks around Indigenous rights: what corporates and insurers need to know
DELAYS, HIGHER COSTS AND LOSSES Indigenous rights are a species of human rights. They are founded upon a common doctrine that Indigenous peoples should give their fair, free and informed consent to any activity that might impact them. For companies, the process of obtaining consent can be challenging and time-consuming, causing delays and extra costs. If consent is not granted, the entire project investment may be wasted.
LITIGATION FUNDING AND REPRESENTATIVE ACTIONS Indigenous rights should also be considered in the context of developments in representative actions and litigation funding. Indigenous rights claims are extremely attractive to funders because large numbers of claims and high levels of damages and recoverable costs may arise from a single fact pattern. Under the emerging rules of extraterritoriality, many Western judges are now willing to hear claims in respect of events and human rights breaches occurring abroad. A funded claim involving more than 700,000 victims of the Brazilian Mariana Dam disaster is currently proceeding in the English courts, and a funded claim involving more than 35,000 victims of the Peruvian La Pampilla oil spill is ongoing in the Netherlands. While these are ‘traditional’ tort claims, Indigenous peoples are included among the claimants. We believe that it is only a question of time before funded Indigenous rights claims find their way to Western courts. WIDE REACH Given the intersection with other emerging risks, such as supply chain, climate liability, litigation funding and representative actions, we advise companies and their insurers to familiarise themselves with Indigenous rights and their potential implications. Indigenous rights could be a source of regulatory breaches, tort claims, directors’ liability and securities class actions, and we forecast a significant rise in claims activity.
The agreement of a government does not always equate to Indigenous consent. On the contrary, as Indigenous rights have constitutional protection, Indigenous peoples frequently commence constitutional court litigation to seek the nullity of legislation, regulation and government contracts which affect them without their consent. As a result, companies which have been granted government contracts may belatedly discover that those contracts are null and void, even if the contract would deliver social and environmental benefits to the nation as a whole. In an important case decided recently in Colombia, the court set aside a carbon credit agreement which had wide-ranging benefits for conservation and the environment because the government had not properly consulted the Indigenous peoples affected. SUPPLY CHAIN LIABILITY Indigenous rights are especially important for companies which are subject to the new EU Corporate Sustainability Directive. Under the Directive, companies are primarily liable for breaches of human rights —including Indigenous rights — taking place in their supply chain. Claims may be brought in their home courts even for alleged breaches taking place in other countries. A French bank which provided financial services to a company linked to deforestation and environmental degradation in the Amazon rainforest has been subject to one of the first claims (Comissão Pastoral da Terra and Notre Affaire à Tous v. BNP Paribas).
CLIMATE LIABILITY Indigenous rights also have an important relationship with climate liability. Indigenous people, especially those living in coastal and island communities, are especially vulnerable to climate change. In September 2022, the UN Human Rights Committee issued a ruling against Australia, holding that its failure to protect the human rights of the Indigenous Torres Islanders against the adverse impacts of climate change violated their rights to free enjoyment of their culture and freedom from arbitrary interference with their private life, family and home. The Committee took account of the islanders’ spiritual connection with their traditional lands and the dependence of their cultural integrity on the health of their surrounding ecosystems. Australia was ordered to compensate the islanders, engage in meaningful consultations with their communities to assess their needs, and take measures to continue to secure the communities’ safe existence.
United Nations Environment Programme. (2023). As climate crisis alters their lands, Indigenous Peoples turn to the courts. UNEP. https://www.unep.org/
Miguel Lozano salazar Paralegal, London
Neil Beresford, Partner, Clyde & Co
Miguel is a Colombian qualified lawyer in our IFPD department in London. He works on complex and cross-jurisdictional disputes, including domestic and international arbitration across Latin America.
Flight path: The 'No Russia' clause
ur aviation podcast series explores issues facing the aviation and aerospace industries.
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In this first episode, host Aron Dindol, aviation Knowledge lawyer, explores the so-called ‘No Russia’ clause requirement, joined by Clyde & Co’s Partner Nick Harding and Legal director Kirstin MacDougall from our aviation finance team in London, and Anna Falk, who specialises in sanctions, from our Hamburg office. This episode covers the key elements of the ‘No Russia’ clause, including how it affects transactions within the industry and how it is unusual within the context of sanctions. Listen to find out how the ‘No Russia’ clause is impacting the aviation industry and understand its aims and effects better.
Aviation and the EU’s sanctions regime: Navigating contractual complexity under the ‘No Russia’ clause
As the war in Ukraine enters its third year, its widespread geopolitical implications continue to bite, particularly regarding sanctions targeting the export of certain restricted goods to Russia and Belarus.
For aviation companies, the EU’s 12th Sanctions Package implemented in late 2023, supplemented by the 14th Sanctions package in July 2024 to include Belarus, poses significant challenges, especially around contracts. Here, we outline briefly what the so-called ‘No Russia’ clause entails, and consider some of the contractual complexities aviation companies need to navigate.
WHAT DOES THE NO RUSSIA CLAUSE RESTRICT? The ‘No Russia’ clause aims to prevent the re-export of certain categories of sensitive goods to Russia and Belarus via non-EU countries. This includes aircraft, engines, aircraft parts and jet fuel. Essentially, if you are ‘exporting’ (in the widest sense of the word which includes facilitating the export) any of these goods, your contracts must explicitly ban their re-export to Russia or Belarus. This is to prevent goods that might aid the Russian war machine directly or indirectly from ending up in the territory. A ‘No Russia’ clause must now be included in all applicable new and existing* export contracts with counterparties in non-EU member states**. It should expressly ban the transfer of those goods to entities in Russia and Belarus by that counterparty or at any point in the subsequent supply chain while sanctions remain in place.
HOW MUCH CLARITY DOES THE EU’S GUIDANCE PROVIDE? Ironically, a set of Frequently Asked Questions (FAQs) designed to help guide companies through the maze seems to be adding to the confusion. As they do not deal with aviation contracts specifically, companies are having to interpret or seek advice on how they apply to them. This has led to an inconsistency of approach across the market, with many parties effectively going further than the legislation actually requires in their approach to implementing the rules. For example, many companies are taking the view that a template clause provided in the FAQs must be included in contracts in full, in order to demonstrate compliance to regulators. However, this template clause arguably goes further than the regulations require, and does not prevent companies from using other wording which might allow for more favourable negotiating conditions. Questions also remain around what remedies for breach contracts should contain. The legislation requires parties to ensure any ‘No Russia’ clause contains “adequate remedies” for breach. There is a lack of clarity in the FAQs on what this means other than that remedies should be “reasonably strong” and aim to deter non-EU operators from any breaches. For leases, the most appropriate remedy would likely be immediate termination/event of default for breach but for sale
WHY IS THIS PROVISION UNUSUAL FOR SANCTIONS? The ‘No Russia’ clause restriction has a potentially far-reaching impact. Firstly, it adds an extra-territorial aspect to the sanctions regime, which is unusual in the context of sanctions legislation. Whilst the US sanctions system has traditionally been open to extra-territorial effects, the EU had explicitly distanced itself from such an extended scope of application. The fact that this is changing now, shows how much the prevention of circumvention has become a focus. Secondly, the obligations on companies are not as clear-cut as might be expected. When it comes to including a ‘No Russia’ clause in contracts, companies therefore need to determine whether the counterparty concerned is, in fact, bound by the regulations. They should also consider whether that counterparty should be required to include equivalent clauses in its contracts with other companies it does business with, to ensure compliance throughout the supply chain. Compliance requirements will depend on what type of contract it is, as different types of contracts require different treatment to meet the regulations. The purpose of each contract must be assessed on a case-by-case basis. Not all contracts require a ‘No Russia’ clause – but most aviation-related contracts will do, including sales, leasing and maintenance agreements. Companies must review existing in-scope contracts to see if they already contain sufficient restrictions and, if not, amend them as necessary. Our team can assist in determining whether contracts are in scope or not.
agreements, the position is more complex as the breach will most likely take place after the sale transaction has completed. Added to the complexity is the English Law principle that a penalty clause may be unenforceable unless it is a genuine pre-estimate of a loss. WHAT IF COUNTERPARTIES CAN’T AGREE? Amending contracts may be straightforward but can also be protracted. If companies have to renegotiate or terminate contracts that cannot be made to comply, there could be significant financial implications. Failure to agree could trigger illegality provisions within the contract, or the frustration of the underlying contract under common law. Covenants could also be breached if actions are not taken to protect the interests of the counterparty. In today’s tense geopolitical climate, the reach of these provisions transcends Russia and the EU. Aviation businesses that fall under the scope of these rules must take a proactive, but measured approach to reviewing and amending their contracts to ensure sanctions compliance, while their counterparties must also understand what this provision requires of them. That way, they can negotiate accordingly, to maintain business opportunities as far as possible within the confines of the clause.
* The requirement to include the clause into existing contracts does not apply to Belarus ** With the exception of “partner” countries such as the UK and US
Aron Dindol Knowledge Lawyer, London
Kirstin MacDougall Legal Director, London
Nicholas Harding Partner, Munich
Anna Falk Counsel, Hamburg
China The UK’s GCHQ views China as a highly sophisticated and capable threat actor, with increasing ambition to project its influence beyond its borders. Chinese-backed threat actors have targeted a wide range of industries across the world. In January 2025, it was widely reported that Chinese hackers remotely accessed US Treasury workstations. China state-sponsored threat actors have also been reported to have targeted energy, transportation and water industries. In 2024, the US stated that China-affiliated actors had compromised networks at a number of telecommunications companies, allowing theft of customer call data. Iran and North Korea Iran-backed cyber criminals are also viewed as a key threat, although often making use of less sophisticated techniques (such as spear-phishing). Much of the threat from Iran-backed groups over the last year has focussed on the Israel/Hamas conflict, however, as geopolitical tensions rise, there is probability that the strategies utilised in this conflict may also focus on a wider, western target. The Democratic People’s Republic of Korea (North Korea) is another prolific cyber threat actor. The NCSC has revealed that UK firms are “almost certainly” being targeted by threat actor groups backed by North Korea by using IT specialists from North Korea who disguise themselves as freelance IT staff.
Use of AI State-backed threat actors are also increasingly using AI to enhance their criminal activities. Reports have shown that large language models (such as ChatGPT) are used by state actor groups, including Russian and Chinese. AI can be used to aid in large-scale phishing attacks, making attacks more difficult to identify and also increasing the speed and number of attacks that can take place. AI is also used to doctor videos and create deepfakes (for example, in 2024 a finance worker in Hong Kong was tricked into paying GBP 20 million to fraudsters after attending a video call with what appeared to be other employees of the UK headquartered business but in fact everything he saw and heard on the call was fake), something which state-backed threat actors can now add to their arsenal. It should be remembered that AI can, and is, being used to combat such attacks and its continued prevalence can be used for good in this area. The geopolitical impact on cyber risk is being felt worldwide Speaking to the Financial Times at the end of 2024, the president of Microsoft pleaded with the US Government to address state-backed cyber threat, saying, “I hope that the Trump administration will push harder against nation-state cyber-attacks, especially from Russia and China and Iran…We should not tolerate the level of attacks that we are seeing today.”
With geopolitical tensions rising across the globe, there is increasing trepidation that the threat from state-backed cyber incidents is further on the increase.
In his first major speech as the Head of GCHQ’s National Cyber Security Centre (NCSC), Richard Horne warned that the severity of the risk facing the UK is being widely underestimated. The NCSC’s Annual Review of 20241 highlighted the growing threat from state actors, noting that we face “enduring threats from hostile states and cyber criminals looking to exploit our dependency on the technology that now underpins all aspects of modern life”.
Hybrid warfare is the name of the game Hybrid (cyber-based) warfare is the name of the game in 2025 and we’re increasingly seeing nation-state-backed cyber-attacks being used for intelligence gathering purposes, including to accelerate competitive edge, leapfrogging traditional R&D through the acquisition of intellectual property and trade secrets from Western organisations. Government research2 has identified that 97% of British higher education institutions reported a cyber incident over a 12-month period, compared to 50% of all UK business, with security chiefs issuing warnings to UK universities highlighting acute risks relating to technology with state actors seeking to acquire intellectual property and steal advantage. Cyber attacks highlight the huge challenge posed by advanced persistent threats (APTs), particularly those backed by nation states. These attacks, often focused on espionage, deploy highly sophisticated and stealthy tactics, making them significantly more difficult to detect. We are seeing two recurring vulnerabilities: supply chain risk and weaknesses in remote access software - both frequent avenues for financially motivated cybercriminals. However, no system, vendor, or supply chain is immune to compromise, and once breached, even robust IT security measures can be circumvented.
Russia When the conflict in Ukraine escalated, we, along with many others, predicted that this could lead to an increase of Russian state-backed cyber-attacks. The European Union Agency for Cybersecurity (ENISA) noted that information manipulation continues to be a ‘key element’ of Russia’s attack against Ukraine. GCHQ has reported that in direct conflict, Russia has routinely deployed wiper malware to delete data from inside the Ukrainian government and critical national infrastructure to hinder their operation. However, the threat is not only aimed at Ukrainian entities. Russia has also sought to attack cyber systems of NATO states over their backing of Ukraine. There has also been an increase not only in state-backed actor cyber threats but also by non-state-backed cyber criminals motivated by the conflict and acting in support of Russia. It is interesting to note that, following the invasion of Ukraine, there was some internal conflict within threat actors, for example the notorious Conti group (with some members supporting Russia and some Ukraine), which may explain why fewer cyber attacks against western infrastructure were reported immediately following the invasion than were expected.
Also at the end of 2024, the European Central Bank warned that geopolitical tension drives cyber activity but that “we are not moving in the right direction”, noting research by the International Monetary Fund that countries facing heightened geopolitical tensions have a relatively greater likelihood of experiencing a cyber attack. Cyber resilience is key Cyber resilience is a board-level issue and should be something that is at the top of the agenda in boardrooms globally. Organisations should take time to review and update internal cyber policies and incident response plans. Taking time to engage in a tabletop or cyber simulation exercise can be invaluable in ensuring that cyber resilience is as robust as it can be. It is important to ensure that the right people are involved at the appropriate level of seniority and that each person understands their role. Early preparation and having tested plans is key, as failure to do so can result in businesses taking longer to respond to a cyber incident and mitigate the impact, potentially leading to greater damage. Overall, it is extremely important to focus on monitoring and detecting unauthorised activity to mitigate the impact of a cyber event, recognising preventative measures can only take organisations so far. Appreciating that it is when, not if, a security incident occurs is a critical mindset change that all organisations need to make.
MEET THE AUTHORS
Danielle Rodgers Knowledge lawyer, London
Shanaka Wijetunge Legal director, London
Helen Bourne Partner, London
Ian Birdsey Partner, London
National Cyber Security Centre (2024). NCSC Annual Review 2024. NSCS. https://www.ncsc.gov.uk/ Gov.UK (2024, April 9). Official Statistics Cyber security breaches survey 2024: education institutions annex. Department for Science, Innovation & Technology. https://www.gov.uk/ Natalucci, F. et al. (2024, April 9). Rising Cyber Threats Pose Serious Concerns for Financial Stability. IMF.org. . https://www.imf.org/
Shanaka specialises in cyber, privacy litigation and technology errors & omissions (including recoveries). He has been recognised in the Legal 500 and is known for his knowledge and experience gained from handling numerous domestic and international cybersecurity incidents. Shanaka is a trusted adviser and delivers effective outcomes for his clients when defending privacy litigation. He is also experienced in dealing with regulatory investigations, misuse of confidential information-related claims and disputes involving IT professionals.
Lessons from CrowdStrike incident
he aviation industry has seen a surge in ransomware attacks in recent years and cyber incidents are a serious threat to business continuity, as was seen during the recent CrowdStrike outage in July 2024, which, although not caused by bad actors, brought chaos to many airlines as well as other industries.
On 19 July 2024, a CrowdStrike update caused a global IT outage, highlighting the potential vulnerabilities we all face from the fallout of technology failures or a cyber event, particularly where those risks do not arise from within the organisation but as a result of dependencies on others. The supply chain risk arising from third party IT security failures which have a cascading effect on the aviation industry can be particularly severe. We have seen this as a result of the CrowdStrike event which caused delays, resulting in business interruption losses due to the disruption arising. Following the outage, Delta Airlines announced that the incident and subsequent interruption to business, such as flight cancellations, led to losses of around USD 550 million. Its September 2024, financial results noted that the direct revenue impact of the incident was approximately USD 380 million, primarily driven by refunding customers for cancelled flights and providing customer compensation in the form of cash and SkyMiles. The non-fuel expense impact was USD 170 million, primarily due to customer expense reimbursements and crew-related costs.
A cyber event is an all-encompassing risk which can impact all areas of the business not only legal but also including IT, directors and officers liability, PR and marketing, HR, and more. Key points to be aware of are as follows:
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Guidance to mitigate cyber threats
Interruption to business cannot be underestimated, and this can result in a loss of revenue whilst systems are down as well as the cost of restoring systems to normal (or improved) order. There is potential for very costly regulatory exposure. Not only concerning a fine received from the appropriate national regulator, but the time and cost involved in cooperating with an investigation. Remember to always check reporting responsibilities and comply within time. GDPR regulators can and will impose fines for failure to report. There is always the possibility of litigation following a data breach, with claimants seeking damages following loss associated with the breach. Class actions are an increasingly popular method of claim in the US, with reports showing that 2,040 data breach class actions were filed in 2023 (nearly three times the number in 2022). In the EU, a number of decisions from the Court of Justice of the European Union have clarified issues regarding damage claims for data breach, but have also potentially opened the door to an increase in claims. The introduction of the EU Collective Redress Directive established a class action regime in the EU, requiring member states to have procedures in place to provide access to collective redress, including for data breach claims. In the UK, two high profile data breach class actions have failed, in the cases of Lloyd v Google and Prismall v Google (the latter currently under appeal). However, claimant law firms are still searching for claimants to join data breach class actions, and we are seeing an evolution of data breach claims in the UK, with the Competition Appeal Tribunal allowing a claim on behalf of approximately 45 million UK Facebook users to proceed to trial. There can be severe reputational risk following the fall out of a cyber event, potentially leading to loss of customers. Directors and officers can be at risk, for example, in California, former directors and officers of Yahoo agreed to pay USD 29 million to settle a breach of fiduciary duty claim arising from a data breach occurring between 2013 and 2016. Clyde & Co’s Global directors and officers report 20246 listed cyber risk as the second highest risk perceived by directors and officers.
Data shows that cyber-attacks rose by 131% between 2022 and 2023 across the aviation industry1, with the highest proportion of attacks focussed on airspace users. The financial and reputational implications for the aviation industry of failures in cyber security are enormous.
Be high profile, attracting significant media attention
Cyber incidents impacting the aviation industry can:
Involve multiple jurisdictions, as the nature of the aviation industry, more so than many others, means that a cyber-attack can impact customers and suppliers throughout the world
Result in large fines from regulators
Lead to litigious claims brought by those impacted, which can be costly even if they don’t make it to court
In July 2024, Eurocontrol2 published its 2024 Cyber Security Report3 offering an in-depth analysis of the evolving cyber threat landscape in aviation. The report collected data from a broad range of global organisations worldwide, including airspace users, airport operators and civil aviation authorities, and found a notable surge in both the quantity and diversity of reported cyber events over the past year. The Report confirmed that the primary impact of cyber attacks on aviation remains financial, with an estimated global impact in the billions of Euros annually. The main methods of conducting cyber attacks on the aviation industry are fraudulent websites, phishing, DDoS (Distributed Denial of Service, where an attacker floods a server with internet traffic to prevent users from accessing connected online services), malware, hacking and ransomware. Add to that other factors, such as data theft and airmiles fraud, and you have a ‘perfect storm’ for the industry. IATA4 has called for more collaboration within the Civil Aviation Industry and enhanced transparency on shared risks, with regard to aviation cybersecurity. It is developing a set of requirements for operators and in the EU a framework for risk management in aviation is set to take effect in 2026.
A Cyber event requires consideration of both internal and external communications. It is not just an IT problem, meaning it is not enough just to consider the technical aspects, either in preparing to prevent a breach or in dealing with a breach. Most aspects of a business should therefore be involved, or aware of the issues, for example in working to prevent attacks and being aware of reporting requirements. Business continuity planning, policy and procedure should all be reviewed and updated to incorporate data and cyber security plans. Whilst every cyber event may be different, the impact of these events can be mitigated with proper planning, and to this end having an effective Incident Response Plan in place (and sharing it across the business) can be invaluable. It is also worth noting that many data regulators expect organisations to have well-defined and tested incident management processes in place. It will not be sufficient to say you were simply a victim of a cyber-attack, as can be seen in the reasoning given by the ICO when British Airways was issued with a fine in 2018. It is necessary to show that you have done all that is required of you to prevent an attack and to protect data. Be aware of legacy systems, as these may be more vulnerable to attack, or they may be out of compliance with current data protection legislation. In 2018, British Airways sought to argue that Article 25 GDPR7 did not apply to the data breach because it was not in force at the time British Airways designed the relevant data processing systems. The ICO did not agree with this and held that Article 25 applies at “the time of processing itself” and is a continuing obligation. Consider your supply chain – the Eurocontrol report noted that “it is increasingly evident that aviation’s reliance on the cyber-resilience of its supply chain is crucial”. It is crucial to require the same levels of cyber security of your supply chain, as you do within your own organisation. Be prepared to undertake testing – the ICO said in the British Airways data breach that “had more rigorous testing been performed, or had internal penetration tests been performed (where an attacker with access to the network was simulated), many of the problems identified within this decision are likely to have been detected and appropriately addressed”.
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Delta has since faced a class action lawsuit in the US courts, with court documents stating that the outage “resulted in massive delays throughout the global airline industry. According to flight tracking, there were more than 4,000 flight cancellations and 35,500 flight delays worldwide by Friday afternoon”, with the outage taking place on the morning of Friday 19th July 2024. Delta instigated a legal action against CrowdStrike in October 2024 to cover a reported USD 500 million of out of pocket losses arising from the disruption together with undisclosed litigation costs and punitive damages. In this context, it will be key for airlines to put robust procedures in place to minimise business interruption, including ensuring the right people are involved and that everyone knows the processes and procedures that are in place. Internal policies must consider the impact of business interruption and the potential level of severity. It is also important to validate any workarounds in place in the event of a business interruption so any contingency plans work. The CrowdStrike outage also highlighted the impact of supply chain risk in the aviation industry and how a cyber incident within an airline’s supply chain can have as much impact as a cyber incident within its own business. Supply chain attacks are on the rise. Research has found that 98% of organisations have vendor relationships with at least one third party that has experienced a cyber event in the last two years5. It is therefore important to consider the supply chain when preparing cyber security policies and procedures.
Danielle Rodgers Knowledge Lawyer, London
Tom van der Wijngaart Partner, London
Rosehana Amin Partner, London
EATM. eatm-cert_2024_report_on_cyber_in_aviation.pdf (eraa.org) Eurocontrol is an intergovernmental organisation with 41 member and 2 comprehensive agreement states, dedicated to supporting European aviation EATM. eatm-cert_2024_report_on_cyber_in_aviation.pdf (eraa.org) IATA Cybersecurity Management Working Group CMWG. (2021). IATA policy position on aviation cybersecurity request for action from civil aviation stakeholders, regulators and authorities. In iata policy position (pp. 1–2) [Report]. https://www.iata.org/ Security Scorecard & The Cyentia Institute. (n.d.). Mitigating risks between your 3rd & 4th party vendors: improving the cyber defenses of your weakest links. In A Collaborative Report Between. https://securityscorecard.com/ Clyde & Co. (2024). Global Directors’and Officers’ Liability Report 2024. Clyde & Co Article 25 GDPR requires a Data controller to implement appropriate technical and organisational measures for ensuring that, by default, only personal data which are necessary for each specific purpose of the processing are processed and this means data protection should be embedded as a part of the lifecycle of an organisation’s processing and business activities.
Understanding AI Regulations
Cross-border remote work pre-pandemic Before the Covid-19 pandemic, many global employers (i) did not have any cross-border remote work requests or (ii) if they had such requests, the employer typically rejected them as a matter of course or allowed such work for at most a week or two while the employee was on a business trip or vacation. Therefore, the employer either did not have a cross-border remote work policy or had a policy allowing remote work for a few weeks while an employee was on a business or personal trip. The new normal Cross-border remote work requests have grown at lightning speed. Increasingly, such requests are a normal part of the conversation in candidate recruitment and employee retention. The shadow side of growth is that growing pains often come with it. With cross-border remote work, the major growing pain is that the law in many countries is lagging behind the practical reality. As a result, employers may be exposed to unforeseen risks including, but not limited to (i) immigration; (ii) payroll tax; (iii) corporate income tax; (iv) employment; and (v) benefits.
The latest episode of Virtually everything sees our hosts Lucy and Vyasna discuss the evolving landscape of AI regulation with special guest Rebecca Keating, a barrister at 4 Pump Court. With a background in technology disputes spanning areas like IT project failures, cyber-attacks, and emerging technologies such as quantum computing and crypto assets, Rebecca offers a unique legal perspective on the regulatory frameworks governing artificial intelligence.
One of the key highlights is the Act’s extraterritorial reach, which means that non-EU companies could also be affected if their AI systems are marketed or used within the EU. Rebecca emphasises the importance for global businesses to understand the obligations they may face, particularly regarding transparency, compliance, and risk management, which could require adjustments in their contracts with developers and providers.
The conversation kicks off with an exploration of the recently adopted EU AI Act, which Rebecca explains is a groundbreaking piece of legislation designed to regulate AI systems based on their perceived risk levels.
She outlines how the Act categorises AI systems into four tiers—unacceptable, high, limited, and minimal risk—each with different compliance requirements. The most stringent regulations target high-risk AI systems that pose significant risks to health, safety, or fundamental rights. Rebecca also discusses prohibited AI systems, such as those using subliminal techniques or real-time biometric identification in public spaces for law enforcement.
The discussion then broadens to examine how different jurisdictions are approaching AI regulation. While the EU has taken a more proactive and structured approach with the AI Act, Rebecca points out that the UK, for now, has adopted a more permissive ‘wait and see’ strategy. However, she notes that UK political developments, such as potential Labour-led reforms, could bring about a shift toward more rigid AI regulations in line with the EU. To round off the episode, Rebecca provides an update on the high-profile litigation surrounding Dr. Craig Wright, who claims to be Satoshi Nakamoto, the anonymous creator of Bitcoin. She discusses the recent ruling in the UK’s COPA trial, where the court found that Dr. Wright was not Satoshi Nakamoto, and how this decision has led to the discontinuation of several related legal actions. Despite this, Rebecca underscores that the case still raised intriguing legal questions, particularly concerning fiduciary duties owed by software developers in the crypto space—issues that could appear in future litigation. This podcast forms part of the Virtually everything podcast series.
While the EU has taken a more proactive and structured approach with the AI Act, Rebecca points out that the UK, for now, has adopted a more permissive ‘wait and see’ strategy.
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Lucy Nash Legal director, Dubai
Rebecca Keating Barrister, 4 Pump Court
Vyasna Mahadevey Associate, Dubai
GUEST SPEAKER
Rebecca is a barrister at 4 Pump Court specialising in technology disputes. Called to the Bars of England & Wales and Ireland. She has acted in cases involving AI, cyber-attacks, cryptoassets, and quantum computing. Rebecca co-authored A Practical Guide to Quantum Computing and the Law and contributes to leading AI and IT law publications. She is co-chair of the Society for Computers and Law Women in Technology group and serves on the ICO’s Technology Advisory Panel and the Blockchain Lawyers’ Forum Arbitrator List.
teven Bird, Senior associate at Clyde & Co, spoke to Matthew Lavy KC, barrister at 4 Pump Court — who he described as ‘the godfather of AI law’ — about the risks and realities facing professional services firms as they adopt this transformational technology.
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THE IMPACT ON WHITE COLLAR JOBS What might this rapid evolution mean for white-collar jobs, Bird asked? In Lavy’s view, it could radically change many roles as we currently know them, empowering professionals in some tasks while making other tasks obsolete, making teams leaner and altering business models. One area where AI looks set to be transformational is legal document review. Using Large Language Models (LLMs) not only to find relevant documents, but to tell you what issues the documents are relevant to, which parts of the documents are relevant, and even how the documents might be deployed, could be a game-changer. “Imagine you’ve got a new case, it’s got a million documents that have been loaded into the disclosure system and you haven’t read any of them,” said Lavy. “You ask the LLM: ‘Find me documents that prove what the claimant says in paragraph five of his claim is untrue.’ The machine then produces a list of ten documents, which together pithily show that. That’s not just more efficiency on an existing process - that’s a paradigm shift.” For senior litigators, this will make them more effective. However, the junior lawyers and paralegals who would typically be tasked with this work will no longer need to do it. Lavy believes that, as a result, professionals will spend more time overseeing the AI.
One area where AI looks set to be transformational is legal document review. Using Large Language Models (LLMs) (...) could be a game-changer.
ELEVATED AND NOVEL RISKS For Lavy, for all its benefits, the deployment of AI heightens some risks while simultaneously introducing new ones: Client liability Just as is the case when tasks like legal research and review are undertaken by junior colleagues, or when an accountant delegates the job of analysing the tax implications of a particular investment strategy, Lavy pointed out that senior professionals must satisfy themselves that the analysis conducted by AI is correct before relying on it in their advice to clients. He warned that given how impressive AI can seem, the likelihood of confirmation bias based on the assumption that the AI is right, elevates this risk. Regulatory compliance One of the most notable new risks created by this powerful technology is the failure to comply with the many global regulatory initiatives around AI, such as the EU AI Act, the focus of which is on governance, validation and data quality. Third party liability for copyright infringement Other novel risks include the risk of liability to third parties in IP terms when professional services firms train their own LLM models or use generative AI outputs. Lavy used the example of an architect using generative AI to create some conceptual designs for a client.
As a former software developer turned barrister, Matthew Lavy is one of the UK’s foremost silks specialising in IT and IP disputes. His knowledge of the technology behind IT projects and how they are implemented, along with his two decades at the bar, mean he has unrivalled insights into the development of artificial intelligence (AI) and its impact on many sectors, including professional services.
The speed at which AI is changing the face of the modern world – and the laws which govern it – is highlighted by the second edition of Lavy’s book, The Law of Artificial Intelligence (which he co-edits with Matt Hervey). In the three years since the first edition was published, the book has almost doubled in size due to the growth in scope of what it now covers.
Click here to access our Global guide to AI regulation
(...) That’s not just more efficiency on an existing process - that’s a paradigm shift
“If the conceptual design the client chooses to develop looks uncannily like another conceptual design on another architect’s website, and it turns out that it was part of a mass of data hoovered up in the AI model training process, you’re potentially staring down the barrel of a copyright infringement action,” he warned. The question of whether the output of generative AI models can infringe copyright in the data used to train them is a live issue in court systems in a number of jurisdictions around the world, with outcomes yet to be decided. Other IP risks There is also the question of who (if anyone) owns the copyright in the generated model – the answer to which may depend on jurisdiction. Under UK law, for instance, it is unclear who the ‘author’ (and copyright owner) of an AI-generated work is: the person typing the prompt into the AI system or the developer of the AI model? Lavy added, “There’s also the prior question of whether a work generated in that way even has copyright subsisting in it, given that the law as it currently stands requires intellectual creativity on the part of the author. So, there are huge uncertainties in that space.”
Ultimately, Lavy argued that although AI implementations require careful thought and advised that contracts may need to be approached in more creative, sophisticated ways than before, there’s no need for a wholesale reinvention of the way companies go about contracting. It’s clear that AI is ushering in new realities for the professional services sector, which is changing the dynamics of how they do business in new and unexpected ways, and altering the risk profile of their operations. Hearing the insights of such a prominent authority in this space was both fascinating and incredibly valuable for the audience of global leaders listening in.
Contracting issues Bird asked about the contractual implications for companies when using AI models, and what issues they should consider in any supply agreement for AI services. A classic supply arrangement, where the supplier and the customer both take on certain risks, and KPIs and acceptance criteria must be defined, can be challenging in the context of AI, according to Lavy, due the greater complexity of the inputs and outputs and the sophistication of the technology.
He used the example of loan application approvals, where rather than a binary approved/rejected outcome based on limited variables such as income thresholds, AI systems could use multiple variables and historical loan data to create outputs based on risk tolerance. This could make outcomes less predictable and harder to explain to customers, and could pose challenges around determining whether the system is performing correctly Helpfully, the Society for Computers and Law has published a set of model clauses for AI contracts to help companies through this maze, which include clauses that you would not normally expect to find in traditional software implementation contracts. For instance, it outlines clauses that require suppliers to provide information to help customers understand the logic behind AI outputs, and clauses that deal with unlawful discrimination in case AI models result in people being treated differently or unfairly under equality laws. Ultimately, Lavy argued that although AI implementations require careful thought and advised that contracts may need to be approached in more creative, sophisticated ways than before, there’s no need for a wholesale reinvention of the way companies go about contracting. It’s clear that AI is ushering in new realities for the professional services sector, which is changing the dynamics of how they do business in new and unexpected ways, and altering the risk profile of their operations. Hearing the insights of such a prominent authority in this space was both fascinating and incredibly valuable for the audience of global leaders listening in.
Steven Bird Senior associate, London
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Mathew KV Lacy Barrister, 4 Pump Court
Matthew is a commercial barrister with a particular focus on technology and telecoms-related disputes. He acts and advises in relation to the full range of both traditional and cutting-edge technology disputes. He has particular expertise on AI-related matters and is co-editor of and contributor to the leading AI textbook, “The Law of Artificial Intelligence”. Prior to coming to the bar, Matthew worked as a software developer, system administrator and technical writer. He is a Trustee of the Society of Computers and Law and was awarded Chambers & Partners IT / IP Silk of the Year in 2024.
MEET THE Host
A global snapshot
As practice protection lawyers, we have witnessed regulatory exposures for professional services firms rise steadily up the risk radar to become a risk that is at least equal to, if not higher than, the threat of a civil claim. As with liability claims, the global landscape is not uniform, but a heightened risk of regulatory scrutiny has become a recurrent theme.
Across our practice, we have witnessed the emergence of several global themes:
Increasing globalisation of investigations Within the financial services context, the LIBOR and forex-fixing investigations witnessed multiple regulators, across different jurisdictions, seeking to impose fines on a single firm. These investigations bore witness to an unprecedented rise in cooperation between international regulators. Regulators have for some years now been cooperating on a much greater level, particularly those tasked with stamping out bribery and corruption in the context of enforcement. For example, 2017 saw the results of investigations undertaken by authorities in the US, Brazil, and Switzerland into allegations against Odebrecht (Brazil’s largest construction firm). The ability to investigate and take appropriate action was made easier by the global sharing of information and resources. Competing and conflicting regulatory and legal regimes have also led to difficulties, for instance over access to documents held by large accounting firms which might, if disclosed, cause those firms to be in breach of their legal obligations in other jurisdictions (e.g. the so-called French ‘blocking statute’). Audit working papers in China for example cannot be transferred outside of the Mainland unless PRC authorities give approval. In the Middle East, some jurisdictions, such as Bahrain, make it a criminal offence to share certain corporate information outside the country. Generally, professionals such as auditors also face criminal risks for sharing client information, but where they are required to do so by a foreign court or regulator, that can leave them in a very difficult quandary. At the same time, entities and professionals must also grapple with the increasing amount of legislation that has extra-territorial reach, such as the various UK statutes dealing with bribery, criminal finance and modern slavery, and the resurgent use in the US of the Foreign Corrupt Practices Act (FCPA), the effect of which is to require entities to increase due diligence across the supply chain.
The importance of whistleblowers Recognising the importance of whistleblowers in uncovering wrongdoing, the EU has recently legislated to give greater protection to whistleblowers through the EU whistleblowers directive, and the UK government is currently consulting on enhancements to its own regime. Other Jurisdictions such as the US, France, and Italy provide specific protection to whistleblowers, and other jurisdictions such as Germany have begun introducing whistleblower provisions related to the financial sector. Where regulatory enforcement is, or is perceived to be weak, whistleblowing is often the reason that problems come to light. A case in point is the Middle East, where, recognising their importance in combatting fraud, new regimes have been put in place in the offshore regimes (DIFC and ADGM). However, there is no culture of whistleblowing, and, indeed, defamation is also a criminal offence, making it a high-risk strategy to turn on an employer or any third party (even if the disclosures are true).
Cooperation and coverups We have seen a number of cases where professional firms have been sanctioned by the regulator in relation to attempts by individuals within the firm to cover up mistakes and/or mislead the regulator. Such cases are a salutary reminder about the risks of acting in a way that makes a bad problem worse, given the indications that severe sanctions can ensue. Clearly, the firm’s conduct once the cover-up is discovered will be important, and self-reporting and co-operation with any subsequent investigation and enforcement process will be mitigating factors. Although there are not enough cases to warrant conclusions about trends, it appears to us likely that an individual covering up their own mistake will likely attract a less severe sanction than a cover-up that is endemic within a firm. The regulatory sanctions meted out for cheating in professional examinations administered by firms illustrate some of the issues that can arise; driven by US regulatory action against US firms, this has spread to firms based in Canada, Australia, and a variety of other jurisdictions. One UK firm has now been sanctioned by the US regulator. The very large range of fines imposed for similar-sounding underlying behaviour, from under USD 1 million to USD 100 million, could be explained by the degree of perceived ‘cover-up’ in terms of prompt self-report and co-operation with the regulatory process; or, alternatively, finding a way to set a very high ‘signalling’ precedent.
Politicisation Regulation is becoming increasingly politicised, impacting the approach of regulators in a number of countries. One example of politicisation, which has played out through regulatory enforcement with uncomfortable consequences for the accountancy firms, has been the protection disputes between the Chinese, US, and Hong Kong authorities over the historic inability of the Public Company Accounting Oversight Board (PCAOB) in the US to conduct inspections and investigations of Chinese auditing firms. Another aspect of politicisation is the distinct rise in enquiries by parliaments and parliamentary committees. Such political enquiries commonly lack the procedural safeguards that would apply in a formal regulatory enquiry or civil claim, resulting in a more uncontrolled and unfocussed process for professionals, with the ever-present reputational risk of how it plays in the media.
In the UK, an array of accountants and lawyers were called to give evidence in parliament in relation to the BHS and Carillion matters, mentioned above. Recent years have also seen various forms of political/parliamentary bodies question auditors over relationships with entities/persons involved in corporate collapses/corporate or public figure wrongdoing in Spain, the Netherlands, and South Africa.
The following are illustrations:
Political scrutiny can also shape regulatory agendas. For example, there has been considerable political and media attention prompted by concerns about Russian oligarchs’ use of the English courts and latterly by the use of ‘SLAPP tactics’ (Strategic Litigation Against Public Participation; actions intended to thwart critics by burdening them with legal defence costs) on behalf of public figures facing scrutiny. This has led directly to an active focus of the lawyers’ regulator (SRA), who said they were investigating 50 such cases in November 2023.
Professionals as arbiters of corporate behaviour Heightened public sensitivity has also led to an increasing characterisation of professionals as ‘enablers’ of poor corporate behaviour. A clear example is the debate over tax planning, in which professionals have been castigated in the media by regulators and by the courts. In a number of jurisdictions, there has been intense public and media scrutiny of tax planning, blurring the line between avoidance and evasion. This has been fuelled by public scandals such as the Panama and Paradise Papers, which reverberated globally. Current areas of regulatory focus include tax advisor misconduct in Australia, and involvement in corruption and state capture by lawyers and accountants in South Africa. In the UK, the recently enacted Economic Crime and Corporate Transparency Act 2023 gives the SRA the power to issue unlimited fines in certain circumstances, as well as enhanced powers to demand information/documents relating to the prevention or detection of economic crime and makes ‘promoting the prevention and detection of economic crime’ a regulatory objective for legal regulators including the SRA.
Blurring of the professional/ personal divide Lastly, over the last couple of years we have seen a blurring of the distinction between professional and personal matters when considering what amounts to misconduct by accountants and lawyers in the UK. This reach into the personal lives of professionals has profound implications for professionals with a risk of regulatory ‘overreach’. The implications of heightened regulatory exposures Regulatory exposures can be costly and time consuming to defend, with financial and other sanctions as well as a range of important business and reputational consequences. However, significantly, regulatory action has the effect of complicating, and worsening the related civil claims which increasingly run in parallel with regulatory problems. Following the collapse of Wirecard, for example, its auditors faced regulatory action from Germany’s auditor oversight body, APAS, in addition to a number of civil suits from disgruntled shareholders. We have also seen an increase in the ‘weaponisation’ of regulatory complaints; the bringing by claimants (including insolvency practitioners) of a regulatory complaint in order to obtain information for use in civil litigation in the UK and liaising with regulators to ‘assist’ their enquiries. This ‘entrepreneurial’ approach to civil litigation is not new in the professional sphere, but we are now starting to see these tactics deployed in relation to claims in larger numbers. Comment The increased globalisation of regulatory investigations coupled with the more prominent role of whistleblowers, the danger associated with cover ups, increased political scrutiny and a sometimes-negative public perception of some professions linked to poor corporate behaviour, all point to the need for professional services firms to remain acutely aware of the increasingly complex terrain of regulatory risk and to carefully prepare to remain ahead of the curve.
The factors that lead to this assessment include the strength of the regulatory framework in place, how active/aggressive the regulators are in policing professional firms, and the sanctions regime. In recent years we have seen regulators across jurisdictions become more international in their outlook, become increasingly active and better resourced, with higher expectations of cooperation, and with fines on an upward trajectory. Even for those jurisdictions in which a regulatory framework for professionals is relatively recent the direction of travel for regulatory exposures is only one way.
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Our professional services firm’s risk heatmap for 2024, compiled across our practice, reveals that of the 13 jurisdictions included, regulatory scrutiny and enforcement was graded at least a medium risk in 11 of those jurisdictions, with our lawyers in England and Wales, China, Singapore, South Africa, and India grading the threat as high.
The current picture
High Risk
Medium Risk
Low Risk
Jurisdiction not surveyed
Click here to read Economic Crime and Corporate Transparency Act 2023
The regulatory exposure landscape for professional firms
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James Roberts Partner, London
The increased globalisation of regulatory investigations coupled with the more prominent role of whistleblowers, the danger associated with cover ups, increased political scrutiny and a sometimes-negative public perception of some professions linked to poor corporate behaviour, all point to the need for professional services firms to remain acutely aware of the increasingly complex terrain of regulatory risk and to carefully prepare to remain ahead of the curve.
Data and privacy are the top concerns for regulators in Asia, with China recently publishing guidelines on cybersecurity insurance, Singapore drawing up principles on fairness around the use of AI and Hong Kong due to update its guidelines on AI and cybersecurity. South Africa is also taking steps towards creating a policy framework on AI. Data protection is top of the regulatory agenda in the Middle East, with stringent new rules on data transfer and cloud storage in Saudi Arabia. Cryptocurrencies and digital assets With the global digital asset market forecast to be worth almost USD 4.6 billion in 2024 and grow to over USD 16 billion by 20322, it’s an area that cannot be ignored. No wonder that, as governments in the UAE and Saudi Arabia put technological innovation at the heart of the economic growth plans, regulators are being proactive about introducing new rules on digital assets. In Dubai, a dedicated Virtual Asset Regulatory Authority has been created. At the same time, Europe is gearing up for the implementation of the MiCA crypto-assets rules in 2025, which should provide opportunities for insurers to expand their product and payment offerings and reduce risk. The UK and Australia also have new regulatory frameworks for digital assets pending. It’s worth noting too that under a Trump administration, many expect the regulatory climate around cryptocurrency in the US to become more favourable.3
Climate risk Challenges exist for insurers, both on the natural catastrophe side, and for those who insure carbon-intensive businesses. Recent flooding and heatwaves in Europe have accelerated demands for policy-makers to close the climate coverage gap (given that around a quarter of losses in the region are uninsured). Among the recommendations of a new report commissioned by the European Commission4 were calls for better information-sharing to improve preparedness. Meanwhile, insurers are subject to a wide array of rules around managing and disclosing climate risks, with Australia one of the latest countries to adopt mandatory reporting requirements this year.5 This is just a small snapshot of the numerous regulatory issues under development globally, creating a complex web of rules and obligations for insurers to navigate, with compliance and good governance front of mind. Across regions, the impact of these changes – which is inextricably linked to the broader geopolitical environment – varies, and while some markets face short-term uncertainty, there’s a sense of optimism in others. As noted in our Insurance growth report 20241, regulation remains a double-edged sword. To find out more about the regulatory developments coming into play worldwide, tune into our on-demand webinar series: Around the world in 90 minutes – corporate and regulatory developments.
Recent corporate and regulatory developments
Around the world in 90 minutes
Global insurance regulation snapshot: Exploring 3 key areas of focus in a fast-changing world
world. Moreover, the nature of the business of insurance means that the sheer number of regulatory issues insurers must be aware of is extensive, especially for those with an international footprint. Today, as well as keeping a close eye on considerations such as product oversight, consumer protection and competition, regulators and policy-makers are also taking positions on the impact of climate change, artificial intelligence (AI), cryptocurrencies, cyber security, cross-border activity, public interest issues and more. As they do so, they must ensure that imposing sufficient safeguards does not create disproportionate costs or stifle innovation and growth. Complying with the continuous raft of new and changing regulations is a major challenge, but these shifts also could open up new opportunities for those with the agility and strategic foresight to seize them. For example:
ike many industries, insurance is subject to ever-increasing regulatory scrutiny and constantly evolving rules as regulators adapt to keep pace with the fast-changing modern
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The discussion draws on findings from our Growth report 2024 – Mid-year update1, covering topics such as M&A, MGAs, run-off, regulatory scrutiny, and more.
Click here to watch the conversation between our speakers from Europe, Africa, the Middle East, the US, the UK, and Asia.
AI, data and cybersecurity Artificial intelligence has the potential to be transformative in many areas, from providing more personalised services to customers, to improving claims handling and helping insurers spot fraud. According to research, 60% of insurers in Asia agree that AI is positively impacting their profitability and performance. It’s also likely to drive demand for cyber threat coverage, making it a huge growth area. While regulators around the world recognise the need to balance risks and protections, approaches vary. For instance, while the European Union’s AI Act regulates AI systems, the UK proposes to take a less formalised approach and focus on its use. Several US states have adopted NAIC guidance, while others have written their own rules. Meanwhile, with the Digital Operational Resilience Act (DORA), the EU has created a financial sector-wide regulation for cybersecurity, ICT risks and digital operational resilience. This regulation makes a significant contribution to strengthening the European financial market against cyber risks and information and communication technology (ICT) incidents.
Clyde & Co, (2024). Insurance growth report 2024 Mid-year update. FlippingBook. https:// online.flippingbook.com/view/175790949/ Fortune Business Insights. (2024, January 13). Digital asset management (DAM) market. https://www.fortunebusinessinsights.com/ Asgari, N. (2024, December 5). Bitcoin hits $100,000 as Trump era hopes grow. Financial Times. https://www. ft.com/ European Insurance and Occupational Pensions Authority. (2024, September 3). Leveraging insurance to shore up Europe’s climate resilience. https://www.eiopa.europa.eu/ Clyde & Co, (2022, December 22). Australian firms, including insurers, must gear up now for mandatory climate reporting. Clyde & Co. https://www.clydeco.com/ Clyde & Co, (2024). Insurance growth report 2024. (2024, February 26). https://www.clydeco.com/
Marc Voses Partner, New York
Joyce Ma Senior associate, Hong Kong
Andrew Lucas Partner, London
Peter Hodgins Partner, Dubai
Nicole Britton Partner, Johannesburg
This two-part webinar looks at recent corporate and regulatory developments facing insurers, reinsurers, and brokers across various jurisdictions.
As countries continue to adapt to the effects of the Covid-19 pandemic and the continued globalisation, employers have seen significant growth in domestic and international remote work requests.
uring the pandemic, of course, many employees became accustomed to working from home and we began to hear the first rumblings from clients that some employees
either needed or wanted to work outside of their regular country of work/residence for some period of time due to Covid-19 border closures, the need to be with sick family members, or the desire to escape to an island nation during the social distance/isolation days of the pandemic.
As we are now coming into a new normal, we have seen an increase rather than a decrease in employees’ requests – or even demands – to work in another country for short-term periods of time. It is important to highlight at the outset that cross-border remote issues can affect all employers, even those that do not have any brick-and-mortar presence or business activity in the remote work country. If you have employees requesting (or demanding) to work from another country, then you would be wise to consider remote work issues and risks.
Cross-border remote work pre-pandemic Before the Covid-19 pandemic, many global employers (i) did not have any cross-border remote work requests or (ii) if they had such requests, the employer typically rejected them as a matter of course or allowed such work for at most a week or two while the employee was on a business trip or vacation. Therefore, the employer either did not have a cross-border remote work policy or had a policy allowing remote work for a few weeks while an employee was on a business or personal trip. The new normal Cross-border remote work requests have grown at lightning s d. Increasingly, such requests are a normal part of the conversation in candidate recruitment and employee retention. The shadow side of growth is that growing pains often come with it. With cross-border remote work, the major growing pain is that the law in many countries is lagging behind the practical reality. As a result, employers may be exposed to unforeseen risks including, but not limited to (i) immigration; (ii) payroll tax; (iii) corporate income tax; (iv) employment; and (v) benefits.
Reasons employees request to work remotely The reasons for cross-border remote work requests run the gamut, from personal family reasons to spousal work issues to a simple desire to travel and see the world. Based on our experience, the five most common examples include:
The Vacationer/Business Traveler An employee wanting to work while on vacation or business travel
The Family Person An employee needing to work from their home country for family or other personal reasons
The Supportive Spouse An employee following their spouse assigned or otherwise employed overseas by their employer; going with their spouse for a military or diplomatic assignment, etc.
The Forced Remote Worker An expatriate employee who must leave the regular work country due to lack of work authorisation and/or to renew a visa in order to re-enter the regular work country
The Digital Nomad An employee desiring to travel to, and work from, other countries for adventure, recreation, etc. Click here to find out more about our Digital Nomads service
Important Policy Considerations Naturally, employers want to do what is best for their businesses holistically, which includes balancing talent acquisition and retention issues with factors including: Whether the employee can do their job in a remote location practically and legally Whether allowing employees to remotely work internationally will set a precedent and open a floodgate of other international remote work requests As the numbers of cross-border remote work requests increase, many employers choose to develop a policy to address those and other considerations, including, but not limited to: What are the threshold criteria for employees to be considered for remote work? (e.g., minimum duration of employment, types of work that can be done remotely, minimum performance criteria, and so on) How long will the company allow remote work in a typical situation? (e.g., many employers use six months as an absolute maximum limit largely because individuals often will be subject to income tax on their worldwide income after working in a country for at least 183 days) Will the company require the employee to be a national of the remote work country or have specific authorisation to work remotely? (e.g., a growing list of countries have implemented remote work or digital nomad visas to allow people to legally work remotely from an immigration standpoint) In addition to helping employers develop policies to establish a standard process and criteria for evaluating and responding to remote work requests, we also regularly help clients create remote work agreements that help set expectations over duration and performance and place responsibility on the employee for legal compliance as much as possible.
Important Legal Considerations As employers evaluate remote work requests and develop policies and agreements pertaining to remote work, there are many risks to consider, including, but not limited to, the following:
Takeaways As companies increasingly field and analyse remote work requests, it is paramount to: Have a defined strategy for handling such requests (this can include a specific policy, maximum time periods, specific countries that are a no-go, and so on) Take steps to apply the strategy to each specific situation to determine the risks and make informed and consistent decisions When the remote work is (or becomes) too risky under the circumstances (e.g., the time extends unreasonably or the employee is engaging clients in the remote work country), the employer should consider denying or curtailing the remote work or pivoting to an alternative arrangement based on the totality of the circumstances. Alternative arrangements typically include: Establishing a legal presence to employ the individual(s) in the remote work country Using a PEO/EOR to employ the individual(s) on the company’s behalf Converting the individual to consultant status (if the nature of the work allows this conversion legally and practically)
This article first appeared in L&E Global’s Tech Newsletter October 2024
MEET THE AUTHORs
Heidi Watson Partner, London
Chris Anderson Attorney at Law, Jackson Lewis P.C.
GUEST
Chris Anderson, a principal in Jackson Lewis P.C.’s Greenville, South Carolina office and a key member of the International Employment practice group, specialises in international employment and mobility issues. With over a decade of experience advising clients across 100+ countries, he partners closely with clients and local colleagues worldwide to deliver effective counsel. Chris leverages Jackson Lewis’ ties with L&E Global member firms in 30+ countries and his extensive global network to provide efficient, consistent results.
Immigration Can employees seeking to work internationally legally work in their desired jurisdiction? Payroll Tax How should payroll tax for international employees be calculated? Employment Will the employee gain the benefit of employment protections in the remote location? Corporate Income Tax Will employers have any increased corporate income tax exposure from the remote work? Employee Benefits How should employers discharge their employee benefits obligations for employees while they are outside the regular work country?
1. The New Collective Quantified Goal on Climate Finance (NCQG) The agreement on the NCQG is generally considered a heavily qualified success. The USD 1.3 trillion climate finance goal that was demanded by many developing country parties14 is contained in the final agreed Decision15. However, this Decision only “calls on” parties to meet this goal and therefore does not place any obligation on states to meet the goal by the 2035 deadline. While the new USD 300 billion goal for annual climate finance to developing countries triples the previous target of USD 100 billion16, the wording of the Decision text only requires for this funding to be ‘mobilised’ rather than ‘provided’ (i.e. only made available rather than actively distributed) by 2035. Controversially, the funds made available can be made up of a wide variety of public, private, bilateral and multilateral sources of finance as well as undefined ‘alternative sources’. It remains unclear where the required increase in climate financing between 2025 and 2035 will come from and whether developed country states will commit greater levels of grant and concession-based funding than they have already.
COP29’s Successes and Failures Clyde & Co’s COP29–Briefing paper13 set out four areas in which a successful COP would see significant progress:
he 29th Conference of the Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC) took place in Baku, Azerbaijan, between 11 and 24 November 2024. Following Clyde & Co’s COP29 Briefing Paper1 and building on the
firm’s presence in COP29’s UN Blue Zone, we provide a review of COP29’s main outcomes, and areas to look out for on the road to COP30 in 2025.
COP29
Review of Outcomes and the Road to COP30
THE MAIN OUTCOMES OF COP29 COP292 was described as a “finance COP3”, meaning the focus of the 2024 negotiations was on developing and agreeing the processes by which climate action will be paid for. This was reflected in COP29’s two main outcomes:
The operationalising of the international carbon trading system overseen by the UN under Article 6 of the Paris Agreement.
Agreement on Climate Finance COP29 saw the culmination of three years of negotiations on the NCQG. The final agreed NCQG Decision5 will now form the foundation for international climate finance arrangements after 20256. This Decision contains an agreement by the Parties to the Paris Agreement to triple the annual target for climate finance from the current USD 100 billion to USD 300 billion by 2035. Developed country parties will take the lead in mobilising this sum for developing country parties7. The Decision also contains a reference to a further annual climate finance target of USD 1.3 trillion of financing to be provided to developing countries by 2035. However, unlike the USD 300 billion target, there is no formal obligation on countries to meet this larger target (which is to be raised from a variety of sources including private finance). Many developing country parties have rejected in principle taking on more debt to pay for their greenhouse gas (GHG) emission reduction and climate change adaptation measures. However, the 2035 targets may be met both via the provision of grants and concession-based finance and via higher interest loans and other commercial financial instruments from both public and private sources. Further, and for the first time, voluntary financial contributions made by developing country parties will also be formally counted as contributing to reaching UNFCCC8 climate finance targets. This has opened up the possibility for countries categorised as ‘developing’, such as China, to take on more formal leadership roles in the UN climate arena.
Operationalising Carbon Markets After 9 years of negotiations, parties at COP 29 agreed on the rules and methodologies for the international carbon trading system envisioned by Article 6 of the Paris Agreement. Article 6 sets out a system in which countries can trade emission reduction credits (known as ITMOs) between themselves so that an emission reduction in one country can be counted against the emissions generated in another country. This trading system is designed to incentivise states to invest in emission reduction projects as well as meet and surpass their own emission reduction targets, thereby lowering overall global emission levels and fostering sustainable development. Two Decisions were issued on the new international carbon market established under Article 6.4 (one at the beginning9 of COP29 and the other at the end10). A further Decision was also issued at the end of COP11 on the rules for inter-state carbon trading under Article 6.2. These three Decisions have set out the final steps required for the markets and trading system to be operationalised, allowing for emission reductions assessed and authorised under Article 6 to be officially counted as contributing to countries’ emission reduction plans12. Article 6 carbon markets are seen as a key tool for generating financial flows from polluting to less polluting countries through Article 6.2 and a means for States with natural carbon sinks such as rainforests and mangroves to financially benefit from their preservation. Look out for our upcoming guide to the Article 6 carbon markets, which will explain Article 6’s implications for states and corporate entities in greater detail.
The NCQG
New and ambitious NDCs
Agreement on Article 6
Loss and damage
While a climate COP’s success or failure can be assessed differently depending on each state’s negotiating goals and outlook, this section sets out what progress was made on each of those four areas as well as highlighting one further area of interest.
While coming under criticism from many sides17, and despite last minute walk-outs18 by significant negotiating blocs, the NCQG Decision was agreed at the end of COP29. While the NCQG Decision does not mobilise as much money as many developing country parties were advocating for prior to COP2919, the NCQG is a compromise between the need for greater financial support for developing nations, without which they will be unable to reduce their GHG emissions and adapt to the negative effects of climate change20, and the reduced ability of developed countries to provide that support out of public funds. Formally opening up climate finance targets to contributions from both the private sector and developing countries was seen by many developed country parties as a necessary step21. This broadening of the contributor base will also allow developing country parties, such as China, who already provide financing for energy transition projects across the developing world22, to gain recognition for the efforts they are making towards meeting the world’s climate goals. If successful, the NCQG’s attempt to foster a greater role for the private sector in adaptation and the energy transition could be beneficial for both developed and developing countries23. The NCQG Decision also has a scheduled review in 2030, and so may be renegotiated sooner than the 2035 target deadline.
2. New and Ambitious NDCs Prior to COP29, we suggested24 that a successful COP would see a number of new and more ambitious nationally determined contributions (NDCs–essentially countries’ emission reduction and climate change adaptation plans) announced during the conference. While the deadline for countries to announce their next round of NDCs is not until the end of February 2025, early and ambitious announcements would have put pressure on other countries to not only meet the February deadline but also increase their own ambition so as not to be left behind. In the end, only Brazil, the UAE and the UK announced new NDCs at COP2925. The absence of significant numbers of new NDCs added to the failure to progress negotiations on the outcomes of the first global stocktake26 (GST). The first GST, which culminated in the UAE in COP2827 last year, was a process that facilitated a review of the implementation of parties’ existing NDCs so that parties could raise their ambition and improve the implementation of their next round of NDCs. However, progress on this issue stalled as countries from the Like-Minded Group of Developing Countries (LMDC) negotiating bloc, especially Saudi Arabia, objected to any agreement that would give the UNFCCC oversight over how NDCs are prepared or implemented. Failure to progress the GST negotiations, compounded by a less ambitious NCQG than many expected, may now mean that it will be impossible for developing and climate-vulnerable states to prepare and implement ambitious NDCs, placing the 1.5°C warming goal essentially out of reach28.
4. Loss and Damage Following the establishment at COP19 of the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (WIM)33, COP27 in Sharm el-Sheikh34 and COP28 in the UAE35 saw significant progress on integrating loss and damage into the architecture of the UNFCCC process36. Loss and damage can be understood as the cost of the damage that will be inevitably incurred by countries due to the negative effects of climate change. However, while some procedural outcomes were reached at COP29, no substantive progress was made in loss and damage negotiations. References to loss and damage in the NCQG simply acknowledge existing failures to provide adequate funding to address the issue. No new funds have therefore been mobilised to address loss and damage specifically. Given the importance of this issue to many developing country parties, especially those that are most vulnerable to climate change, it is expected that loss and damage will be an area of contention at future COPs.
The lead up to COP30 will also likely see the resolution of the uncertainty around the US’s position on the Paris Agreement and involvement with the UNFCCC process
Looking Ahead to COP30 While COP29 has now concluded, there are several issues that will continue to develop between the end of COP29 and the beginning of COP30 in Belém, Brazil, in November 2025. Here we set out some key issues to watch out for in the year ahead:
NDCs All parties to the Paris Agreement must submit their new NDCs before the end of February 202540, to allow time for the content of those NDCs to be reviewed and analysed before COP30 in November 2025. While most states still claim that they will meet this deadline, informally many admit that it is likely that they will fail to publish their NDCs before the 61st meeting of the Subsidiary Bodies41 of the UNFCCC in the summer of 2025 or indeed before COP30 itself. The greater the number of states that meet the agreed deadline, the better understanding the world will have of whether countries are on track to meet their goals under the Paris Agreement. The impact of a failure to meet the publication deadline will be compounded by the parties’ failure to agree on how to implement the outcomes of the first GST and the corresponding absence of guidance on the content and form of countries’ NDCs. This means that the content and form of each party’s new NDC is entirely at each State’s discretion and until each NDC is published there is little ability to predict its contents.
Article 6 A new UN carbon market under Article 6 of the Paris Agreement may have been operationalised at COP29, but it will be the first year of the market’s operation which will see the first examples of the market in action and what teething problems it may encounter. Uncertainty remains over the impact of Article 6 on the voluntary carbon markets and on existing emission trading schemes, and so the next year to COP30 will see crucial first impressions made around the quality of Article 6 credits and the effectiveness of the rules and methodologies that have been agreed. An International Court of Justice Advisory Opinion Although independent of the UNFCCC process, in early 2025 the International Court of Justice (ICJ)43 will publish an Advisory Opinion on climate change44. As part of this process, over 100 nations and organisations will make submissions to the ICJ from 2 to 13 December 202445. The ICJ’s subsequent Advisory Opinion will provide guidance on two main issues. The first will be on the nature of states’ obligations under international law to prevent climate change and damage to the environment.
The Organisation of COP30 Given COP30 will be the first official opportunity for countries in the UNFCCC process to consider and take stock of the new round of NDCs, expect the host country, Brazil, to begin calling on parties to announce new and ambitious NDCs sooner rather than later. Brazil will also likely focus on the symbolism of holding a COP in the city of Belém in the heart of the Amazon rainforest, although some have raised concerns about the impact on the Amazon of holding the event there48. This year, both France49 and Argentina50 withdrew their negotiators from COP29 for different diplomatic reasons and the COP process itself came under criticism from experienced negotiators51. It is likely that Brazil will therefore attempt to engage more diplomatically with parties and perhaps try to shrink the number of people granted permission to attend52. The lead up to COP30 will also likely see the resolution of the uncertainty around the US’s position on the Paris Agreement and involvement with the UNFCCC process given President Donald Trump’s stated commitment to once again withdraw the US from the Paris Agreement53.
An agreement on the New Collective Quantified Goal on Climate Finance4 (NCQG); and
3. Agreement on Article 6 Agreement on Article 6 has been hailed as one of COP29’s real successes29. After 9 years of negotiations, parties finally agreed on the framework rules and methodologies of a worldwide carbon market and trading system. Parties have designed the new Article 6 system so that it will allow countries to create and authorise reliable emission reduction credits30 that countries can use to either offset their own national emissions or trade with other countries. The three Decisions that made up COP29’s agreement on Article 6 allow states to start developing their national carbon markets and facilitating inter-state trades. Although past carbon trading schemes have not been as successful as initially hoped for31, parties are clear that the Article 6 carbon market should be an effective tool for persuading countries to reduce GHG emissions whilst financially rewarding developing countries for developing sustainably and protecting nature32.
5. Negotiation Deadlock While agreement was eventually reached on the key outcomes of the NCQG and Article 6, one under-addressed failure of COP29 was that negotiations on many other issues broke down completely without any agreement or resolution37. Parties could not reach an agreement38 on issues including the outcomes of the first GST, just transition, adaptation and other finance and technology negotiations. The result of this failure being that these negotiations were postponed for either 6 months or a year. While these failures were not critical to the UNFCCC process in Baku, the incurred delay in what has been recognised as a ‘critical decade’ for climate action39, reflects the general struggles at COP29 for parties with opposing views to achieve compromise.
To see which parties are considered developed and developing click here
Climate Finance When the Least Developed Countries (LDC) and Alliance of Small Island States (AOSIS) negotiating blocs walked out of negotiations on the final day of COP29, one of their conditions for returning to talks was for a commitment by developed country parties to provide greater clarity on how the USD 1.3 trillion annual climate finance goal would be achieved (for more information on these and other negotiating blocs see Clyde & Co’s COP29–Briefing paper)42. The NCQG Decision consequently refers to a “Baku to Belém Roadmap to 1.3T”. This ‘roadmap’ aims to scale up climate finance flows to developing countries to facilitate GHG emission reduction and adaptation measures with a focus on non-debt based financial instruments. Given the lack of specificity in the NCQG Decision, it is currently unclear what exactly will come out of the Baku to Belém Roadmap. However, its importance to many developing country parties means that if their concerns are not addressed in this process then COP30 in Belém may see further hard-fought finance negotiations around the USD 1.3 trillion goal.
The second will be on the legal consequences that states should incur if, through their acts or omissions, they have made significant contributions to climate change and past environmental damage. Although the ICJ’s Advisory Opinion will not be binding, it will carry significant persuasive and moral weight46 and will shape the nature and direction of climate litigation against states and corporate entities for the foreseeable future. Multilateral Development Bank Reform The NCQG Decision adopted at COP29 emphasises the role that multilateral sources of finance, and especially Multilateral Development Banks (MDBs), will play in meeting the new USD 300 billion climate finance goal. The Decision highlights that the world’s current multilateral financial architecture will need to be reformed so that MDBs can focus on and facilitate investment into urgently addressing climate change. Some of the reform envisaged by the NCQG Decision includes shifting risk appetites for climate finance. This reform will require the nation-state shareholders of MDBs to instigate and lead reforms of the MDBs’ operational models, channels and instruments. The IMF and World Bank’s annual meeting in October 202547, just prior to COP30, will therefore be a crucial forum where we may see concrete proposals being made as to how MDBs should and will aim to respond to the invitation made by the parties to the UNFCCC for MDBs to take a greater role in climate financing.
Williams et al., (2024, November). COP29 – Briefing Paper. Clyde & Co. https://www.clydeco.com UNFCCC. (2024). UN Climate Change Conference Baku - November 2024. https://unfccc.int/cop29 World Economic Forum. (2024, August 12). COP29: Why it matters and 4 key areas for action. https://www.weforum.org/ UNFCCC. (2024). New Collective Quantified Goal on Climate Finance. https://unfccc.int/NCQG Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. (2024). Draft decision -/CMA.6. In Conference of the Parties Serving as the Meeting of the Parties to the Paris Agreement (pp. 1–3). Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. (2021). New collective quantified goal on climate finance. https://unfccc.int/ UNFCCC. (n.d.). Parties & Observers. https://unfccc.int/parties-observers UNFCCC. (2025). UNFCCC website. https://unfccc.int/ United Nations. (2024). Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement and referred to in decision 3/CMA.3 [Conference Proceedings]. In Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (pp. 1–3). https://unfccc.int/documents/642623 United Nations. (2024b). Draft decision -/CMA.6. In Conference of the Parties Serving as the Meeting of the Parties to the Paris Agreement. United Nations. (2024a). Draft decision -/CMA.6. In Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (pp. 1–3). https://unfccc.int/documents/643663 Granziera, B., Hamrick, K., Verdieck, J., & The Nature Conservancy. (2022). Questions and answers about the COP decisions on carbon markets and what they mean for NDCs, nature, and the voluntary carbon markets. In Companion Reports. https://www.nature.org/ Williams et al., (2024, November). COP29 – Briefing Paper. Clyde & Co. https://www.clydeco.com/ Carbon Copy. (2024, September 12). Africa demands NCQG of $1.3 trillion per year for developing countries. Carbon Copy. https://carboncopy.info/ Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. (2024). Draft decision -/CMA.6. In Conference of the Parties Serving as the Meeting of the Parties to the Paris Agreement (pp. 1–3). UNFCCC. (2024). From Billions to Trillions: Setting a New Goal on Climate Finance. UNFCCC News. https://unfccc.int/ Beynon, J., Mathiasen, K., Mitchell, I. (2024). The $300 Billion COP-Out: And Where We Go From Here. CGDEV Blog. https://www.cgdev.org/ Lo, J., & Lozada, M. (2024, December 2). COP29: Five most dramatic moments from the UN climate summit in Baku. Climate Home News. https://www.climatechangenews.com/ Alayza, N. (n.d.). What could the new climate finance goal look like? 7 elements under negotiation. World Resources Institute. https://www.wri.org/ Grantham Research Institute on Climate Change and the Environment. (2024, November 14). New report recommends COP29 negotiations on climate finance should focus on mobilising $1 trillion per year for developing countries by 2030. https://www.lse.ac.uk/ Civillini, M. (2024, August 20). Switzerland and Canada propose ways to expand climate finance donors. Climate Home News. https://www.climatechangenews.com/ Staff, C. B. (2024, November 28). China Briefing 28 November 2024: How China approached COP29; Xi cuts energy deals in South America; Solar’s ‘disorderly’ expansion. Carbon Brief. https://www.carbonbrief.org/ World Economic Forum. (2024, April 17). Private climate finance: 4 things you need to know. https://www.weforum.org/ Williams et al., (2024, November). COP29 – Briefing Paper. Clyde & Co. https://www.clydeco.com/ World Economic Forum. (2024, November 26). COP29: What are NDCs and why do they matter?. https://www.weforum.org/ Waskow, D. (n.d.). Key Outcomes from COP29: Unpacking the New Global Climate Finance Goal and Beyond. World Resources Institute. https://www.wri.org/ McKinsey & Company. (2024, August 28). What is the global stocktake?. https://www.mckinsey.com/ World Economic Forum. (2024b, November 26). COP29: What are NDCs and why do they matter?. https://www.weforum.org/stories/ COP29. (n.d.). COP29 achieves full operationalisation of Article 6 of Paris Agreement – Unlocks International Carbon Markets. https://cop29.az/ Gupte, E. (2024). COP29: Watershed moment for carbon markets as leaders resolve impasse over Article 6. S&P Global. https://www.spglobal.com/ Bassetti, F. (2023, January 20). Success or failure? The Kyoto Protocol’s troubled legacy. Foresight. https://www.climateforesight.eu/ IETA. (2024, January 9). Modelling the economic benefits of Article 6 - IETA. IETA - Making Net Zero Possible. https://www.ieta.org/ IETA. (2024, January 9). Modelling the economic benefits of Article 6 - IETA. IETA - Making Net Zero Possible. https://www.ieta.org/ UNFCCC. (2022). Sharm el-Sheikh Climate Change Conference – November 2022. https://unfccc.int/cop27 UNFCCC. (2023). UN Climate Change Conference - United Arab Emirates. https://unfccc.int/cop28 World Economic Forum. (2023, December 1). COP28 agrees to establish loss and damage fund for vulnerable countries. https://www.weforum.org/ Bansard, J., Eni-ibukun, T. A., Allan, J., Bertram, D., Dubrova, A., & Luomi, M. (2024). Earth Negotiations Bulletin. In M. Muzurakis & P. Chasek (Eds.), Earth Negotiations Bulletin (Vols. 12–12, Issue 865). https://enb.iisd.org/ Staff, C. B. (2024b, December 4). COP29: Key outcomes agreed at the UN climate talks in Baku. Carbon Brief. https://www.carbonbrief.org/ Royal Society. (n.d.). Climate change in the critical decade. https://royalsociety.org/ Camponogara, A., Gonzalez, N., Baker-Gallegos, J., NDC Partnership, & UN Climate Change. (2024). NDCS 3.0 Partners Meeting. https://unfccc.int/ UNFCCC. (2024). SBI 61. https://unfccc.int/event/sbi-61 Williams et al., (2024, November). COP29 – Briefing Paper. Clyde & Co. https://www.clydeco.com/ International Court of Justice. (2025). ICJ Website. https://www.icj-cij.org/ Elena. (2024, November 26). ICJ Advisory Opinion and the future of climate responsibility. SDG Knowledge Hub. https://sdg.iisd.org/ Robinson, J. (2024). Vanuatu opens the International Court of Justice Advisory Opinion proceedings on climate change and human rights. Doughty Street Chamber News. https://www.doughtystreet.co.uk/ Bañuelos, J. A. C., & Tigre, M. A. (2023, March 29). The ICJ’s advisory opinion on climate change: What happens now?. Climate Law Blog. https://blogs.law.columbia.edu/ World Bank. (n.d.). About. https://www.worldbank.org/ Barbosa, C. (2024). Hopes and doubts as an Amazon city prepares to host COP30. Dialogue Earth. https://dialogue.earth/ Camut, N., & Weise, Z. (2024, November 13). France boycotts COP29 after Azerbaijan’s ‘colonies’ attack. POLITICO. https://www.politico.eu/ Seabrook, V. (2024, November 14). Argentina walks away from COP29 - amid fears Trump may pull US out of Paris climate deal. Sky News. https://news.sky.com/ Child Rights International Network. (2024, November 29). COP29 - a betrayal for climate justice and children’s rights — CRIN. CRIN. https://home.crin.org/ Morais, A. M., Civillini, M., & Lo, J. (2024, April 25). Peak COP? UN looks to shrink Baku and Belém climate summits. Climate Home News. https://www.climatechangenews.com/ Pitas, C., & Gardner, T. (2024). Trump prepares to withdraw from Paris climate agreement, NYT reports. Reuters. https://www.reuters.com/
Lucia Williams Senior associate, London
William Ferris Associate, London
Historical Context and Initial Challenges In the early 2000s, Cambodia emerged as a reliable production hub for multinational garment companies like Nike and Gap. However, reports of underage workers and sweatshop conditions prompted these companies to sever ties, leading to the closure of more than 20 factories within five years. This episode underscores the complexities of enforcing labour standards in emerging markets without adequate support mechanisms, resulting in economic instability and social challenges. It is a stark reminder of the need for a balanced approach to implementing ethical standards in emerging markets / developing countries. Financial and Economic Constraints Emerging markets inherently possess limited resources and capital for investment, making ESG initiatives appear unwarranted. The costs associated with sustainable practices, compliance, and reporting obligations can be prohibitive and add to the administrative hustles. Additionally, the volatility of emerging markets makes sustaining long-term ESG investments difficult, deterring investors who prioritise stability. Also, most financial institutions funding projects in developed and emerging markets insist on ESG factors when considering financing projects. Obviously, this leads to lesser and restricted capital deployment in emerging markets due to the widespread incompliance or low enforcement of ESG in local projects.
Data and Standardisation Issues Emerging markets often lack comprehensive and reliable data on ESG practices. Small and medium-sized enterprises (SMEs) may not have the resources or expertise to collect and report accurate ESG data. Additionally, infrastructure for data collection, such as monitoring systems and technology, may be underdeveloped or inconsistent. The absence of a universal standardised ESG metric system further complicates efforts, rendering efforts to adhere to ESG standards futile and leading to labels of non-compliance, making them unattractive to ESG-sensitive investors. RESOURCE DEPENDENCY AND ENVIRONMENTAL IMPACT Many emerging markets heavily depend on extracting and exporting natural resources like oil, minerals, and agricultural products. This reliance often leads to unsustainable practices such as over-extraction and deforestation, which are at odds with ESG initiatives. The economic instability caused by fluctuating global commodity prices further complicates the investment in sustainable practices, making these markets appear less favourable for ESG standards and difficult to reform.
CONCLUSION Emerging markets’ unique challenges in adopting ESG standards highlight the need for a nuanced approach. Balancing the ethical imperatives of ESG with the economic realities of these markets is essential. Stakeholders can ensure that ESG initiatives promote sustainable development without imposing undue burdens on emerging economies by realising the unique position the emerging markets occupy, providing targeted support by extending grants and sensitisation to gradually develop ESG compliance, standardising metrics, and fostering a stable regulatory environment.
n 2004, the UN Global Compact published Who Cares Wins, highlighting the importance of Environmental, Social, and Governance (ESG) aspects in
investment decisions. This led to the 2006 Principles for Responsible Investment (PRI) launch, solidifying ESG’s role in global investment strategies.
While ESG aims to promote sustainability and responsible business practices, its implementation in emerging markets often comes with significant social and economic costs.
GOVERNANCE CHALLENGES Emerging markets face governance challenges, including flexible regulatory frameworks, varying standards, and corruption. Regulatory frameworks are often underdeveloped or inconsistently enforced, creating environments where businesses can operate without strict adherence to ESG standards. Different regions within countries may have varying standards, complicating the implementation of cohesive ESG strategies for multinational companies. Moreover, the lack of resources to enforce these standards or fear of deterring investments may prevent strict enforcement. STRATEGIC IMPLEMENTATION OF ESG While ESG initiatives aim to create sustainable business practices, their blind implementation across all markets can have adverse effects. Applying the same standards to both developed and emerging markets without contextual adjustments can be counterproductive. Some economists argue that ESG standards divert investment from high-risk emerging markets to perceived safer developed markets, potentially starving emerging markets of essential capital. Therefore, a gradual, tailored incorporation of ESG standards, fine-tuned to fit the specific contexts of emerging markets, is crucial for equitable and effective implementation.
Amalia Lui Partner, Dar es Salaam
Additionally, governments and regulatory bodies are enhancing ESG requirements which encourages companies to adopt sustainable practices. Furthermore, a KPMG report reveals that 81% of African CEOs believe integrating CSR and ESG is essential for building trust with consumers and investors while ensuring their businesses are resilient in climate-related risks. These statistics highlight the importance of CSR and ESG frameworks shaping corporate behavior and driving Africa’s sustainability agenda. According to the International Renewable Energy Agency (IRENA), Africa has the potential to generate 310 GW of renewable energy by 2030, and the private sector is a crucial driver of this shift.7 For instance, investments in solar energy have surged, with a report by the International Finance Corporation (IFC) highlighting that USD 2.8 billion was invested in African solar projects between 2019 and 2021. In agriculture, companies are adopting climate-smart technologies, such as precision agriculture and drip irrigation systems, which are expected to increase food production by 17% while reducing water usage by 25%, according to the World Bank.8 Additionally, green technologies in industries like waste management and manufacturing are helping reduce carbon emissions. A 2022 report by the African Development Bank shows that businesses implementing green technologies have reduced their emissions by up to 30%.9 These investments demonstrate the private sector’s growing role in driving the adoption of green technologies across Africa, leading to both economic and environmental benefits.
CHALLENGES FACED BY COMPANIES IN AFRICA’S SUSTAINABILITY JOURNEY Despite the growing commitment of companies in Africa to sustainability, they face several significant obstacles in fully adopting sustainable practices. One major challenge is limited access to financing for green projects. According to the African Development Bank, only 10% of African private sector businesses have access to affordable green financing, making it difficult for companies, especially SMEs, to invest in renewable energy and sustainable technologies.10 Inadequate infrastructure also poses a significant barrier because many African countries lack the necessary infrastructure, such as reliable energy grids and transportation networks, to support large-scale sustainable operations, with the World Bank estimating that Africa’s infrastructure gap requires USD 170 billion annually to bridge. Additionally, regulatory hurdles further complicate the efforts, as inconsistent or weak enforcement of environmental regulations creates uncertainty for businesses trying to implement sustainability initiatives. For example, a report by the United Nations Environment Programme (UNEP) found that only 26% of African countries have comprehensive environmental laws, and even fewer enforce them effectively.11 These obstacles highlight the need for improved financing, infrastructure, and policy frameworks to support companies’ sustainability efforts.
OPPORTUNITIES FOR COMPANIES IN AFRICA’S SUSTAINABILITY JOURNEY Opportunities for companies to lead in climate resilience in Africa are growing as businesses increasingly recognise the economic benefits of sustainability. According to the International Finance Corporation (IFC), the African market for climate-smart investments could be worth up to USD 783 billion by 2030, driven by opportunities in renewable energy, sustainable agriculture, and green infrastructure.12 For example, investments in renewable energy are rapidly expanding, with the African Development Bank reporting that USD 20 billion has been allocated to clean energy projects across the continent since 2016.13 According to the World Bank, climate-smart practices such as drought-resistant crops and precision farming are projected to increase yields by 15% and reduce climate risks. Furthermore, the rise of green financing tools, such as green bonds and sustainability-linked loans, offers companies new ways to finance their climate resilience strategies. In 2021, Africa saw a 35% increase in the issuance of green bonds, raising over USD 2 billion, as noted by Moody’s ESG Solutions. These opportunities not only enable companies to enhance their competitiveness but also help them mitigate the risks posed by climate change, positioning them as leaders in Africa’s transition to a more sustainable and climate-resilient future.
CONCLUSION In conclusion, the private sector in Africa plays a pivotal role in driving the continent’s path to sustainability and climate resilience. As businesses increasingly integrate sustainable practices into their operations, they mitigate the adverse impacts of climate change and seize economic opportunities in renewable energy, sustainable agriculture, and green infrastructure. Companies can further lead Africa’s transformation toward a greener future by overcoming limited access to green financing and regulatory challenges. Looking ahead, continued innovation, investment in green technologies, and strengthened partnerships between governments, companies, and international organisations will ensure that Africa’s economic growth is sustainable and resilient to climate change. The private sector’s leadership will be vital in shaping the continent’s more prosperous, climate-conscious future. It is important to note that, legal advisers play a crucial role in the efforts to sustainable investment including establishing entities, structuring of operations, financing, and the overall project support.
Sustainability and climate resilience are critical for Africa, a continent highly vulnerable to climate change despite contributing only 4% of global greenhouse gas emissions.1 According to the African Development Bank, climate change, caused by extreme weather events like droughts, floods, and cyclones, could cost the continent between 3% and 5% of GDP annually by 2030.2 In this context, sustainability and resilience are essential to mitigate these effects and enable long-term economic growth.
he private sector in Africa is responsible for 80% of the continent’s total economic output and employment, giving companies significant influence
in addressing climate challenges. Businesses are increasingly adopting sustainability strategies, with a 2022 survey by PricewaterhouseCoopers (PwC) showing that 72% of African CEOs view climate change as a threat to their growth prospects. This article explores the critical role that companies in Africa play in advancing sustainability and building climate resilience in the face of mounting environmental challenges.
AFRICA’S SUSTAINABILITY AND CLIMATE RESILIENCE CHALLENGES Africa faces unique sustainability and climate-related challenges that threaten its environmental and economic stability. The continent loses over 3.9 million hectares of forest annually, contributing to deforestation and biodiversity loss.3 Water scarcity is another critical issue, with the United Nations (UN) predicting that by 2025, 230 million Africans will face water shortages, and 460 million will live in water-stressed areas. Additionally, extreme weather events, such as droughts, floods, and storms, are increasing in frequency and intensity. The World Meteorological Organisation (WMO) estimates that Africa experiences an average of USD 7 billion annually in economic losses due to climate-related disasters.4 The agricultural sector, which employs over 50% of Africa’s labour force, is particularly vulnerable. According to the World Bank, crop yields are projected to decline by up to 30% by 2050 due to rising temperatures. These environmental impacts lead to increased operational risks for businesses, higher costs, and reduced profitability, making it crucial for companies to a making it crucial for companies to adopt sustainable practices to safeguard the environment.
Companies in Africa are increasingly investing in renewable energy, sustainable agriculture, and other green technologies as part of their commitment to sustainability and climate resilience.
AJLabs. (2023, September 4). How much does Africa contribute to global carbon emissions? Al Jazeera. https://www.aljazeera.com AFDB (N.D). Focus on Africa. AFDB. https://www.afdb.org Global Forest Resource Assessment 2020. (n.d.). www.fao.org. https://www.fao.org Africa faces disproportionate burden from climate change and adaptation costs. (2024, September 2). World Meteorological Organization. https://wmo.int Pricewaterhouse Coopers. (n.d.). Taking action on your ESG strategy – Africa report. PwC. https://www.pwc.com Pérez, L., Hunt, D. V., Samandari, H., Nuttall, R., & Biniek, K. (2022, August 10). Does ESG really matter—and why? McKinsey & Company. https://www.mckinsey.com (2020, March 31). The Investment Case for energy Transition in Africa. https://www.irena.org World Bank climate-smart agriculture. (n.d.). https://www.worldbank.org Climate Change and Green Growth Department. (2022). Climate change and green growth at the African Development Bank. Unknown. (2023). Private sector financing for climate action and green growth in Africa. In Unknown. https://www.afdb.org UNEP. (2025). UNEP Website. https://www.unep.org Grossman, C, et al. (2016). Climate Investment Opportunities in Emerging Markets. IFC. AFDB (2024). African Development Bank invests $20 million in infrastructure fund to catalyze continental development. AFDB. https://www.afdb.org
THE ROTHE ROLE OF COMPANIES IN DRIVING SUSTAINABILITY Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) frameworks increasingly shape how African companies operate, as stakeholders demand more accountability in addressing sustainability and social issues. According to a 2021 PwC Africa report, 68% of African companies now see ESG as a critical component of their business strategy, reflecting growing recognition of the link between responsible business practices and long-term profitability.5 In particular, companies that adopt robust ESG frameworks tend to outperform their peers, with a 2020 study by McKinsey showing that businesses with high ESG scores reported 10–15% higher returns on equity.6
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Contents
Rosehana Amin Partner
Authors
