According to a recent study by LSE’s Grantham Research Institute, climate litigation is significantly impacting the financial value of fossil fuel companies.
The study analyzed 108 climate crisis lawsuits worldwide between 2005 and 2021 against 98 companies listed in the US and Europe and It found that the filing of a new case or a court decision against a company reduced its expected value by an average of 0.41%.
The study found that filing a new case or a court decision against a company reduced its expected value by an average of 0.41%.
The research highlights the importance of climate litigation as a financial risk for fossil fuel companies and calls for financial regulators, lenders, and governments to consider the effect of climate litigation when making investment decisions.
The study also shows that the stock market responds most strongly in the days after cases against carbon majors, which include the world’s largest energy, utility, and materials firms.
The researchers found that share prices fell more in reaction to novel cases involving a new form of legal argument or filed in a new jurisdiction.
The study shows that the drop in the value of big polluters is statistically significant and thus caused by legal challenges.
In recent years, the increase in climate litigation against fossil fuel firms and other polluting industries has challenged corporate inaction on the climate crisis and attempts to spread misinformation.
Companies are increasingly recognizing climate litigation as a risk.
Legal experts predict that climate litigation will be a recurring theme in annual accounts as companies become subject to stricter disclosure rules.
While it is too early to say if litigation is driving substantial changes in climate action among big polluters, evidence that lawsuits affected share price or credit ratings could help influence corporate behavior.
The study’s findings suggest that climate litigation could encourage greener corporate behavior and that financial regulators, lenders, and governments should consider the impact of climate litigation when making investment decisions.
As climate litigation becomes more prevalent, companies must recognize the risks and adapt to the changing regulatory landscape to ensure their long-term financial stability.
In conclusion, the study confirms that climate litigation poses a significant financial risk to fossil fuel companies and that the stock market responds significantly to news of fresh climate lawsuits or unfavorable judgments.
The study’s findings could help drive greener corporate behavior and encourage financial regulators, lenders, and governments to consider the impact of climate litigation when making investment decisions in a warmer future.
Companies failing to present credible, ambitious, and realistic climate transition plans underpinned by transparent data face additional financial risks from regulators across the UK and Europe.
Source: Grantham Research Institute, The Guardian
