Climate litigation poses a financial risk to fossil fuel companies because it lowers the share price of big polluters, research has found.
A study to be published on Tuesday by LSE’s Grantham Research Institute examines how the stock market reacts to news that a fresh climate lawsuit has been filed or a corporation has lost its case.
The researchers hope their work will encourage lenders, financial regulators and governments to consider the effect of climate litigation when making investment decisions in a warmer future, and ultimately drive greener corporate behaviour.
The study, which is currently being peer reviewed, analysed 108 climate crisis lawsuits around the world between 2005 and 2021 against 98 companies listed in the US and Europe. 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 stock market responded most strongly in the days after cases against carbon majors, which include the world’s largest energy, utility and materials firms, cutting the relative value of those companies by an average of 0.57% after a case was filed and by 1.5% after an unfavourable judgment.
Although modest, the researchers conclude that the drop in the value of big polluters is statistically significant and therefore down to the legal challenges.
“We didn’t know before if the markets cared about climate litigation,” said Misato Sato, lead author of the study. “It’s the first evidence supporting what was suspected before; that polluting firms and especially carbon majors now face litigation risk, in addition to transition and physical risk.”
Researchers also found share prices fell more in reaction to novel cases involving a new form of legal argument or filedRead more on theguardian.com