On 29 June, the Grantham Research Institute on Climate Change and the Environment launched its annual report on global trends in climate litigation. The report examines the key trends emerging from the 190 climate cases brought between 1 June 2022 and 31 May 2023.
Although the number of climate cases brought in a single year appears to have peaked in 2021, climate litigation continues to present a major risk to corporates. Climate litigation against corporates is now diversifying beyond fossil fuel companies to a wide range of other sectors including the financial, forestry, and food industries, recognising that organisations across sectors play an important role in climate change.
Rising levels of strategic litigation
This year has built on the dramatic increase in strategic litigation which saw over 100 such cases brought outside the US in 2021 alone. These cases attempt to influence corporate governance and decision-making or policy outcomes. Companies should expect a broad range of mutually reinforcing litigation strategies as climate NGOs and activists grow more sophisticated in their attempts to hold companies to account for their environmental activities. These strategies include:
- Bringing “climate-washing” cases, which target allegedly misleading green claims made by companies and scrutinise terms such as “net zero” and “climate neutrality”. The large growth in climate-washing cases has been a major trend in recent years. These cases have had notable successes as companies have been found under consumer protection laws, for example, to lack sufficient data to support the green claims they have made about their products and services;
- Explicitly requiring companies to change their general corporate strategies to take environmental considerations into account. Tort and human rights laws have been the legal hooks on which claimants have hung these “corporate framework cases”, and companies will also have to consider the requirements of the incoming EU Corporate Sustainability Due Diligence Directive;
- Focussing on specific projects which companies have introduced or approved in a way which has allegedly not taken climate change into account;
- Alleging that companies have failed to adapt to a low-carbon economy;
- Attempting to reduce the profitability of high-emitting activities by requiring companies to compensate claimants for losses allegedly suffered as a result of those activities; and
- Attributing personal responsibility for failure to manage climate risks adequately to particular individuals such as directors of companies.
Impacts on corporates
In light of these litigation trends, the report highlights the following impacts which will be particularly relevant to companies:
- Different stakeholders’ growing awareness of and engagement with climate risk. For example, climate change is increasingly being recognised by institutional investors as posing a systemic risk to many sectors in the economy;
- Potential impacts on firm value. A recent study finds small but statistically significant changes in valuation resulting from climate litigation, with larger impacts for “novel” cases, for example; and
- The potential of climate litigation to influence corporate decision-making processes even if a given claim may be unsuccessful in the courtroom. Companies should bear in mind that climate cases may be brought alongside media campaigns and broader advocacy to compel boards to reconsider corporate strategy.
The findings of the report reinforce the message that companies’ risk-mitigation strategies will need to be ever more vigilant in grappling with the growing sophistication and ambition of claimants.