Article
Climate litigation
Key concepts, risks and compliance strategies
Cases related to climate change that have been brought before judicial and financial supervisory authorities, investigatory bodies, and ombudsman schemes have more than doubled since 2015. While most claims are brought against governments, there is a steep increase in cases brought against companies, their directors and investors. This report delves into the specifics of climate litigation to help organisations integrate climate and sustainability into their risk management and legal compliance strategies.
The prevalence and geographical scope of climate litigation has continued to accelerate in recent years. At the 2023 World Economic Forum in Davos, this issue was addressed during a panel discussion. Civil society is looking to fulfil compliance gaps and hold governments, and increasingly companies, accountable for their climate commitments, actions and inaction. Understanding climate litigation is critical for businesses due to three main reasons. First, recent trends show that no sector or geography should feel immune from potential climate litigation, although major carbon emitters and their financial enablers face of course the biggest litigation risk. Second, climate and more broadly sustainability regulations are rapidly increasing around the world but often in a fragmented and inconsistent manner, which creates compliance challenges and further expose companies to climate litigation risk. Third, climate cases can have deep repercussions.
In case an organisation is a respondent in a climate case and loses, it may be required to reduce its greenhouse gas emissions, provide adequate compensation for damages (with no certainty that insurance companies will keep covering climate litigation costs going forward), or fulfil non-financial remedies such as the modification of business practices or activities. Even in case the company is a not party to the proceedings, cases lodged against its peers may still have repercussions in terms of defining best market practices, stakeholder expectations, and compliance and reputational risks.
To turn this analysis into action, we propose a four-step approach to integrate climate and sustainability into risk management and legal compliance strategies. Climate litigation risk is highly relevant for directors, executives, and managers from all sectors (including the financial sector), and this report will help them understand and address these issues.
