Impacts of climate litigation on firm value

Misato Sato (), Glen Gostlow, Catherine Higham, Joana Setzer and Frank Venmans
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Misato Sato: London School of Economics and Political Science
Glen Gostlow: University of Zürich
Catherine Higham: London School of Economics and Political Science
Joana Setzer: London School of Economics and Political Science

Nature Sustainability, 2024, vol. 7, issue 11, 1461-1468

Abstract: Abstract Communities and individuals are turning to courts to hold governments and high-emitting firms to account for the adverse consequences of climate change. Such litigation is part of a broader trend in which stakeholders are increasingly scrutinizing firms for their sustainability practices. For firms, rising climate litigation risk may exacerbate wider sustainability risks. Here we construct a comprehensive database of filings and decisions relating to 108 climate lawsuits against US- and European-listed firms between 2005 and 2021. We show that firms experience, on average, a 0.41% fall in stock returns following a climate-related filing or an unfavourable court decision. Cases filed against Carbon Majors, primarily the world’s largest fossil fuel producers, saw the largest stock market responses, with returns reducing by 0.57% and 1.50% following filings and unfavourable decisions, respectively. Markets respond more to ‘novel’ climate litigation involving new legal arguments or jurisdictions. Our findings suggest that climate litigation provides a way for stakeholders to challenge actual and perceived weaknesses in the sustainability practices of firms. We conclude that financial markets consider such litigation to be a relevant financial risk.

Date: 2024
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Working Paper: Impacts of climate litigation on firm value (2023)
Working Paper: Impacts of climate litigation on firm value (2023)
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DOI: 10.1038/s41893-024-01455-y

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