© William Cho
Climate litigation is a powerful force reshaping government policy and corporate behaviour, with far-reaching consequences that demand urgent attention from financial regulators. This was the clear message from a panel of legal experts at a recent London Climate Action Week event unpacking the findings of a report on the latest trends in climate-related lawsuits.
The 2024 edition of Global Trends in Climate Change Litigation was presented by authors Joana Setzer and Catherine Higham and paints a picture of an ever-evolving field. They revealed that while the initial surge in climate cases seen in the decade following the Paris Agreement may be levelling off, litigation is continually diversifying in terms of innovative legal strategies and global reach.
Central banks must act on climate or risk facing lawsuits
Speaking to Green Central Banking outside of the event, the authors stressed the urgent need for financial regulators to adapt to the growing threat of climate litigation risk.
While climate litigation is in its relatively early stages there are still opportunities for regulators and financial institutions to stay ahead of the curve, said Higham, policy fellow at the London School of Economics’ Grantham Research Institute.
However, if banks and their counterparties are unprepared for physical- and transition-related risk and the liabilities this exposes them to, there is a substantial danger that “climate litigation can make a messy situation even messier”.
Although a climate case has not been filed against a central bank since 2021, central banks are far from immune to legal challenges and may face future lawsuits if they are too slow to move on climate, said Setzer, associate professorial research fellow at the Grantham Research Institute, speaking to Green Central Banking.
Diversifying climate litigation trends
The panel discussion held as part of the event offered a snapshot of climate litigation trends globally, and explained that climate cases are no longer confined to a handful of countries in the global north.
Cases have now been filed in at least 55 nations, with emerging economies like Brazil seeing significant growth and cases being filed in Portugal and Panama for the first time in 2023, Setzer told the audience.
Cynthia Hanawalt, director of the Sabin Centre’s financial regulation practice, highlighted the growing importance of mandatory climate reporting frameworks, such as the US Securities and Exchange Commission’s new disclosure rules.
Hanawalt said that as these regulations come into force, companies falling foul of their climate obligations are more likely to face enforcement actions as well as private litigation.
In previous decades, much of the sustainability risk disclosure rules were voluntary and uneven, offering little accountability. However, that will change “dramatically” as mandatory rules come into effect bringing a new wave of liability risk, Hanawalt said.
The report authors also identified substantial growth in greenwashing cases brought against corporations across a growing number of sectors, buoyed in some cases by the EU’s new deforestation regulation and the corporate sustainability due diligence directive.
“So far these cases have had about a 70% success rate, so this is a serious phenomenon to watch,” said Higham.
Zaneta Sedilekova, director of climate and biodiversity risk at consultancy firm Planet Law Lab and associate at law firm Clyde & Co, pointed to the emerging body of biodiversity litigation which has been built on successful climate precedents.
Such cases have the potential to “fast track” their climate counterparts due to the relative ease of establishing responsibility for damage to a specific localised ecosystem – for instance through supply chain tracing, ownership structures or financial flows.
The report also noted a rise in “transition risk” cases, in which companies are sued, often by their own shareholders, for mismanaging climate-related business risks.
For instance, in December 2023 shareholders of Polish energy company Enea decided to sue the former directors and insurers over transition risk mishandling. The directors supported the construction of the controversial Ostrołęka C coal-fired power station project which independent evidence suggested was at high risk of becoming stranded and likely to be “permanently unprofitable”. The project was ultimately abandoned in the face of financing difficulties, resulting in a loss of more than US$160mn.
While this is a relatively nascent thread of climate litigation, there is the potential to see significant growth in these cases if key stakeholders are not more careful in their management of physical, transition and litigation risk.
However, the panel also noted a growing trend of ESG “backlash” cases, particularly in the field of antitrust laws in the US.
“Ultimately, we need to not just think of all of the cases as something that will produce a beneficial outcome for the climate, but also that some cases might actually pose certain risks,” said Harro van Asselt, climate law professor at the University of Cambridge.
Speaking to Green Central Banking after the event, van Asselt emphasised that central banks must urgently recognise the ongoing and distinct risks posed by climate litigation.
“Climate litigation will continue to influence policies and companies” and central banks and the financial sector “need to start planning for this seriously”.
This page was last updated July 22, 2024
Written by
Ike Walker, a Green Central Banking contributor since 2023, has a decade's experience in research writing. An Utrecht-based scholar, Ingrid specialises in transformative justice, green finance, law and systems change. They are an Utrecht University's Bright Minds scholar and previously worked for Cambridge University and various justice-based NGOs.
