© William Cho
Climate litigation is now recognised by “prominent market actors as a financially material risk”, according to a new report. This is the headline finding from the Grantham Research Institute’s latest annual climate litigation snapshot report.
The annual survey of climate cases from the Grantham Research Institute finds that while cases mandating stronger government action reduce policy uncertainty and boost green investor confidence, the backlash against ESG measures creates a “polarised” regulatory landscape with potentially destabilising market effects.
Judicial interventions are dynamically reshaping the risk landscape, so banks, investors and advisers should do more to address resulting exposures, suggest report authors Catherine Higham and Joana Setzer.
The report states that banks are “under pressure, facing direct legal exposure and indirect risk through clients” and “more significant financial exposures are expected to emerge” if landmark cases result in large-scale judgments or settlements.
Frank Elderson, European Central Bank executive board member, has warned that 70% of European banks analysed could face elevated litigation exposure due to misalignment between their credit portfolios and public Paris Agreement commitments. Research shows litigation risk now ranks, on average, above physical climate risk in perceived materiality among equity investors and analysts.
Despite growing awareness, many financial institutions are still lagging in integrating this risk. The report reveals “significant variation in how banks conceptualise and manage litigation risk”. While some incorporate it into disclosures or governance, others are at the early stages. Barriers include risk complexity, diverse litigation types and a lack of standardised measurement tools.
However, supervisory institutions are beginning to respond. The European Banking Authority’s ESG risk management guidelines, for instance, mandate banks to identify and mitigate climate-related risks, including litigation risk.
Legal strategies evolve amid ESG pushback
As regulatory clarity erodes in the face of anti-ESG pushback in the US and parts of Europe, the report suggests deregulatory trends may be driving-up litigation risk.
In the US, federal and state governments are locked in legal battles over the legitimacy of ESG-focused investment strategies, with lawsuits leaving regulations in limbo, muddying the waters for businesses and investors alike. The report reveals that approximately 27% of newly filed cases in 2024 sought to challenge regulations promoting climate considerations or ESG factors.
Despite anti-ESG headwinds, the authors note a broadening of legal strategies indicating that, even if financial regulations are weakened or eliminated, multiple other legal avenues remain available to hold companies and financiers accountable. In the absence of robust disclosure regimes, firms are more likely to be ill-prepared to meet their legal obligations.
A decision by the UK supreme court deemed an oil well extension unlawful for failing to consider scope 3 emissions from supply chains under planning laws rather than financial disclosure rules.
The result of these dual pressures is a destabilising environment in which companies face lawsuits from all sides, whether for doing too much or too little on climate.
Speaking to Green Central Banking at the launch of last year’s report, Catherine Higham, author and senior policy Fellow at the London School of Economics, warned that this lack of clarity is bad for business as it undermines the predictability needed by markets.
“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,” said Higham.
Global south governments chart a different path
The analysis reveals a different pattern across the global south, where countries such as Brazil, India, South Africa and Indonesia have seen a surge in cases often initiated or supported by governments seeking to enforce climate commitments. In 2024, 56% of global south cases were initiated by government bodies, compared to just 5% in the north.
This government-led approach marks a shift toward enforcement actions and cases seeking compensation for localised climate damages. In Brazil, the federal prosecutor’s office and environmental agency are pursuing more than 30 lawsuits related to illegal deforestation in the Amazon.
China presents a unique model, with the state actively encouraging litigation to advance climate policy. Chinese courts saw 518 climate-relevant cases, mainly involving carbon market regulation, energy transition contracts and protection of carbon sinks.
In 2023, the Chinese Supreme People’s Court issued guidance encouraging courts to engage with litigation around green development, heavy industry restructuring and establishing carbon markets, aligning judicial efforts with national climate targets.
“Looking forward, the role of litigation in global climate governance will likely become even more pivotal – and contested … the coming years will show whether litigation can continue to catalyse action in the face of intensifying climate risks and shifting political currents,” the authors say.
This page was last updated July 10, 2025
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.
