Impacts of climate litigation on firm value

Sato, Misato ORCID: 0000-0002-9978-9595, Gostlow, Glen, Higham, Catherine, Setzer, Joana ORCID: 0000-0002-7705-7684 and Venmans, Frank ORCID: 0000-0002-4264-6606 (2024) Impacts of climate litigation on firm value. Nature Sustainability. ISSN 2398-9629 (In Press)

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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 where 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 2005–2021. 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.

Item Type:	Article
Additional Information:	© 2024
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences
Date Deposited:	07 Oct 2024 16:06
Last Modified:	18 Oct 2024 14:00
URI:	http://eprints.lse.ac.uk/id/eprint/125638

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