As major carbon emitters exacerbate climate change, communities and individuals are taking legal action, leading to an increase in climate litigation. An internationally renowned climate policy research think tank analyzed 108 climate lawsuits and found that these lawsuits can impact corporate stock prices, leading to a decline in firm value.
The Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE) published its latest research on the 23rd. After analyzing 98 companies listed in Europe and the United States from 2005 to 2021 and 108 climate lawsuits involving them, it was found that when a company was sued or lost a lawsuit, the company's value declined by an average of about 0.41%.
The study also found that the market reacted most strongly to climate lawsuits against carbon majors, with company valuations declining by an average of 0.57% after a lawsuit was filed and by 1.5% if an unfavorable verdict was reached.
Misato Sato, lead author of the report and assistant professor at the London School of Economics, said: "It was previously unclear whether the stock market cared about climate litigation, but this data confirms this hypothesis for the first time. The study also reminds lenders, financial regulators and governments that investment decisions should incorporate this risk."
The research team also found that if the content, location or form of the lawsuit is unprecedented and is a new form, the impact on stock prices will be greater.
The Guardian reported that in 2015, Peruvian farmer and mountain guide Saúl Luciano Lliuya sued Germany's largest power company, RWE, for exacerbating climate change and threatening his homeland. The lawsuit caused RWE's relative value to drop by 6%. By the time the High District Court accepted the case in 2017, RWE's relative value had also fallen by 1.3%.
The study also found that capital markets have become increasingly responsive to climate litigation in recent years. When Friends of the Earth (Milieudefensie) sued Shell in April 2019, demanding it reduce its carbon emissions, Shell's relative value actually rose by 1.9%. However, two years later, when the Hague Court ordered Shell to reduce its group carbon emissions to 45% of 2019 levels by the end of 2030, Shell's relative value fell by 3.8%.
While ESG is trending, some companies' carbon reduction efforts lack tangible benefits, posing a risk of "greenwashing." Andrew Coburn, CEO of the climate risk firm Risilience, noted that while European and American regulators are cracking down on greenwashing, companies that fail to provide transparent data will continue to face financial risks.
Source: Environmental Information Center (https://e-info.org.tw/node/236842)
