Climate-related litigation: Recent trends and developments

This report examines the rapid rise in climate-related litigation globally. The report categorises these cases into three key areas: litigation against states and public entities, non-financial institutions, and financial institutions. These cases reflect the increasing legal risks tied to climate change, with significant implications for the financial sector.

Climate-related litigation against states and public entities

Litigation against states and public entities has intensified, largely due to claims that government actions are insufficient to meet climate commitments. Between 2021 and 2022, over 70% of cases targeted governments, central banks, and supervisors. Cases such as the Urgenda case in the Netherlands have inspired similar legal challenges globally, where plaintiffs allege that state actions breach international agreements, administrative law, or human rights. For instance, the European Commission’s classification of gas and nuclear power as sustainable has also been legally challenged.

The report stresses that these cases could lead to substantial financial and reputational risks for entities associated with public projects, such as fossil fuel exploration, which may face delays or increased costs. The growing focus on procedural obligations, like access to environmental information and justice, further highlights the expanding scope of this litigation category.

Climate-related litigation against non-financial institutions

The report notes an increase in litigation against non-financial corporations, particularly fossil fuel and energy companies. In 2021, 38 cases were filed against corporate entities, with over half targeting industries outside of fossil fuels and energy, such as agriculture, transport, and plastics. Financial risks for these companies are significant, with claims often based on public nuisance, breach of duty, or tort law. For example, cases have been brought against fossil fuel companies for their contributions to physical damages related to climate change, such as in Lliuya v. RWE.

Greenwashing claims are also rising, with businesses being accused of misleading consumers regarding their environmental performance. Such cases are not limited to traditional courtrooms but include complaints to advertising and supervisory authorities. Financial penalties, reputational damage, and increased scrutiny are common outcomes for companies found guilty of greenwashing.

Climate-related litigation against financial institutions

The report highlights emerging litigation risks for financial institutions, especially concerning greenwashing and directors’ duties. Financial institutions may face legal action due to their climate-related disclosures, and regulatory investigations are becoming more common. For instance, HSBC faced complaints about its advertising standards, while ANZ Bank was challenged under OECD guidelines for financing fossil fuel projects.

Claims of breaches of directors’ duties have also surfaced, particularly concerning pension funds and their investment strategies. Shareholder actions are pressuring directors to divest from fossil fuels to manage long-term risks better. In addition, cases have been brought under corporate due diligence laws, such as one against BNP Paribas in France for financing fossil fuel activities, underlining the legal risk for financial institutions that fail to align their activities with climate goals.

Conclusion

The NGFS anticipates that climate-related litigation will continue to grow, driven by the expansion of climate-related legislation and increasing recognition of the link between biodiversity loss and climate change. The financial sector is particularly vulnerable as regulatory requirements for climate disclosures increase, making institutions more susceptible to legal claims. The report underscores the importance for central banks and supervisors to incorporate these risks into financial assessments, as the costs associated with litigation, including reputational damage and transition risks, may rise sharply in the coming years.