Impact of Climate Litigation On Share Price

A London School of Economics study shows that climate-related lawsuits have an increasing effect on market capitalization. The first climate-related litigation was filed in 2005, but most of the statistically measurable declines in share price driven by such litigation come from suits initiated after 2019. The study distinguishes between companies in the energy, utilities, and materials sectors, so-called Carbon Majors, and non-Carbon Majors. Measured between 2005 and 2021, the filing of a climate-based claim or an unfavorable court decision reduced the market capitalization of the defendant company by about 0.41 percent. That number reflects the fact that when the first suits related to hurricane impacts and relocation costs due to sea level rise were filed against Carbon Majors they had a negligible impact on share price. However, since 2019, an unfavorable decision to a Carbon Major has resulted in a 1.55 percent decline. The accelerating impact coincides with increasing general awareness of legislative and regulatory activity around climate-related issues.