Navigating climate litigation risk: what investors really think
Litigation is a rising climate-related risk for companies, but investor views differ on the scale of the risk facing their assets, writes Tiffanie Chan.
Climate change litigation is no longer a fringe concern. Globally, over 3,000 lawsuits have been filed against not only governments and major carbon emitters in the private sector but also less obvious defendants, such as banks, management consultants and PR agencies. Experts have argued that these lawsuits can hit companies in multiple ways, resulting in reputational damage, operational disruption, higher financing costs and/or direct financial penalties.
The negative impact of court filings and decisions on companies’ share prices backs this up. Investors are clearly paying heed to climate litigation. The problem is that nobody really knows how investors think about climate litigation. We can measure how markets react after a high-profile case emerges but when investors are deciding where to put their money, how do they weigh the litigation risk against other factors, such as regulatory or physical climate risks?
A recent paper published by the Grantham Research Institute on Climate Change and the Environment sheds new light on this topic. Drawing on a large global survey of 811 institutional equity investors and analysts, the authors find that nearly 80% of investors view climate litigation as financially material. Strikingly, investors view the emergence of media coverage or case filings – rather than just court judgments – as the point at which litigation becomes financially significant. Companies face reputational and financial consequences from the moment a case enters the public consciousness, even if it is ultimately unsuccessful. It is not just oil and gas companies that are affected. Investors care about litigation against companies in all sectors, including banking, agriculture and retail.
The level of concern varies depending on the type of investor. Growth-oriented investors, who bet on a company’s potential, are 71% more likely to believe that climate litigation is already financially material. This suggests they understand climate litigation as more than an isolated event. Instead, litigation can constrain operations and alter the firm’s future business model. For example, a case filed last month against Shell targets the company’s stake in 700 new oil and gas fields. The claimant, a Dutch NGO, demands that the company halt its efforts to bring any new fields into production. If successful, this could reshape corporate strategy over multi-year horizons. The paper also finds that North America-focused investors are particularly concerned about climate litigation. This is unsurprising, given that the vast majority of climate litigation – from both activists who support climate action and those who oppose it – takes place in the US.
Investors disagree on the importance of litigation risks relative to physical and transition risks. Imagine two investors looking at the same company. One sees litigation as complementing emissions regulations: for example, a court may revoke a project’s permits on the basis that it is misaligned with national carbon budgets and global temperature goals. The other investor sees litigation as a substitute for regulation: a lack of ambitious government climate policy leads to a world with higher warming and, as a result, causes damage to houseowners, who pursue litigation to recover their losses. Both investors are concerned about climate litigation, but their distinct perspectives have different implications for how they value and engage with companies.
The paper also suggests that not all climate litigation is equal in investors’ eyes. Cases that seek to stop high-emitting projects worry investors more than broader cases about the overall ambition of governments’ emissions-reduction targets and implementation of climate action, even though this latter group of cases could result in a rapid increase in policy and regulation. The types of lawsuits against companies that concern investors most are not claims seeking damages but cases that target companies for making misleading sustainability claims (greenwashing cases) or violating human rights through a failure to cut emissions. Although a growing number of damages cases are working their way through courts around the world, no company has yet been ordered to pay compensation for climate harms directly caused by their emissions. Investors find it difficult to price the resulting uncertainty about the success of such cases and the amount of compensation a company may be ordered to pay. Their views on this may shift as climate litigation continues to develop.
In 2015, Mark Carney (then Governor of the Bank of England) placed climate litigation risk on the map of the financial community, highlighting it as a distinct form of liability risk alongside physical climate and transition risks. However, ten years on, climate-related financial risk frameworks and corporate disclosures remain mainly focused on these latter two categories. Litigation has sat at the margins. It is not systematically assessed as a financial risk.
The paper shows that disagreement among investors about climate litigation risk is not arbitrary. Some of that disagreement reflects differences in investors’ mandates, their optimism (or pessimism) about climate action, and whether they believe litigation is effective. However, some of it also reflects a simpler problem: investors do not yet have the information they need to make informed decisions about climate litigation risk. Companies that get ahead of this, through transparent disclosure of their legal exposures, robust governance of climate risk and honest sustainability communications will be better placed to manage investor uncertainty.
This commentary was first published by Business Green on 11 May 2026 and has been reproduced here with permission.