Grantham Workshop on climate litigation | Tiffanie Chan and Joana Setzer

Presentation 1: Climate litigation risk: an equity investor’s perspective 

Authors (alphabetical): Tiffanie Chan, Glen Gostlow, Catherine Higham, Misato Sato, Joana Setzer, Frank Venmans

Scholars and experts have hypothesised that climate change litigation creates reputational damage for firms that might translate into financial loss. Existing literature has also argued that litigation can be understood as a channel for and an amplifier of physical and transition risks. However, little is known about whether and how financial market actors respond to this category of risks. Do market actors understand climate change litigation risk as different from other forms of litigation risk? How do they see the relationship between litigation and the better-known categories of climate related financial risks? Do they even see climate litigation as a financially material risk at all?

Using a survey of around 600 equity investors and analysts, this article investigates understandings of, and approaches to, climate litigation risk. The survey distinguishes between investors with growth, value and income mandates. Using a combination of methods to analyse the data, including a principal component analysis approach, we find evidence that litigation risk is a relevant factor in investment decisions, but the time horizon and uncertainties prevent investors from considering it higher than well-known climate-related risks. There is variety in perceptions of when legal risk arises, ranging from when the case is covered widely by media, filed to court or decided. There is some agreement across surveyed investors that there are spillover risks for companies similar to those that are subject to litigation. However, we find limited evidence of asset management firms adopting concrete risk management approaches to address climate litigation risk.

In part, this paper validates findings from a previous paper by authors, which quantified the stock market response to climate litigation (Sato et al., 2024). Using a dataset of 108 climate change lawsuits filed worldwide against US and European-listed corporations between 2005 and 2021, the paper provided evidence that climate litigation filings or unfavourable court decisions reduced firm value by -0.41% on average. 

Presentation 2: Integrating Scope 3 Emissions into Climate Litigation: Evolution, Challenges, and Judicial Responses

Authors: Joana Setzer, Clemens Kaupa, L. Delta Merner, Lisa Benjamin, Isabela Keuschnigg, Kaia Turowski, Allison Shryock, Laura Peterson & Aradhna Tandon

This article investigates the integration of the scientific concept of Scope 3 emissions into the legal sphere, particularly through litigation. Scope 3 emissions refer to the indirect emissions that occur in a company’s value chain, including both upstream and downstream activities. Our research delves into the origins of the Scope 3 emissions concept, its adoption in environmental science, and its subsequent permeation into legal discourse.

Initially, we explore the existing literature on the development of Scope 3 emissions. This concept emerged from the broader framework of greenhouse gas (GHG) accounting and reporting, which has evolved significantly over the past few decades.

The article then critically examines how the concept of Scope 3 emissions has been integrated into climate litigation. We identify two main areas where Scope 3 emissions appear in climate litigation: (i) legal requirements to consider or disclose Scope 3 emissions; (ii) legal requirements to reduce Scope 3 emissions.

Our article delves deeper into this second category by analysing a dataset of 12 corporate framework climate litigation cases. We focus on how claimants in these cases strive to incorporate Scope 3 emissions into their arguments, the counter arguments presented by defendants, and the judicial responses to such claims.

Through detailed analysis of case documents, we identify emerging legal themes and commonalities in judicial reasoning. The analysis reveals a nuanced judicial landscape where courts grapple with the complexities of Scope 3 obligations.

The paper demonstrates the increasing relevance of Scope 3 emissions in legal contexts, reflecting a broader shift towards comprehensive environmental accountability. As litigation continues to evolve, the legal system’s capacity to address and enforce Scope 3 emissions will play a critical role in shaping corporate behaviour and environmental outcomes.

Grantham Workshops are only open to LSE researchers and alumni. If you wish to attend the workshop in person or online please sign up to our workshop mailing list.