A study has found that climate litigation poses a serious risk to environmental and fossil fuel polluters as the fallout hits the companies where it hurts – their share prices. This reaction of the stock market to fresh climate lawsuits was published by the LSE’s Grantham Research Institute and noted an average drop in expected value for said companies of 0.41%.
The researchers are hopeful that their findings will motivate lenders, regulators, and governments to apply pressure to fossil fuel companies to make greener decisions regarding energy to ensure their investments. The study analysed 108 climate crisis lawsuits from across the globe between 2005 and 2021. The strongest response from the stock market was seen in the days immediately after a lawsuit was filed. The world’s largest energy and utility companies saw their value drop by 0.57% in the immediate days after to 1.5% after an unfavourable judgement. The research concluded that this drop was statistically significant and was a result of the legal challenges.
Lead author of the study, Misato Sato, discussed the evidence and its implications stating, “It’s the first evidence supporting what was suspected before; that polluting firms and especially carbon majors now face litigation risk.” Sato’s comments ring true, as the big names in carbon pollution have all seen the affects of a drop in value due to legal action; RWE, Shell, and BP to name a few.
German energy company RWE saw their relative value drop by 6% in 2015 after a successful litigation and again by 1.3% in 2017. Shell saw a decrease of 3.8% after they were ordered by a court at The Hague to cut their emissions by 45% by the end of 2030. BP have also disclosed that these changes in law and regulation and social attitude, could have an “adverse impact” on its business.
With this evidence of financial loss due to climate mitigation, it could spell a turning point in the financial stability as well as public perception of the big fossil fuel companies. With a threat to their market value increasing with the number of lawsuits, these companies may have no other choice than to look at greener alternatives. Additionally, it opens the door for new businesses whose model focuses solely on renewables to fill the gap that is being left behind.
With green energy being one of the only solutions to the worldwide climate and energy crisis, hitting fossil fuel companies where it hurts most, their profits, could be the only viable solution to see real change and reform within the industry. As more consumers and businesses around the world start see the day-to-day effects of climate change, more lawsuits and litigations will stack up. This should force the hand of the big businesses who profit from it most.
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