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Impacts of climate litigation on firm value

Author

Listed:
  • Misato Sato

    (London School of Economics and Political Science)

  • Glen Gostlow

    (University of Zürich)

  • Catherine Higham

    (London School of Economics and Political Science)

  • Joana Setzer

    (London School of Economics and Political Science)

  • Frank Venmans

    (London School of Economics and Political Science)

Abstract

Communities and individuals are turning to courts to hold governments and high-emitting firms to account for the adverse consequences of climate change. Such litigation is part of a broader trend in which stakeholders are increasingly scrutinizing firms for their sustainability practices. For firms, rising climate litigation risk may exacerbate wider sustainability risks. Here we construct a comprehensive database of filings and decisions relating to 108 climate lawsuits against US- and European-listed firms between 2005 and 2021. We show that firms experience, on average, a 0.41% fall in stock returns following a climate-related filing or an unfavourable court decision. Cases filed against Carbon Majors, primarily the world’s largest fossil fuel producers, saw the largest stock market responses, with returns reducing by 0.57% and 1.50% following filings and unfavourable decisions, respectively. Markets respond more to ‘novel’ climate litigation involving new legal arguments or jurisdictions. Our findings suggest that climate litigation provides a way for stakeholders to challenge actual and perceived weaknesses in the sustainability practices of firms. We conclude that financial markets consider such litigation to be a relevant financial risk.

Suggested Citation

  • Misato Sato & Glen Gostlow & Catherine Higham & Joana Setzer & Frank Venmans, 2024. "Impacts of climate litigation on firm value," Nature Sustainability, Nature, vol. 7(11), pages 1461-1468, November.
    • Handle: RePEc:nat:natsus:v:7:y:2024:i:11:d:10.1038_s41893-024-01455-y
    DOI: 10.1038/s41893-024-01455-y
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    Cited by:

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    2. Yan, Meilan & Li, Youwei & Pantelous, Athanasios A. & Vigne, Samuel A. & Zhang, Dalu, 2024. "A comparative and conceptual intellectual study of environmental topic in economic and finance," International Review of Financial Analysis, Elsevier, vol. 91(C).
    3. Jiao, Anqi & Sun, Ran & Ren, Honglin, 2025. "Navigating climate policy: Corporate lobbying strategies in response to intensified climate risk exposure," Energy Economics, Elsevier, vol. 148(C).
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    5. Enric Cervera & Inmaculada Martínez-Zarzoso, 2024. "The Impact of Environmental Litigations on Emissions," Working Papers 2024.16, International Network for Economic Research - INFER.
    6. Beyer, Andreas & Nobile, Lorenzo, 2025. "The impact of climate litigation risk on firms’ cost of bank loans," Working Paper Series 3087, European Central Bank.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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