LITIGATION

& LIABILITIES

The science of attributing global warming to anthropogenic activity is the basis of the UNFCCC. Advancements in attribution science for extreme weather events are enabling societies to see the chain of causality from the emissions of companies to climate-related damages (Otto et al. 2017). This opens up new litigation risks.

Central banks and financial supervisors have highlighted the potential for such litigation to be a potential risk to firm solvency and financial stability (PRA 2015). Historical cases demonstrate that claims from litigation can have a major financial impact, especially when new sources of claims emerge. 

For example, asbestos claims still cost the property and casualty (P&C) re/insurance industry around $1.9 billion in additional losses per year. Translating the scientific causality underlying attribution studies into legal causality has been in principle demonstrated (Minnerop & Otto 2020). 

If fiduciaries and company directors better understood these litigation risks, as well as the reputational risks associated with damages, this could drive significant behaviour change and FIs can play an important role through pricing risk and capital allocation.

We are developing risk frameworks and tools to identify companies in portfolios at greater risk of climate litigation as a result of their cumulative emissions and the link between those emissions and climate damages. This will allow us to heat map a portfolio and identify companies more or less at risk of litigation, leading to further company-specific analyses and risk management actions. We are also exploring how we can use historical asset-level and EO imagery to identify and measure other forms of litigation risk, including past, present, and future environmental pollution, biodiversity loss, and habitat destruction.

our current projects

FLAGSHIP 3

Identifying the risk of climate litigation in investor portfolios caused by cumulative emissions, and extending to other environmental damages.