Climate-related litigation is becoming a major source of risk as cases against businesses continue to rise, according to Frank Elderson, a member of the executive board of the European Central Bank (ECB).

Speaking at the ECB’s legal conference in Frankfurt am Main this September, he said: “Litigants are coming after the banks, ‘come hell or high water’. And the banks need to be prepared.”

Targets

While early climate-related litigation tended to focus on government agencies, litigation is now focusing increasingly on companies directly. 

“Once a case against a state has established that the fundamental rights of citizens have been violated, we have seen subsequent cases use this as a basis to argue that private companies also have a duty of care under civil law to protect citizens’ fundamental rights,” he said.

Banks will not be immune from such direct action. The financial sector is becoming a target because activist groups believe that if they cut off sources of funding to high-emitting companies, they can reduce carbon emissions. 

“We have even seen the first case taken directly against a bank under corporate due diligence legislation in France for its role in financing the expansion of fossil fuels,” he said.

Outcomes

The London School of Economics has calculated that over half of 2341 cases brough to date have had direct judicial outcomes that favour climate change action. The scope and variety of cases is also increasing, including those that challenge the accuracy of reported data.

“There has been growth in ‘climate-washing’ cases challenging the accuracy of green claims and commitments,” a recent report from LSE’s Grantham Research Institute on Climate Change and the Environment said. “Some cases seeking financial damages are also challenging disinformation, with many relying on consumer protection law.” 

A recent technical document published this month by the Network for Greening the Financial System sets out in detail the basis on which cases are being brought both against financial institutions and governments and companies more generally.

It said that the number and range of cases will continue to grow as climate attribution science begins to fill the “evidence gap” in cases for damages. Increased climate-related legislation is also likely to accelerate claims – as is “the acceleration of climate change and, as a consequence, the need for decisive action in the current decade 2020-2030,” it said.