Climate Litigation May Pose Unexpected Costs to Fossil Fuel Companies
Overview:
A new Report by the Oxford Sustainable Law Programme finds that both investors and policymakers may not be paying sufficient attention to the risks of legal risks of fossil fuel investments. Noting that the number of cases before courts worldwide is at 2500 and rising. The Oxford group says is a relatively new field and is mostly focused on physical risk to companies, and investors and regulators who do not account for the possibility of large payouts from climate litigation, he said, “will continue to fly blind in their treatment of climate risk."
Summary:
A recent article written by Thom Wetzer, Rupert Stauart-Smith, and Arjuna Dibley argues the prevailing framework for climate-related financial risk assessments is no longer accurate due to developments in legal actions related to climate change. This article also reports that policymakers and investors are not paying sufficient attention to the legal risk of fossil fuel investments. The authors propose a framework that incorporates legal considerations by emphasizing that legal actions may significantly impact the distribution of climate-related risk among oil and gas companies. Many oil and gas companies are not foreseeing potential climate-related legal risk and this is an issue of concern.
The article acknowledges the widely recognized financial implications of climate change and the policies in place, such as mandatory climate risk disclosure and stress tests, focusing on physical and transition risks. It notes the increasing amount of climate-related lawsuits and regulatory enforcement. There have been over 2500, climate lawsuits filed worldwide and the amount of climate litigation. These lawsuits address issues like emission reduction commitments, high-emission assets, and inadequate disclosure of financial risks. The authors argue that existing climate risk assessments do not fully account for the impact of legal actions.
Source: Science.org
Legal developments, beyond litigation, are also discussed, such as agreements similar to the master settlement with the tobacco industry, which could involve significant financial transfers from emitters to compensate for physical risks and impacts. This may mean that oil and gas companies may face similar repercussions, similar to the Tobacco industry. For example, using the social cost of carbon metric ($185 per ton), Chevron may be liable for $8.5 trillion alone based on climate costs. The article highlights the early stages of litigation against corporations and financial institutions are developing and may become a stronger force of power in the future.
Overall, the article emphasizes the growing importance of considering legal aspects in climate risk assessments and calls for interdisciplinary research that combines legal reasoning with financial analysis and climate science to better understand and manage climate-related risks.
