Climate litigation: good for the planet, not the pocketbook

Record heatwaves in the UK and continental Europe refocus attention on the impact of global warming. Rising numbers of climate lawsuits have taken a “polluter pays” principle. But even if companies and governments face greater ESG litigation expenses, payouts for wronged consumers and their commercial backers are less certain.

Roughly one-quarter of all climate litigation cases recorded since 1986 were filed between 2020 and 2022, according to the London School of Economics. While the US makes up the lion’s share, claims are increasing in other jurisdictions, including Australia, the UK, EU and Global South.

Many cases against corporations are brought by activists seeking behavioural change. Shell’s defeat last year in the Dutch courts, where it was ordered to accelerate emissions cuts, was a landmark. Such litigation is costly for companies. The Bank of England warned in May of gaps in insurance coverage.

Climate cases seeking compensation for wronged parties are less common. A Peruvian farmer wants German utility RWE to contribute to his hometown’s defences against a shrinking glacier in proportion to the company’s share of historic global industrial emissions. This month, four Indonesian islanders threatened by flooding sued Holcim in Switzerland seeking both compensation for climate change damage and carbon emissions reductions.

But such cases are hard to fund. They are riskier than run-of-the-mill litigation and lack a clear pot of damages from which backers can extract a return. ESG cases that have secured private funding tend to come with clear-cut losses to victims, such as Volkswagen’s diesel scandal and the BHP Brazilian Mariana dam disaster.

Greenwashing might appear to offer a new front for litigation funders. Regulators are cracking down on dubious ESG claims from asset managers. Watchdogs are probing both DWS and Goldman Sachs. But even if that results in regulatory settlements, consumers mis-sold products could find it harder to claim compensation through the courts.

Proving loss can be challenging. Climate cases may leave the planet better off. But they will not necessarily leave consumers any richer.