Climate litigation as a significant risk for fossil fuel companies
New scientific study shows that climate lawsuits lead to a significant loss in value for companies with CO2-intensive business models / Researchers show: RWE share fell up to 6 percent due to Saúl Luciano Lliuya's lawsuit at Hamm Higher Regional Court
Bonn, Germany (25 May 2023). The environmental and development organisation Germanwatch points out that fossil fuel companies will have to disclose climate risks in their risk reports and have them externally audited. The reason for this is a new study by a team of researchers from the renowned London School of Economics and Political Science, which shows a clear connection between climate litigation and share price losses of affected companies. These losses are most significant when new legal paths have been taken against corporations and (interim) decisions have been made in these lawsuits that are disadvantageous for the company - this is the case, for example, with the lawsuit of the Peruvian Saúl Luciano Lliuya against RWE before the Higher Regional Court of Hamm, which is supported by Germanwatch.
"The paper of the scientists proves that for companies with large CO2 emissions, climate storage risks are highly financially relevant. Corporations are obliged to also present these risks in their reports and have them audited, but so far they rarely do so," comments Christoph Bals, Political Director of Germanwatch. "Those who continue to invest in fossil fuel companies must know that they are taking a risk that is difficult to calculate. But companies that don't report, as well as their accounting firms, also face a risk of litigation here."
The study shows that companies with large CO2 emissions lost an average of 0.6 per cent in value after a climate lawsuit was filed; after an (interim) decision by a court that was unfavourable to the company, the loss increased to an average of 1.5 per cent. RWE even lost up to almost 6 percent of its stock market value at times in the proceedings of Lliuya against RWE before the Higher Regional Court of Hamm. This highest share price loss had already occurred in the first instance at the Essen Regional Court.
In the proceeding at the Higher Regional Court of Hamm, the expert's report is expected in the summer. After the opportunity to submit a written statement, the court will set a date for an oral hearing to discuss the expert report - probably before the end of the year.
Study of LSE: https://www.lse.ac.uk/granthaminstitute/publication/impacts-of-climate-litigation-on-firm-value/
Reuters press note: https://www.reuters.com/business/environment/carbon-majors-face-biggest-hit-climate-litigation-study-2023-05-23/
More information about the climate case against RWE: https://rwe.climatecase.org/de/presse