Climate-related litigation: Raising awareness about a growing source of risk

09/11/2021 | NGFS

Frank Elderson Chair of the NGFS

It is my great pleasure to present this document entitled “Climate-related litigation: Raising awareness about a growing source of risk”. Precisely in these days, at the COP26 in Glasgow, leaders from across the globe gather to find ways to address one of the greatest challenges of our time: achieving global net zero by mid-century and keeping the goal of limiting global average temperature increases to 1.5 degrees within reach. In addition to these efforts by politicians, civil society plays an important role in the fight against climate change. One avenue that is increasingly being pursued relates to climate litigation against public and private actors not convincingly supporting the climate change transition. 2021 has been an exceptional year for such climate-related litigation. Indeed, both the German Constitutional Court and the French Council of State (Conseil d’Etat) decided, in essence, that the German and French governments, respectively, are not doing enough to combat climate change. In the Netherlands, a court of first instance ruled that the oil and gas company Royal Dutch Shell has to cut its greenhouse gas emissions by 45% by 2030 to align its policies with the Paris Agreement. 2021 was also the year when the first climate-related case we are aware of was brought against a central bank.1 These are just a few examples of judicial control in this rapidly evolving field of law; in fact, the number of cases brought to court has accelerated across the world. Understanding the risks arising from climate-related litigation is also crucial for central banks and supervisory authorities, as the financial implications of such cases can be substantial. The purpose of this document, based on work conducted this year by the NGFS Legal Task Force on climate-related litigation, is to raise attention to the risks ensuing from climate-related litigation, as they are relevant for microprudential supervision and for the monitoring of financial stability. The document outlines general trends in climate-related litigation and proposes ways of addressing these risks. It has a section on climate-related litigation risk as a sub-category of physical and transition risks and also briefly discusses the direct exposure of financial institutions to climate-related litigation. It includes an overview of selected cases as well as the results of a survey that was conducted amongst NGFS members to gather information from the respective jurisdictions about climate-related litigation. I sincerely hope that this document can provide a first overview about this fast-moving topic, the importance of which, in my opinion, will only further increase in the coming years. Hence, litigation risk will definitely remain an important subject in the work of the NGFS.

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