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

Understanding the risks arising from climate-related litigation is crucial for central banks and supervisory authorities, as the financial implications of such cases can be substantial. The purpose of this document 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.

Key points

In parallel to climate litigation against companies and governments, the number of climate cases against financial institutions is also rising. For example, cases are brought claiming that financial actors are failing to appropriately disclose and manage climate-related risks. This can cover statements made in annual reports but also in advertisements. Due to regulatory developments, financial institutions may in the future increasingly face claims relating to disclosures under various taxonomies for green financial products and potentially also breach-of-contract claims relating to such products. Another category are cases alleging breaches of fiduciary duties, for instance if a bank’s directors continue to decide to finance highly greenhouse gas emitting projects. It is also conceivable that financiers may be sued as “indirect polluters” for financing such polluting projects. In all these cases, financial institutions may then no longer be only indirectly exposed to the risks associated with climate litigation through the asset side of their balance sheet but may bear a potential direct liability.