Insurability equals investment viability: accounting for tangible risks and lawsuits in valuation
In the rapidly evolving landscape of climate litigation, companies and investors are facing new financial risks that could impact their insurability and investment appeal. This trend, which has seen a significant increase in the volume and complexity of cases worldwide, has become a major concern for businesses operating in high-emitting sectors and investors seeking to protect their assets.
The rise in climate litigation heightens perceived and actual liabilities for companies, particularly those in high-emitting sectors. Courts increasingly recognize corporate responsibility for emitted greenhouse gases and associated harms, leading to uncertainty around the scope and extent of potential financial and legal exposure. Insurance providers may respond by restricting coverage, raising premiums, or excluding climate-related risks altogether due to increased litigation risk and unclear legal standards.
Investors, too, are becoming more cautious as climate-related legal risks translate into material financial risks, including asset stranding, increased costs, and reputational damage. Litigation focusing on climate strategies, claims of greenwashing, financed emissions, and climate-related damages signals to investors that companies may face significant future liabilities or operational restrictions. This heightens the risk profile of companies seen as insufficiently aligned with climate goals or regulatory expectations, potentially leading to divestment, particularly by ESG-focused investors or funds with climate-related mandates.
The complex and evolving nature of climate litigation means companies face a "wait and see" environment. There's increased uncertainty over legal responsibilities and the standard of care for emissions. Cases that challenge company climate strategies or financing decisions are expected to expand. Even unsuccessful litigation paves the way for more refined and potentially successful future claims.
Political and regulatory shifts on ESG topics amplify litigation risks, with lawsuits increasingly targeting non-climate-aligned corporate conduct, further intensifying the scrutiny on financial institutions and corporations.
The growing maturity and geographic expansion of climate litigation add significant financial risks for companies, which in turn can undermine their insurability and contribute to uninvestability. This trend underscores the importance for businesses and investors to actively engage with evolving climate litigation risks as material factors shaping financial and strategic outlooks.
The annual issuance of cat bonds, a vehicle used by insurers to offload liability for physical risks, reached an all-time record of $23 trillion in 2025. Asset owners should aim to tie forecasts of physical and litigation risk exposure into their strategic asset allocation decisions. Global financial market watchdogs such as the Basel-based Financial Stability Board have been warning of the growing costs of physical risks.
For asset owners, discussions about climate litigation risks remain high-level and difficult to integrate into everyday investment decision-making. Asset owners are increasingly reliant on asset managers to develop metrics that map the physical risks of individual assets. Awareness of physical risks is growing rapidly among asset owners.
In the UK, there were only 50 litigation cases over the past year, according to Matthew Gingell, general counsel at Oxygen House Group. However, the pace of change on climate litigation remains too slow, argues Gingell. Insurers are increasingly unwilling to support exposed assets due to climate risks, and Nigel Brook, a consultant at Clyde & Co LLP, warned of a potential increase in climate-related foreclosures on mortgages.
Investors are calling for better physical risk data amid rising climate threats. Barbara Zvan, CEO at Canadian pension fund UPP, emphasizes the need for asset owners to engage with asset managers due to the investment community's reliance on managers and the lack of specialized teams within many organizations. Zvan stresses the importance of having people who are specialists in relevant sectors to clearly see costs and do due diligence.
Matthew Gingell predicts that advancements in AI and improvements in data will enable investors to better price in litigation risks and integrate them into return forecasts. Businesses may experience a rise in "brown-on-brown litigation" - where companies contest who should be held accountable for climate damages. An example of this is the Iberdrola lawsuit against Repsol over alleged greenwashing.
In conclusion, the growing trend of climate litigation presents significant financial risks for companies, which can impact their insurability and contribute to uninvestability. This trend underscores the importance for businesses and investors to actively engage with evolving climate litigation risks as material factors shaping financial and strategic outlooks.
- In the realm of environmental science, climate-change lawsuits are a rising concern for companies and investors, particularly those in high-emitting sectors, as they face new financial risks that could affect their insurability and investment appeal.
- As the complexity and volume of climate-change litigation increase, companies may face increased liability for greenhouse gas emissions and associated harms, leading to uncertainty about the potential extent of financial and legal exposure.
- Investors are growing more vigilant, as climate-related legal risks translate to material financial risks, such as asset stranding, increased costs, and reputational damage.
- In the housing market and real-estate sector, climate litigation poses financial risks that can undermine insurability and contribute to uninvestability, emphasizing the need for active engagement with climate litigation risks as material factors shaping financial and strategic outlooks.
