Investors who ignore climate risk could be sued

11th February 2016

Related Topics

Related tags

  • Mitigation ,
  • Reporting ,
  • Fossil fuels


Wendy Devall

Asset managers and pension trustees should put more pressure on the companies they invest in to reduce emissions or they could face legal action, according to environmental and financial experts.

In an article for Nature, investment manager Howard Covington, ClientEarth chief executive James Thornton and climate economist Cameron Hepburn argue that systemic climate risk is an issue investors, who have duties of care, must not ignore.

The largest 500 listed companies account for about half the value of the world’s stock markets and 14% of global emissions, they said, with steel firm Arcelor Mittal, energy company RWE and oil giant ExxonMobil are among the top 10.

Covington, who is also a trustee of ClientEarth, said: ‘Clients of investment firms and beneficiaries of pension funds might have a legal case to bring if those who manage money for them stand idly by as emissions erode the value of their stock. We are currently exploring such a possibility.’

The experts pointed to a ruling by the Law Commission in 2014, which stated that those who manage other people’s money have a duty to control material risks, or those that might trigger a 5% or more loss in investment value.

Climate change could potentially reduce values by more than that, according to Hepburn, professor of environmental economics at the Smith School at the University of Oxford: ‘The risk exceeds the legal test of materiality and should be too large to ignore. In practice most investors neglect it entirely.’

The Paris agreement in December has provided a major incentive for carbon-intensive firms to assess and report on the risks and opportunities facing their businesses as a result of climate change, the experts said, but noted that many multinationals do not yet do this.

Investors should actively encourage the companies they own to reduce emissions, for example by urging profitable investment in energy efficiency and by discouraging risky capital expenditure on fossil-fuel exploration and production, they recommended.

Better still, managers could push companies to incorporate the goals of the Paris agreement into their constitutions and publish business plans detailing how they will deal with the transition to a zero-carbon economy.

However, a wholesale change in attitude may only come about after a court ruling, according to Thornton. Bringing the first legal action would not be simple due to the uncertainties in estimating future climate change, but could succeed, he claimed.

ClientEarth has recently assisted investors responsible for more than $8 trillion to co-file shareholder resolutions calling on mining companies Anglo American, Glencore and Rio Tinto to be more transparent over climate change risks. The resolutions received support from four of the world’s 10 largest pension funds.


Subscribe to IEMA's newsletters to receive timely articles, expert opinions, event announcements, and much more, directly in your inbox.

Transform articles

Weather damage insurance claims hit record high

Weather-related damage to homes and businesses saw insurance claims hit a record high in the UK last year following a succession of storms.

18th April 2024

Read more

The Scottish government has today conceded that its goal to reduce carbon emissions by 75% by 2030 is now “out of reach” following analysis by the Climate Change Committee (CCC).

18th April 2024

Read more

The Science Based Targets initiative (SBTi) has issued a statement clarifying that no changes have been made to its stance on offsetting scope 3 emissions following a backlash.

16th April 2024

Read more

While there is no silver bullet for tackling climate change and social injustice, there is one controversial solution: the abolition of the super-rich. Chris Seekings explains more

4th April 2024

Read more

One of the world’s most influential management thinkers, Andrew Winston sees many reasons for hope as pessimism looms large in sustainability. Huw Morris reports

4th April 2024

Read more

Alex Veitch from the British Chambers of Commerce and IEMA’s Ben Goodwin discuss with Chris Seekings how to unlock the potential of UK businesses

4th April 2024

Read more

Regulatory gaps between the EU and UK are beginning to appear, warns Neil Howe in this edition’s environmental legislation round-up

4th April 2024

Read more

Five of the latest books on the environment and sustainability

3rd April 2024

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert

IEMA Cookie Notice

Clicking the ‘Accept all’ button means you are accepting analytics and third-party cookies. Our website uses necessary cookies which are required in order to make our website work. In addition to these, we use analytics and third-party cookies to optimise site functionality and give you the best possible experience. To control which cookies are set, click ‘Settings’. To learn more about cookies, how we use them on our website and how to change your cookie settings please view our cookie policy.

Manage cookie settings

Our use of cookies

You can learn more detailed information in our cookie policy.

Some cookies are essential, but non-essential cookies help us to improve the experience on our site by providing insights into how the site is being used. To maintain privacy management, this relies on cookie identifiers. Resetting or deleting your browser cookies will reset these preferences.

Essential cookies

These are cookies that are required for the operation of our website. They include, for example, cookies that enable you to log into secure areas of our website.

Analytics cookies

These cookies allow us to recognise and count the number of visitors to our website and to see how visitors move around our website when they are using it. This helps us to improve the way our website works.

Advertising cookies

These cookies allow us to tailor advertising to you based on your interests. If you do not accept these cookies, you will still see adverts, but these will be more generic.

Save and close