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July 23, 2003
Climate Change Litigation Could Affect Companies’ Market Value
    by William Baue

In the near future companies could face the risk of being on the receiving end of climate change lawsuits, a development that stands to impact shareowner value.

The February edition of the Columbia Journal of Environmental Law published an article by Yale Law School graduate David Grossman demonstrating the legal feasibility of lawsuits holding companies accountable for climate change. The effects of such litigation on companies’ market value and shareowner value remains to be seen.

“This litigation could be a catalyst or a trigger for markets to really look at climate change issues, not only with respect to the expected costs of litigation, but also in terms of a general economic assessment,” said Henrik Garz, director of equity strategy research at WestLB Panmure. WestLB Panmure is a Germany-based technology investment bank.

West LB recently published a report authored by Dr. Garz that reiterates the scientific community’s consensus on the reality of climate change. Despite this consensus, markets have yet to price climate change as a risk factor or differentiate companies that manage this risk well from those that do not. Markets tend to be particularly shortsighted when it comes to perceiving and pricing such long-term strategic issues, says Dr. Garz.

“Before September 11, nobody really thought about the risks or effects of terrorist attacks on equity market valuations, but afterwards, the threats of terrorism were more perceived and dominant, and this led the markets to price in the effect,” Dr. Garz told “Climate change litigation will similarly arouse the interest of the markets and raise the perception of the topic.”

Although such lawsuits pose significant challenges and obstacles, climate change litigation against companies in carbon-intensive industries such as oil and gas, electric utilities, and automobile manufacturing seems inevitable. Carbon dioxide emissions are considered to be primary contributors to global warming.

“It is only a matter of time before companies like ExxonMobil (XOM) or General Motors (GM) will be facing litigation,” said Jon Sohn of Friends of the Earth (FoE), a nonprofit environmental advocacy organization.

FoE, in conjunction with Greenpeace and several western cities, filed one of the first climate change lawsuits last year. The suit charges two U.S. government agencies with failing to comply with National Environmental Policy Act (NEPA) requirements to assess the environmental impact of projects they financed over the past decade.

The Export Import Bank (Ex-Im) and the Overseas Private Investment Corporation (OPIC) provided over $32 billion in loans and funding to U.S. corporations for overseas projects without gauging the potential contributions to global warming, the suit contends.

“The status of this case is that the U.S. Government, instead of addressing the merits of the case, is trying to change the venue to Washington, D.C., a move that would inconvenience the plaintiff cities that are all out west--Oakland, Santa Monica, Boulder and Arcata,” said Mr. Sohn. “So the strategy is much like that of the Bush Administration: avoid the real issues and undercut those holding them accountable.”

Mr. Sohn remains confident that FoE and its co-plaintiffs will win this case.

The states of Connecticut, Massachusetts, and Maine have also filed a climate change lawsuit against another U.S. government bureau, the Environmental Protection Agency, for failing to regulate carbon dioxide emissions under the Clean Air Act.

The blueprint for climate change litigation was drawn by the 1998 Master Settlement Agreement that required tobacco companies to pay states hundreds of billions of dollars in fines.

“One similarity between tobacco and climate change litigation might be the consistent patterns of denial and deception by various companies,” Mr. Sohn told “The big difference is that the financial liability is going to be much greater for climate change.”

Mr. Sohn also serves as U.S. coordinator for the Climate Justice Programme (CJP), an alliance of 70 environmental organizations, lawyers, academics, and individuals in 29 countries that support legal cases to combat climate change.

“There will be some market impact, even if these lawsuits are not ultimately successful,” Dr. Garz said, as they will raise awareness about climate change as a material risk.


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