Financial markets acknowledge the risks associated with climate change litigation, according to legal experts.

In a groundbreaking development, China is leading the way in climate policy, actively encouraging litigation to drive change. This unique approach has been highlighted in the latest annual climate litigation snapshot report published by the Grantham Research Institute.

The report, authored by Joana Setzer and Lisa C. Vanhala, finds that climate cases mandating stronger government action reduce policy uncertainty and boost green investor confidence. This trend is not limited to China, as the global south is witnessing a surge in government-led climate litigation. Countries such as Brazil, India, South Africa, and Indonesia are seeing an increase in cases, with 56% of these cases initiated by government bodies in 2024.

In the US, approximately 27% of newly filed cases in 2024 sought to challenge regulations promoting climate considerations or ESG factors. This indicates a growing concern and scrutiny over climate policies and their implementation.

Meanwhile, in Europe, the European Banking Authority's ESG risk management guidelines mandate banks to identify and mitigate climate-related risks, including litigation risk. Banks are under pressure, facing direct legal exposure and indirect risk through clients. A decision by the UK supreme court deemed an oil well extension unlawful for failing to consider scope 3 emissions from supply chains under planning laws rather than financial disclosure rules.

The report suggests that judicial interventions are dynamically reshaping the risk landscape. In fact, research shows that litigation risk now ranks above physical climate risk in perceived materiality among equity investors and analysts. This shift is further emphasised by Frank Elderson, European Central Bank executive board member, who has warned that 70% of European banks analysed could face elevated litigation exposure.

China's courts saw 518 climate-relevant cases in 2023, mainly involving carbon market regulation, energy transition contracts, and protection of carbon sinks. Similarly, Brazil's federal prosecutor's office and environmental agency are pursuing more than 30 lawsuits related to illegal deforestation in the Amazon.

The role of litigation in global climate governance is expected to become even more pivotal and contested in the coming years. The authors of the report predict that the coming years will show whether litigation can continue to catalyse action in the face of intensifying climate risks and shifting political currents.

This page was last updated on July 10, 2025. The analysis does not provide a specific date for the update of this page. However, with the growing importance of climate litigation, it is clear that this is a trend that will continue to evolve and shape the future of climate policy.

Financial markets acknowledge the risks associated with climate change litigation, according to legal experts.