Abstract: We systematically analyse the financial market response to climate litigation. We construct a global database of over 115 climate change related lawsuits against corporations listed in the US and Europe during the period 2005–2021. We find evidence of small financial market responses in specific cases where they are most expected while in general, stock prices of defending firms are not affected. Specifically, we find negative abnormal returns following the filing of climate litigation cases against Carbon Majors, in the order of -0.44% after controlling for other market-wide impacts on share prices. We also find significant negative abnormal returns following the announcement of unfavourable procedural and final decisions, of -1.50% after controlling for market-wide impacts on share prices and corresponds to an average economic loss of 172 million. Further analysis indicates market reactions against climate litigation filings are strengthening in recent years. These findings suggest that climate litigation risk is becoming part of climate-related financial risk.
