Financing the Climate Crisis: Lawsuits Target Fossil Fuel Funders

Campaigners are increasingly taking legal action against the financiers of fossil fuels and other climate-harming activities, according to a new report. The London School of Economics and Political Science's (LSE) Grantham Research Institute on Climate Change and the Environment has identified a growing number of lawsuits challenging the flow of finance to projects that exacerbate climate change.

Holding Financial Institutions Accountable for Climate Impacts

Amplifying the Importance of Climate Risk

The report finds that these lawsuits employ a variety of legal tools to hold public and private financial institutions accountable. Their common goal is to elevate the significance of climate risk in financial decision-making, increasing the cost of capital for high-emitting activities to the point where such activities become economically unviable, even if they remain legally permissible.Campaigners have targeted public financial institutions since the early 2000s, using both divestment and legal tactics due to their pivotal role in financing fossil fuels. However, the report notes that there is now more attention being directed towards commercial banks and lenders.

Landmark Cases and Successes

One significant recent case involves the human rights and environmental NGO Jubilee Australia, which challenged Australia's export credit agency Export Finance Australia and the billion AUD Northern Australia Infrastructure Facility for providing taxpayer-subsidized finance to risky new fossil fuel projects and related ventures. Jubilee Australia sought to force the public bodies involved to disclose impact assessments for these investments.In another case, a shareholder of banking group ANZ ended a claim against the company after it elevated climate "as a key material risk." In May, ANZ announced it would no longer provide project finance to new or expanded oil and gas projects, specifically ruling out involvement with a huge new LNG project in Papua New Guinea.French bank BNP Paribas also recently said it would stop funding new gas projects as the risk of litigation rises. However, activists noted that BNP cut out direct loans, and it still supports oil and gas through indirect loans to other involved companies and by underwriting bonds.

Expanding the Legal Landscape

The report also highlights the use of "soft law" agreements, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, to push corporations and their funders in a greener direction. Complaints have been filed with national contact points of the OECD, claiming breaches of these guidelines.Additionally, UN human rights experts have sent warnings to governments about the responsibilities of the financial backers of the oil company Saudi Aramco under the UN Guiding Principles on Business and Human Rights. This came after legal campaign group ClientEarth filed a complaint to the UN accusing Aramco of breaching international human rights law and naming its key financial supporters.

Indigenous Communities Challenging Fossil Fuel Funding

Traditional Indigenous owners from Australia's Tiwi Islands and Larrakia country have also filed a series of human rights complaints using internal grievance processes against a syndicate of 23 international banks that loaned money to Santos and its Barossa gas project off the coast of Australia. This followed a landmark Australian court ruling that revoked the project's drilling permit due to insufficient Indigenous consultation.Campaigners have also brought claims against two Korean public financial institutions – the Korea Trade Insurance Corporation and Korea Export Import Bank – which are planning to provide financial support to the Barossa project. These claims expose the international nature of fossil fuel funding and the opportunities for campaigners in different countries to work together to address it.

The Financial Sector's Growing Awareness

According to the LSE report, financial organizations are starting to take note of climate litigation as a risk to individual companies and the wider economy. Frank Elderson, a member of the executive board of the European Central Bank, has warned that the rising number of lawsuits poses "obvious risks for the financial sector" that must be taken seriously.To address this, Elderson has called for banks to start putting in place "realistic, transparent and credible transition plans" that align with the Paris Agreement, acknowledging the sophistication and organization of the campaigners behind these legal actions.