In an article in the November 21st edition of The Economist it is apparent that shareholder groups, including fund managers, are now scrutinizing the contribution of companies to global warming and climate change. Based on events in Australia, individual investors are resorting to legal action claiming failure to disclose risks that may prejudice future profitability and hence share value.

Quoted in The Economist article, Peter Barnett, a lawyer with ClientEarth, an advocacy group, stated “Unless the corporate sector switches quickly to meet investor expectations, I think we are inevitably going to see increasing shareholder litigation.  The Retail Employee Superannuation Trust of Australia, a pension fund, was successfully sued and agreed to settle with plaintiffs acknowledging that “climate change is a material, direct and a current financial risk.”

A similar approach has been taken by a Swedish pension fund that intends litigating as a means to pressure management to engage in climate-friendly use of assets. ClientEarth sued Enea, a major power utility in Poland, over a plan to erect a coal-fired power plant.  ClientEarth claimed that the plant would become an unprofitable stranded asset, representing a financial risk.  Following a court ruling in favor of the plaintiffs, the project was abandoned. So much for the myth of “beautiful clean coal”

It is apparent that companies failing to disclose climate risk to shareholders and with management following activities prejudicial to the environment will be subject to legal action in the future.  This will have a direct effect on share value and the willingness of institutions to purchase corporate bonds.