How Climate In-Action Decreases Asset Value

When climate risk entered Shell’s courtroom

On 26 May 2021, the District Court of The Hague ordered Royal Dutch Shell (RDS) to reduce the greenhouse-gas emissions associated with the Shell group by a net 45% by 2030 (compared with its 2019 levels). The order extended beyond Shell’s own operations to emissions linked to its suppliers and customers. Its significance therefore went beyond litigation costs: a court had attempted to constrain the future business conduct of a major fossil-fuel company.

The ruling was overturned on appeal in November 2024. However, the Hague Court of Appeal still held that Shell has an obligation to counter dangerous climate change. Still, it found no basis for imposing a specific percentage reduction on an individual company. Milieudefensie subsequently appealed to the Dutch Supreme Court, where proceedings remain ongoing.

The case raises a broader financial question: if courts can influence emissions, investment and corporate strategy, when does climate litigation become a risk that investors must price?

Why the Netherlands?

The Dutch venue was not accidental. Royal Dutch Shell plc was incorporated under the laws of England and Wales, but its head office was in The Hague. As the group’s top holding company, RDS determined Shell’s general corporate policy, while operating companies implemented that policy. Milieudefensie accordingly brought its climate claim against RDS itself, rather than against the group’s individual operating subsidiaries.

Dutch law also provided an important route for turning that global policy into a domestic legal claim. Under Article 7 of the EU’s Rome II Regulation, environmental claims may in certain circumstances be governed by the law of the country where the event giving rise to the damage occurred. The District Court accepted that Shell’s adoption of group-wide policy in the Netherlands could constitute such an event and therefore applied Dutch law.

This was important because Dutch law gave Milieudefensie a way to bring the case on behalf of a wider group of people and to argue that Shell had a general duty to avoid causing serious harm. The court relied on these rules when deciding that Shell’s climate policy could be tested against a broader standard of responsible conduct. The earlier Urgenda case, in which the Dutch Supreme Court upheld a climate-related duty of the state, formed an important legal background. Shell was different, however: it tested whether similar duty-of-care reasoning could reach a private multinational company.

From climate risk to financial risk

The legal questions raised by Shell’s climate cases reflect a broader shift in financial supervision. Climate change is increasingly treated not only as an environmental issue, but as a source of conventional financial risk. Think, for instance, of the European Union’s Corporate Sustainability Reporting Directive. This directive requires listed companies and large companies to regularly publish reports on the social and environmental risks they face.

Also on a national level, increasingly stronger requirements and frameworks to identify climate-related financial risks are introduced. In the Netherlands, De Nederlandsche Bank’s (DNB) 2025 Guide to Managing Climate and Nature-Related Risks explains how climate-related risks can translate into market, strategic, legal and reputational risks for financial institutions. Litigation can increase legal costs, damage reputation and, in some circumstances, deter customers or investors.

DNB also notes that new climate policies, technologies and changing market preferences can reduce the value of investments and potentially create “stranded assets” in carbon-intensive industries. Stranded assets are investments that “turn out to be worth less than expected as a result of changes associated with the energy transition.” From 2026, DNB has incorporated climate and nature-related risks into its periodic assessment of prudential risks such as market and strategic risk. The guide applies to institutions including insurers, pension funds and investment firms. Dutch banks instead follow the corresponding ECB guidance.

Canada’s Office of the Superintendent of Financial Institutions (OSFI) uses a similar framework. Its Guideline B-15 distinguishes physical and transition risks and explains that both can generate liability risks, including through litigation. These risks can then translate into more traditional financial risks and ultimately affect institutions’ balance sheets.

Neither DNB nor OSFI regulates Shell directly. Their relevance here is analytical: both demonstrate how climate-related developments can travel through the financial system. If litigation changes Shell’s expected liabilities, future production or asset values, investors may have reason to reassess the company’s financial prospects.

Shell as a laboratory for climate liability

Shell’s litigation illustrates several ways in which the climate risks identified by DNB and OSFI can become legal, and potentially financial, risks.

Transition risk: Milieudefensie I and II

The first Milieudefensie case targeted Shell’s overall emissions trajectory. The organisation’s second case, filed in April 2026, goes further by challenging Shell’s continued development of new oil and gas fields. Milieudefensie asks the court to stop Shell from developing new fields and to require emissions reductions through 2050 consistent with a 1.5°C pathway. Shell contests both the legal basis and effectiveness of these demands. It argues that oil and gas will remain necessary during the energy transition and that court-imposed restrictions on one company are an ineffective response to a global problem.

Financially, the case matters because restrictions on new projects could affect capital expenditure, future production and the value attached to undeveloped resources. This does not mean the litigation will necessarily create stranded assets. Rather, it demonstrates how legal developments could become another factor affecting the profitability and value of long-lived fossil-fuel investments.

Physical risk: Typhoon Odette

A different pathway appears in litigation brought by Filipino claimants affected by Super Typhoon Odette, or Rai, which struck the Philippines in 2021. The claim, which was filed in December 2025 in the United Kingdom, alleges that Shell's historical greenhouse-gas emissions materially contributed to climate change. This, in turn, increased the likelihood and severity of extreme weather such as Odette. Shell rejects this causal argument, describing attempts to attribute a single weather event to an individual company's activities as scientifically and legally unsound. The case therefore attempts to convert physical climate risk into corporate liability: climate-related damage becomes the basis for a financial claim against an individual emitter. Shell says it expects climate-related litigation to be resolved in its favour. Regardless, Shell’s 2025 Annual Report acknowledges substantial uncertainty over such lawsuits and their potential effects on future operations, earnings, cash flows and financial condition.

Governance risk: ClientEarth

Climate risk has also entered corporate-governance litigation. In 2023, ClientEarth brought a derivative action against Shell’s directors. It argued that Shell had failed adequately to manage the financial risks posed by climate change and the energy transition. The High Court refused permission for the claim to proceed, and the Court of Appeal subsequently dismissed the appeal. The case therefore did not establish director liability, but it illustrates another possible transmission channel: climate strategy itself can become a question of directors’ duties and long-term shareholder value.

The long tail of environmental liability

Finally, the Bille and Ogale litigation provides a useful comparison. It concerns oil pollution in Nigeria rather than climate change, but demonstrates how environmental liability can persist for years across jurisdictions and corporate structures. The proceedings began in 2015 and remain active more than a decade later. A further High Court judgment was issued on 10 September 2026 as the parties continue preparing the underlying liability claims. Bille and Ogale therefore illustrate why environmental harm can create a long financial tail, even when the eventual scale and allocation of liability remain uncertain.

How does litigation reach the share price?

Climate litigation can affect Shell’s valuation even before a court awards damages. Share prices reflect investors’ expectations about future cash flows and risk. Litigation can potentially alter both.

The most direct channel is financial liability. Compensation, penalties, remediation and legal costs can reduce future cash flows. Shell itself, in its 2025 annual report, acknowledges that climate lawsuits could result in fines, compensation payments and other costs that materially affect its earnings, cash flows and financial condition.

A second channel is asset value. If litigation restricts future projects or changes expectations about which oil and gas resources can be developed profitably, investors may reassess the value of those assets. Research on fossil-fuel investments shows that unexpected changes in climate policy can cause sudden revaluations of reserves and exploration capital. Litigation could create a comparable effect if it changes expectations about future project development.

Third, greater climate-related risk may increase financing costs. A study of 623 energy companies across 34 countries found that greater climate-risk exposure was associated with higher costs of equity, debt and overall capital, with stronger effects for fossil-fuel companies.

Finally, litigation can create strategic and reputational uncertainty. Shell notes that changing investor preferences toward fossil-fuel companies could affect both its securities and access to capital. The question, then, is whether investors actually respond when climate cases occur.

Do markets actually price climate litigation?

Empirical research suggests that investors do respond to climate litigation, although the size of that response depends on the type of case and its outcome. One method to analyze effects on investments is through a method called event studies. Event studies measure the effect of a legal event on share prices by comparing a company’s actual share price movement around a legal event with the return that would normally have been expected.

The most comprehensive study to date examined 108 climate lawsuits against 98 publicly listed US and European companies between 2005 and 2021. Sato et al. found that lawsuit filings were associated with an average abnormal stock-price decline of 0.35% over a three-day window. Unfavourable court decisions produced a larger decline of 0.99%. The effects were stronger for “Carbon Majors”: filings were associated with a 0.57% decline and unfavourable decisions with a 1.50% decline. The authors also found stronger reactions to novel cases involving new legal arguments or jurisdictions. This suggests that markets respond particularly when litigation provides new information about a company’s possible future exposure.

Shell’s 2021 judgment offers a more specific example. Kolaric examined the market response on 26 May 2021, when the Dutch judgment coincided with successful climate-related shareholder actions at ExxonMobil and Chevron. European and North American oil and gas companies experienced significant negative abnormal returns, reaching approximately 2.14% in some specifications, with an estimated aggregate abnormal loss in market capitalisation of about US$36.1 billion. Because several major climate-related events occurred on the same day, however, this loss cannot be attributed to the Shell judgment alone.

Other research reinforces the possibility of a market response. Wu and Zhong find that US companies targeted by climate litigation experienced an average 0.5% abnormal decline on the filing day and a cumulative 2.7% decline over the following 8 days. They also identify declining institutional ownership and increasing reputational risk after filings.

The evidence is not uniform. Dulak and Gnabo, studying 77 filings and 19 negative decisions in North America and Europe, find little average effect from lawsuit filings and only modest effects following adverse rulings, with limited spillovers to peer companies. Taken together, these studies suggest that investors do not price all climate lawsuits equally. What appears to matter most is whether litigation provides new information about future liabilities, constraints or risks.

Why share price reactions do not tell the whole story

Short-term share price movements do not capture the full financial significance of climate litigation. Shell’s stock is simultaneously influenced by oil and gas prices, earnings, geopolitics and shareholder distributions. Moreover, markets respond primarily to new information. If litigation risk is already anticipated, the filing of another case may have little immediate effect. This may help explain why novel cases and adverse judgments tend to produce stronger reactions. Legal outcomes can also change over time, as shown by the reversal of the 2021 Shell order on appeal. With that case still before the Dutch Supreme Court and a second Shell climate case now underway, future rulings may provide further information for investors to reassess.

Conclusion

Shell’s litigation shows how climate risk can move from an environmental concern into a legal and financial one. Courts are increasingly being asked to consider not only past harm, but also future emissions, new fossil-fuel investment and responsibility for climate-related damages. Financial supervisors such as DNB and OSFI, meanwhile, already treat climate-related legal, market and strategic risks as potentially material to financial institutions.

The emerging market evidence suggests that investors also respond to these developments, although selectively: novel cases and adverse judgments appear to matter more than litigation in general. In the upcoming years, Shell will face proceedings over future oil and gas investments and climate-related damages claims. With more expected extreme weather events and the horrifying effects for communities, there will be a greater demand for clarity on climate litigation. Globally, we need more clarity about how climate risk should be reflected in corporate obligations and financial valuation. This will help investors, companies and regulators make better-informed decisions in the energy transition. Shall we?

This article is part of The Outside World, ftrprf’s very own research center.

As changemakers, we believe that what happens in the outside world is the most powerful force shaping organizational strategy – and also the most underestimated. To do well, organizations need to understand what’s happening in the outside world. To do significantly better, they need to be aware of what it means for their future, their relations, their strategy, and their impact. We serve as a bridge between society and tailored strategy by analysing societal dynamics, global trends, and shifting public expectations with a multidisciplinary team of international analysts, excellent tooling, sophisticated AI, and a systems approach. This article is part of our third trimester research focus, which centers on value.

For more information, please contact theoutsideworld@ftrprf.com.

Next articleRethinking What We Value in Business and Society

For decades, one idea has dominated much of business thinking. Value is something that can ultimately be expressed in financial terms. Companies generate profits, investors receive returns, and economic growth becomes a measure of progress. But what happens when the things that sustain our economy and society, such as healthy ecosystems, trust, freedom, social cohesion or biodiversity, are treated as secondary because of the changing climate? For Eva Rood, Director of the Positive Change Initiative & the Erasmus Platform for Sustainable Value Creation at Rotterdam School of Management, Erasmus University (RSM) , this question goes to the heart of how we need to rethink business education and the role of future leaders. Having worked at Erasmus University since 1998 in various roles, Eva has seen sustainability move from something relatively peripheral to an increasingly important part of how the university thinks about business and management. Since becoming Director of the Positive Change Initiative in 2017, she has worked to embed this broader understanding of value into education. At the centre of her thinking is a relatively simple idea: financial value matters, but it cannot be the only value that matters. But what do we actually mean by value? The debate around integrated value challenges one of the most deeply rooted assumptions in traditional business thinking that economic value should take the centre stage. There are growing efforts to measure social and ecological impact. Doing so can help companies understand impacts that conventional financial accounting often overlooks. Yet Eva argues that there is also an important academic debate about whether everything should or even can be measured or monetised. For her, integrated value is better understood as a platform for thinking about value creation more broadly. Companies operate within societies and ecosystems. Their success depends on things that rarely appear directly in financial statements, such as functioning governments, freedom of expression, trust between people, healthy soils, biodiversity and stable communities. One exercise Eva uses with students makes this idea personal. Rather than immediately talking about companies or sustainability frameworks, she asks a much simpler question: What is value to you? The answers might include freedom, entrepreneurship, family, security, nature or independence. We already understand intuitively that value is multidimensional in our personal lives. The challenge is bringing that same understanding into our professional and economic decisions. Eva illustrates this through the Sustainable Development Goals. Focusing exclusively on one goal or one type of value while ignoring everything else can create new problems elsewhere. A functioning society depends on multiple systems simultaneously. The question therefore becomes: how much value are we creating, what kind of value are we creating and for whom? The focus of Rotterdam School of Management (RSM) on responsible management did not emerge overnight. The school has a long tradition of engaging with ethical and responsible business questions and was, as Eva describes it, an “early bird” in responsible management education. Around nine years ago, these ambitions began evolving explicitly with the adoption of the mission ‘to be a force for positive change in the world’, using the framework of Sustainable Development Goals to communicate what positive change looks like. Sustainability and ethics can be included in individual courses. The more ambitious question for RSM was whether this way of thinking could become part of their DNA. With support from the school's leadership, Eva and her colleagues began exploring how positive change could be integrated across programmes rather than treated as a separate topic. Today, RSM is working on defining its ambitions and considering how that integration can be measured. But that creates another challenge: what exactly should be measured? For Eva, the answer cannot be reduced to one sustainability indicator. Positive change is deliberately broad, and the challenge is to identify the skills and perspectives students need to develop. Her approach considers three interconnected layers: Self Your professional role within an organisation and society And the role of your organisation on the planet The first begins with the individual. Who are you? What is important to you, what are your values and how will those values influence the decisions you make? The second layer expands that perspective to your professional role and to society. Who are you as a professional? What do you bring to the team? How does the organisation you work for affect employees, communities and institutions? Finally comes the planet. How does the organisation interact with the natural systems on which society and the economy ultimately depend? These questions force students to think beyond their future job title or salary. They invite a more fundamental reflection: Do I want to work for an organisation that contributes to a better world or one whose activities undermine it? For Eva, meaningful change starts with individuals understanding what they can bring into their teams and organisations. This is also why reflection has become an important part of the Positive Change Initiative's work with students. Rather than telling students what responsible leadership should look like, reflection encourages them to connect sustainability questions with their own professional identity. Universities can develop new theories, frameworks and models for sustainable value creation. But those ideas ultimately need to function outside academia. This is where the Erasmus Platform for Sustainable Value Creation plays an important role. The platform brings together frontrunning companies and academics to exchange experiences, challenges and knowledge. Companies can share what they are struggling with in practice, while researchers gain a better understanding of the questions businesses are actually facing. For Eva this connection provides an essential reality check. Research becomes richer when it is confronted with practical experience. At the same time, businesses gain access to new ideas and academic perspectives that can challenge established ways of thinking. Most importantly, it means universities do not need to wait until today's students become executives, investors or policymakers before trying to create change. Change can also happen through the people who already hold those positions. By connecting students, researchers and current business leaders, the platform becomes a bridge between the ideas being developed inside the university and the decisions being made in the economy today. This broader understanding of value is not universally accepted. ESG and the Sustainable Development Goals have increasingly become subjects of political and economic debate. Some argue that the primary responsibility of companies is simply to obey the law and generate financial returns, leaving broader societal responsibilities to governments and individuals. Eva encounters these different perspectives too. Her response is not necessarily to begin with another framework, dataset or sustainability target. Instead, she points to the importance of connecting these questions to something personal. One example is Commonland's 4 Returns (https://commonland.com/4-returns-framework/) approach , which considers financial, natural and social returns alongside a fourth dimension: inspiration. That final element recognises something conventional models of value can struggle to capture: people need a reason to care. Eva describes this as connecting sustainability to the heart rather than only the head. One way of doing that is remarkably simple: ask people which Sustainable Development Goal matters most to them personally. “Even the most rational people have an emotional link to nature or aspects of society.” For one person, that connection may be bird watching. For another, it may be running to raise funds to tackle poverty, equality, mental health or sailing the oceans... Once sustainability becomes connected to something someone personally values, the discussion changes. It is no longer only an abstract conversation about ESG frameworks or regulation. There is a motive for change. So how might our understanding of value change over the next five to ten years? Eva believes the physical world itself will increasingly confront us with the limitations of financial thinking. Extreme weather events, ecosystem degradation and biodiversity loss are no longer distant theoretical risks. Their consequences are becoming increasingly visible, and today's students will experience many of them throughout their careers. This creates a difficult but powerful reality: we cannot separate the economy from the planet that supports it. Money will remain important. Businesses need to be financially viable, investors require returns and economies need functioning markets. But healthy soils, biodiversity, functioning ecosystems, and stable societies also have value. These things are not optional additions to the economy. They form part of the system that allows an economy to exist in the first place. As environmental pressures become increasingly difficult to ignore, Eva expects our understanding of value to move closer to this reality. “There is only one Earth, and it is our future that will be affected.” For Eva, the ultimate ambition extends beyond changing university curricula. Education is an important starting point because today's students will become tomorrow's managers, entrepreneurs, investors and policymakers. But transforming how society understands value also requires change among the institutions that control capital. When asked what would make this broader movement a success, her ambition is clear: “I hope to influence major investors and banks to apply integrated value thinking.” That would mean moving away from the dominance of financial value as the primary measure of success. Financial returns would not disappear, but ecological and social value would increasingly become part of how we determine whether an investment, company or project is genuinely creating value. Perhaps this is ultimately the most important question raised by Integrated Value. Not whether financial value should disappear, it shouldn't, but whether we have allowed one form of value to become so dominant that we have forgotten everything that makes that value possible. The future of business may therefore depend less on finding a perfect formula for monetising everything around us and more on learning to recognise the different forms of value that have always been there.

2026-10-01

Rethinking What We Value in Business and Society

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