Banks and climate litigation risk: navigating the low-carbon transition

Over the past decade, climate-related litigation targeted at both public and private actors has mushroomed. This includes some high-profile cases brought directly against banks. Such litigation trends pose material financial risks to banks. In addition, credit institutions need to manage risks related to the rapidly evolving landscape of climate litigation against corporate clients. How banks identify, manage and mitigate these novel legal risks is of strong relevance from the perspective of prudential policy and the effectiveness of transition policies more broadly. To respond to this challenge, this report investigates how credit institutions engage with climate- and environment-related legal risks. It explains how insights from bank current practice, such as gaps in their legal risk management approaches, should be addressed with targeted prudential policy interventions.