Jus naturale : The Impact of Nature-Related Litigation on Corporate Valuation
Working Paper Series no. 1060. This paper investigates the financial materiality of nature-related legal disputes, focusing on biodiversity loss, pollution, and ecosystem degradation. We analyze whether firms targeted by nature litigation experience statistically significant declines in market valuation using a dataset of 48 litigation (123 event dates) against 22 major companies in North America and Europe (1996–2025). Employing an event study methodology with the Fama-French three-factor model, we calculate Cumulative Abnormal Returns (CAR) over a [-5, +5] day window. Our results demonstrate that markets price in the impact of these events, leading to significant valuation declines following litigation decisions. In Europe, stock corrections occur immediately upon the filing of a complaint, suggesting a 'reputational premium' driven by investor ESG sensitivity. In North America, however, ruling/settlement dates yield larger market shocks, reflecting heavier financial penalties. Furthermore, we find evidence of sectoral spillover effects, where litigation against a single firm triggers negative contagion across the industry. The findings emphasize the necessity for financial institutions to integrate nature-related legal liabilities into their risk management frameworks.
Cumulative Average Abnormal Return (CAAR) by event day
Non-Technical Summary
Corporate environmental accountability has emerged as a key driver of financial risk, with a rise in high-profile nature and environmental lawsuits targeting major corporations across key sectors, from chemicals and energy to banking and retail trade. While existing research focuses heavily on recent climate cases, the financial impacts of nature-related disputes remain far less understood, despite a much longer legal history dating back to the 19th century. This study addresses this gap by constructing a novel, structured nature-litigation database specifically dedicated to environmental degradation, biodiversity loss, and pollution. Covering the period 1996–2025, our dataset comprises 48 litigation cases representing 123 distinct event dates, including complaint filings and court decision or settlement dates, against 22 major publicly traded companies across North America (US and Canada) and Europe. To evaluate market impacts, we use an event study methodology using the Fama-French three-factor model to calculate Cumulative Abnormal Returns (CAR) over an event window of [-5;+5] days, complemented by sector-specific benchmarks to analyze market spillovers.
Our empirical findings document a statistically significant decline in corporate valuations following both complaint filings (CAAR of -1.30%) and ruling/settlement dates (CAAR of -1.76%) over the [-5;+5] event window, confirming that financial markets rapidly and actively price in these emerging nature-related legal risks. Our analysis also reveals a clear regional divergence between Europe and North America, underscoring investor sensitivity to distinct market drivers. In European jurisdictions, complaint filing dates trigger more negative and statistically pronounced stock price reactions (-2.06%) than decision dates (-1.67%), pointing toward a short-term "reputational penalty" driven by heightened local investor sensitivity to ESG and sustainability issues. Conversely, decision and settlement dates generate far more severe negative price adjustments for North American litigation (-2.00%, compared to an insignificant -0.48% for initial complaints), reflecting market expectations of significantly larger financial penalties imposed by US courts.
Beyond direct firm-level impacts, our analysis also provides evidence sectoral spillover effects. Financial markets do not perceive environmental litigation as an isolated, idiosyncratic firm-level shock; rather, legal proceedings against a single firm are treated as revelatory of broader sectoral vulnerabilities to legal and reputational risks. Consequently, nature litigation against a targeted company triggers negative contagion across the entire industry, leading to sector-wide valuation adjustments as investors re-evaluate systemic risk exposures across peer firms.
Our study’s contributions are three-fold. First, we structure a novel nature-litigation database that complement climate-focused repositories. Second, we capture the effects of the recent wave of nature-related litigation on the market valuation of the companies involved as well as the spillovers to their sectors. Finally, our dataset covering North America and Europe allows us to identify geographic variations in the mechanisms of the reputational premium.
Together, these empirical findings demonstrate that nature-related litigation is not only an idiosyncratic legal issue for individual firms, but a growing source of market-wide contagion and sectoral repricing. This trajectory highlights the urgent need for investors, financial institutions, and central banks to systematically integrate nature-related legal liabilities into their risk management frameworks and macro-prudential assessments.
Keywords: Nature-Related Risks, Litigation Risks, Corporate Valuation, Environmental Complaints
Codes JEL: G12, K32, K41, Q54
Télécharger l'intégralité de la publication
Updated on the 21st of August 2026