Supply chains come under even more scrutiny

As public opinion leads, legislation follows, at least in Europe. The most recent legislative move is on deforestation, but it's just one of a wave of new laws and regulations. And behind legislation comes litigation. It's important that all investors (asset owners and asset managers) prepare for the upcoming changes. But we must also understand legislative developments holistically, rather than focusing on individual measures in isolation.

Summary: If we look forward 3-5 years, we can reasonably expect that supply chains will look different. And in some cases very different. Which will in turn impact sources of competitive advantage. This is driven at one level by a combination of end customer demands and new legislation, on environmental impact and human rights. But it's also likely to be impacted by litigation. We need to prepare now.

Why this is important: Normally investors track legal issues one by one. How will this new piece of legislation impact the companies I am analysing and over what time scale? But when change comes quickly, we also need to stand back and look at the totality of the impact. The financial markets are pretty good at looking forward. But sometimes we can miss the cumulative aspect. It can be materially greater than the sum of it's parts.

Summary of a study published by the Gratham Institute

• 2,341 cases have been captured in the Sabin Center’s climate change litigation databases, with 1,590 in the US. 190 cases were filed worldwide in the last 12 months. The growth rate in cases appears to be slowing but the diversity in cases is still expanding. Looking back 2021 was a recent peak for cases filed. But we should not assume that less cases mean less impact. Cases that have been many years in the making have seen major developments: the European Court of Human Rights hearing in the KlimaSeniorinnen case, for example, took place seven years after the domestic case was originally filed.

• Future trends beginning to be observed include a shift toward biodiversity related cases, the importance of carbon sinks, plus a new focus on oceans, extreme weather events, and short lived climate pollutants. When taken together with existing trends, this suggests that in future we may see many more cases focused on how ‘climate solutions’ are being put into practice. The authors can also see the possibility of a rise in inter-state litigation.