Jus naturale: the impact of nature-related litigation on corporate valuation

Guided by the Network for Greening the Financial System’s (NGFS) classification of environmental risks, this paper investigates the financial materiality of nature-related legal disputes. The NGFS identifies litigation as a key channel through which both physical risks (acute events like oil spills or chronic issues like soil degradation) and transition risks (regulatory shifts) transmit to the financial system. While the market impact of climate litigation is well-documented, the financial consequences arising from lawsuits concerning biodiversity loss, pollution (including PFAS), and ecosystem degradation are often complex due to heterogeneous international legal frameworks and remain significantly underexplored. This study employs a rigorous quantitative approach to analyze whether firms targeted by environmental complaints experience statistically significant declines in their market valuation.

We utilize a novel, hand-collected dataset of 54 lawsuits, encompassing 111 distinct event dates (initial filings and judicial decisions) against 17 major publicly traded companies across North America and key European exchanges over the period 1996–2025. The cases specifically cover major industry sectors involved in PFAS contamination, deforestation, and oil spills, ensuring comprehensive coverage of diverse nature liabilities. We employ a standard event study methodology utilizing the Fama-French three-factor model to calculate Cumulative Abnormal Returns (CAR) over a $[-5, +5]$ day event window, complemented by sector-specific benchmarks (e.g., STOXX Europe 600 indices) for our spillover analysis.

Our empirical results demonstrate a statistically significant decline in corporate valuation following litigation announcements, confirming that markets rapidly price in these emerging risks. Crucially, we observe a divergence between regions: unlike prior US-based literature, our findings indicate a distinct "reputational premium" in Europe, where stock corrections often exceed probable financial penalties due to heightened investor ESG sensitivity. Furthermore, we document robust evidence of sectoral spillover effects, where litigation against a single firm triggers negative contagion across the entire industry. The findings emphasize the necessity for financial institutions to integrate nature-related legal liabilities into their credit risk assessment, capital allocation, and regulatory stress testing frameworks. This study provides timely quantitative evidence essential for supervisors assessing the systemic nature of the climate-nature nexus.