Oil and gas companies appear to have the wind in their sails. Forecasts that demand for their products will remain strong for decades to come have re-emerged from the shadows. Climate denialism is in the ascendent. But are the business models of fossil fuel companies any more resilient now than they were two years ago when we last wrote an article on this topic for GARP?
How Did We Get Here?
Paul Stuart-Smith
Five years ago, fossil fuels seemed to be on the way out. The world was broadly in agreement on the self-evident importance of reducing anthropogenic greenhouse gas emissions to limit the destructive impacts of climate change. Oil company executives were flocking to pledge allegiance to the goals of the Paris Agreement. Many, perhaps a majority, acknowledged that demand for oil and gas would have to fall significantly, if not by 2030 as urged by the Intergovernmental Panel on Climate Change, then certainly by 2040 or 2050.
From Energy Transition to Energy Trilemma
Then, in the aftermath of Covid, with the global economy already struggling with supply chain constraints and mounting inflationary pressures, came Russia’s invasion of Ukraine. The resulting short-term spike in oil and gas prices and a dose of political panic transformed the narrative around European and North American energy policy. The “energy transition” became an “energy trilemma” in which longer-term decarbonization goals competed for priority with seemingly more pressing energy security and affordability concerns. Opportunistic politicians and their auxiliaries in the media and elsewhere, willfully ignorant or psychologically devoid of empathy about the impacts of climate change on people’s lives, their homes and communities, and on the planet, have exploited geopolitical and social uncertainties further, deprioritizing decarbonization and stressing the need for energy independence and even hegemony.
Oil and gas companies have taken advantage of the favorable political weather to ramp up investment in exploration and production. But despite their newfound confidence, risks to fossil-based business models have not gone away. Market risk from oil markets which, according to the International Energy Agency are over-supplied and "look increasingly bloated", together with ever-cheaper renewable energy alternatives, means the long-term commercial viability of new projects is uncertain. And legal risks, the focus of the rest of this article, are becoming ever more real.
Climate Laws Are Proliferating
The Climate Change Laws of the World database — maintained by the Grantham Research Institute at LSE and the Sabin Center at Columbia Law School — now contains more than 5000 pieces of country-level climate change legislation and policy. This includes “climate change framework laws” that incorporate the terms of the Paris Agreement into national law and set out countries’ overall climate change strategies, as well as specific laws and policies to decarbonize economies. Recent additions to the database, in 2025, include the French Environmental Code which places prohibitions on advertising fossil fuels, Turkey’s Climate Law, Mexico’s Biofuels Law, Nepal’s National REDD+ Strategy, an EU Roadmap towards Nature Credits, and Jordan’s Third National Energy Efficiency Action Plan.
National laws and policies giving effect to the Paris Agreement have provided the basis for many of the climate legal cases brought before the courts since 2015 — some 2000 cases according to the Grantham Research Institute June 2025 snapshot of climate litigation trends . But while the number of cases is substantial, climate litigation appears to have achieved little, so far, in slowing global greenhouse gas emissions or seriously disrupting the business models of oil and gas companies or their financial backers. Could that be about to change?
Evolving “Polluter Pays” Case Law and Climate Attribution Science
In contrast to the fossil fuel-favoring politics taking hold in certain countries, rulings in a number of domestic and international court cases over the past 18 months suggest that judicial attitudes towards climate change may be moving in a more considered direction. Or as the Grantham Research Institute report puts it, climate litigation “has entered a more mature and complex phase”, with “corporate actors facing growing scrutiny” and “developments in international law … reinforcing climate obligations”.
An important reason behind these developments is the rapid advance in climate attribution science which can now establish a much clearer causal relationship between greenhouse gas emissions and specific weather-related events and the damage to lives and property they cause. Two brand new research papers published on 10 September illustrate the point. By coincidence both have a connection to Zurich. The first by climate scientists at ETH Zurich quantifies the direct relationship between emissions and the increased frequency (up to 200 times) and severity of heatwaves around the world. The second, a study from Oxford University's Smith School, links climate change directly to an almost 50% jump in heat-related deaths in the Canton of Zurich between 1969 and 2018.
In May, climate attribution science informed the groundbreaking legal precedent set in the case brought by Peruvian farmer Saúl Lliuya against energy giant RWE. Judges at the German Higher Regional Court of Hamm heard expert evidence that RWE power plants had over the years contributed significantly to global greenhouse gas concentrations and therefore to climate change, resulting in increases in local temperatures which had significantly accelerated the melting of the Andean glacier at the heart of the plaintiff’s case. This had, in turn, swollen the size of the lake below the glacier and so exposed the nearby town of Huaraz to the risk of severe flooding. The Court accepted that, in the absence of climate change, this risk would not have existed and ruled that, in principle, major emitters such as RWE can be held liable for the proportion of climate impacts attributable to their historic emissions.
The ruling in Lliuya v RWE sets a precedent which may inform judicial thinking in other polluter pays cases, more than 60 of which are currently being pursued against fossil fuel companies and other major emitters.
One example, with strong parallels to Lliuya, is the case brought by four residents of Indonesia’s Pari Island against Swiss cement company Holcim. Pari Island is experiencing increased flooding due to rising sea levels with large parts of the island expected to be under water by 2050. Holcim Group is considered to be responsible for around 0.4% of historic industrial carbon emissions, similar to the percentage attributable to RWE. First filed in January 2023, the case reached an initial procedural stage recently in the Cantonal Court of Zug to determine whether it can proceed. A decision had not yet been reached by the court at the time of writing.
Another similar case proceeding through the courts, Falys v TotalEnergies, has a Belgian farmer, Hugues Falys, seeking compensation for past climate damages from a multinational energy company. He and his co-plaintiffs are also demanding a radical transformation in TotalEnergies’s business model, including a halt to all new investment in oil and gas projects to reduce the company’s future greenhouse gas emissions and align it with the goals of the Paris Agreement.
Will Oil and Gas Companies Face Compensation Claims?
Should these cases succeed, they could open the floodgates to more polluter pays cases seeking damages from fossil fuel producers and other large emitters. They could also add credence to the idea that those companies should help finance the cost of repairs to civic infrastructure damaged by extreme weather events and for climate resilience measures. This is the principle behind the "Climate Superfund" laws introduced recently in the states of Vermont and New York, now being challenged in court by the Trump administration and the American Petroleum Institute.
At the international level, there could be renewed interest in suggestions that oil and gas companies should contribute to the United Nations’ Loss and Damage Fund or other international funding arrangements. This was one of the proposals in the Bridgetown Initiative introduced at the 2022 UN climate conference (COP 27) by Prime Minister Mia Mottley of Barbados. The idea was elaborated in a 2023 research paper from Climate Analytics, which calculated that the top 25 biggest emitting oil and gas companies could have paid for all of the climate damage (estimated at USD 20 trillion) attributable to their Scope 1, 2 and 3 emissions between 1985 and 2018 out of their profits (estimated at USD 30 trillion) and still have made a net gain of some USD 10 trillion. Whilst these numbers are, perhaps, hypothetical, they give a sense of the potentially open-ended financial risk that big historical emitters could face from damage claims in the future.
Historic Developments in International Law
Advances in polluter pays litigation are likely to be underpinned further by recent developments in climate-related international human rights law. Described as "historic" and its "most significant decision on the climate crisis to date", the Advisory Opinion issued by the International Court of Justice (ICJ) in July placed human rights firmly at the center of climate change law, and affirmed that under the Paris Agreement, States have a legal obligation to adopt measures to reduce greenhouse gas emissions and adapt to climate change. Failure to do so exposes them to legal consequences, including payment of compensation to other States suffering climate injuries.
It follows the earlier Advisory Opinion from the International Tribunal for the Law of the Sea (ITLOS) which in May 2024 similarly confirmed that States have stringent obligations under the United Nations Convention on the Law of the Sea (UNCLOS) to prevent, reduce and control greenhouse gas emissions.
As Cambridge University’s Professor Jorge Viñuales puts it, the ICJ opinion could be “deployable in the domestic courts of many nations as well as in international litigation to seek accountability for past climate harm.” In other words, it places fossil fuel companies firmly in the crosshairs of climate litigation. The same is true for the banks that finance them.
The Law Is Set to Trump Politics
The fossil fuel nationalism alluded to earlier in this article stands in stark contrast to the open invitation from the incoming Brazilian presidency of COP 30 to join a “mutirão” against climate change, “a global effort of cooperation … for the progress of humanity”. A critical component of November’s climate conference in Belem will center on negotiations to scale up climate finance for developing nations towards the annual target of USD 1.3 trillion from public and private sources, which was agreed at COP 29.
How successful these negotiations will be, of course, remains to be seen. But as global temperatures keep rising and climate damages continue to mount, demands from private citizens, communities and States for reparations and for holding those responsible to account will grow. Political pushback notwithstanding, the law could be catching up with climate culprits sooner than one might think.
Paul Stuart-Smith is Managing Partner of sustainability consultancy JS Global Advisory . He provides strategic support to businesses across sectors on climate and nature risk and acts as adviser to a number of impact enterprises, including The Global Biodiversity Standard. He has a background in capital markets, the shipping industry and the British Army.
Topics: Physical Risk, Transition Risk, Climate Risk Management, Nature Risk Management
