In their recent report, "Climate Litigation: Assessing Potential Impacts Remains Complex," S&P Global Ratings delves into the escalating number of climate cases over the past decade. Remarkably, despite the increase from 61 climate cases in 2013 to a striking 132 in 2023, the credit quality of the oil and gas sectors shows robust resilience.

Climate Cases Haven't Hurt Oil, Gas Credit Quality, S&P Says: Unshaken by Climate Cases

According to S&P, there have been no credit rating adjustments directly attributable to climate litigation risks within the oil and gas industry. This stability suggests that, up to this point, the sector can withstand the legal pressures associated with climate cases. Thomas Englerth, Bruno Bastit, and Paul O'Donnell, the authors of the report, caution, however, that escalating costs from climate litigation could potentially alter the financial landscape for some companies in the future.

Climate Cases Haven't Hurt Oil, Gas Credit Quality, S&P Says: A Global Perspective on Climate Cases

Drawing on data from Columbia University’s Sabin Center for Climate Change Law, S&P highlights a more than fourfold increase in the total number of climate cases worldwide, from 581 in 2013 to 2,410 in 2023. This uptick not only signifies growing societal pressures but also a heightened awareness of climate impacts. The geographic spread of these cases has expanded significantly, with legal actions now spanning 75 jurisdictions, marking a considerable rise from 24 in 2017.

Diverse Targets, Persistent Focus

While litigation has diversified to include financial institutions among others, oil and gas companies remain primary targets. Notable is a recent case filed by California against major oil companies like ExxonMobil and Chevron, accusing them of misleading the public on the risks of fossil fuels.

Deceleration but Continued Vigilance

S&P notes a slight decrease in the number of new climate cases filed globally, from a peak of 263 in 2021 to 200 in 2023. Nonetheless, they anticipate that the frequency of new cases will consistently exceed levels seen before the 2015 Paris Agreement, underscoring an ongoing trend.

Climate Cases Haven't Hurt Oil, Gas Credit Quality, S&P Says: Navigating Uncertainties and Costs

The outcome of many climate cases remains uncertain, contributing to the difficulty in predicting their full impact on corporate entities. The associated costs, both direct—like legal fees and settlements—and indirect—such as reputational damage—are non-trivial but thus far have not significantly affected the credit standings of involved companies.

Looking Ahead: Climate Litigation as a Persistent Risk Factor

Despite the current stability, S&P foresees climate litigation as one of multiple mechanisms through which climate transition risks could materialize for issuers in the future. This anticipation calls for continued monitoring and assessment of how these legal battles may shape the industry's credit landscape.

In summary, while the surge in climate cases poses potential challenges, its impact on the credit quality of the oil and gas sector has been limited, with the industry demonstrating a capacity to absorb and adapt to these legal pressures.