As climate change returns to the global agenda, how is it changing the legal risks businesses face?

The Intergovernmental Panel on Climate Change identified in its sixth assessment report that global greenhouse gas emissions, when calculated based on nationally determined contributions, make it likely that global warming will exceed 1.5 degree Celsius during the 21st century. While the 2015 Paris Agreement and the COP 26 have led to a global consensus on the need to reduce carbon emissions, the report explains that modelled mitigation pathways may be unsuccessful in preventing intensified tropical cyclones, rise in sea levels, heatwaves and droughts. This is primarily due to a lag in the adoption of low-emission technologies and uneven policy coverage across sectors.

As the water crisis deepens and heatwaves cause a record number of deaths, international actors are bringing forward increasingly complex climate litigation against corporations. With more than fifty climate-aligned cases being filed against corporations in 2025, climate litigation is no longer confined to traditionally targeted sectors such as oil and energy. In a landmark case in 2024, the Dutch arm of Air France, KLM, was found to have misled customers with an advertising campaign aimed at improving the company's environmental image. Such cases fall under the category of greenwashing and have become an important instrument for climate litigation. Huge corporations such as Nestle, Apple and Adidas have come under fire for advertising misleading information to improve consumer perception of the brand.

While it is easy to assume that climate risk is confined to international actors and

multinational corporations, its effects can filter down to smaller businesses through contracts, regulation, supply chains and compliance requirements. Under the European Union's Corporate Sustainability Due Diligence Directive, indirect greenhouse emissions across a company's value chain, known as Scope 3 emissions, need to be assessed and disclosed where applicable. Large corporations need data from their suppliers to avoid litigation and suppliers that cannot provide verifiable emissions data risk losing commercial contracts. This cascading due diligence creates a risk that the administrative and financial burdens of carbon accounting and environmental compliance will extend to smaller businesses within large supply chains. Moreover, financial institutions are now assessing climate risk before lending money.

For example: if an insurance needs to be taken against agricultural equipment in a region that is affected by droughts, insurance companies are likely to pull back on coverage.

Ultimately, climate change is more than an environmental concern. It is reshaping

contractual relationships and policymaking. Companies have to make sure that their representations about sustainable initiatives match operational reality. Overstating sustainability metrics can lead to greenwashing claims and even severe regulatory penalties. Smaller businesses across sectors have to negotiate reasonable liability exclusions, review contracts that require emissions data and even prepare for climate risks such as floods or droughts that may disrupt supply chains. As climate change makes its way back to the top of the global agenda, businesses have to ensure that they have an action-plan that can withstand the scrutiny of regulators, consumers and investors.