How the ICJ Climate Change Advisory Opinion Raises Global Legal and Compliance Risks for Multinational Corporations

Adding to the mix, on July 23, the International Court of Justice (ICJ) issued its Advisory Opinion on the Obligations of States in Respect to Climate Change. This opinion, which is nominally advisory, was requested by the United Nations (UN) General Assembly and driven by a coalition of island states, whose habitability may be jeopardized by sea level rise or an increase in weather events, and youth climate activists. It may add to prevailing regulatory uncertainty.

Below, we briefly summarize the decision and outline four sustainability-related tensions the decision illustrates and that affect both the regulated community and governments themselves. The tensions include:

• A doubling-down on the fragmented environmental regulatory landscape, which will lead to continuing compliance challenges posed by a patchwork of legal standards.
• Heightened legal risks for both governments that do not implement strategies to mitigate climate change and for businesses whose operations are carbon-intensive.
• Potential for investor and market focus to return to climate issues, particularly on how companies discuss the effects of their operations on emissions targets and more clearly outline the potential for weather events to impact corporate operations.
• The potential for businesses to voluntarily address any potential climate impacts to get ahead of the strategic and operational risks those impacts may pose.

Case Background

The decision results from the UN General Assembly’s request to the ICJ to answer two principal questions:

• What are the obligations of states under international law to protect the climate system and the environment from anthropogenic greenhouse gas emissions for present and future generations?
• What are the legal consequences for states that, by their acts or omissions, have caused significant harm to the climate system and the environment, particularly with respect to vulnerable states and individuals?

The ICJ provided answers to both questions. First, it determined that states have binding and non-aspirational obligations — rooted in international treaties, customary law, and human rights instruments — to prevent significant harm to the climate system. In ICJ’s view, these obligations are substantive, enforceable, and owed to the international community as a whole. Second, the court held that a state’s failure to meet these obligations may constitute an internationally wrongful act, triggering duties of cessation, non-repetition, and full reparation, including compensation to parties such as small island nations whose habitability is jeopardized by potential sea level rise for loss and damage.

The opinion rests on a host of international agreements including the United Nations Framework Convention on Climate Change, the Paris Agreement, the United Nations Convention on the Law of the Sea, human rights treaties, and customary international law. (Note particularly that “customary international law” is said to apply to countries which seek to withdraw from treaties to avoid included obligations.) The ICJ specifically rejected arguments that climate treaties are a “lex specialis” that displace other legal regimes, in favor of an approach that seeks to harmonize relevant authorities. The ICJ opinion clarifies that states and even individual actors like companies may be obligated to minimize the effects of their actions on climate.

The ICJ opinion further articulates a stringent due diligence standard that, while formally directed at states, also could have significant implications for corporate actors. The standard requires states to exercise robust oversight and regulation of private entities, ensuring that companies within their jurisdiction adopt effective measures to mitigate greenhouse gas emissions and prevent significant environmental harm. This diligence standard would in effect mandate that companies implement comprehensive climate risk assessments, integrate climate mitigation strategies into their operations, and maintain transparent reporting practices.

The opinion underscores that inaction or insufficient diligence by companies — especially in high-emission sectors — can trigger state responsibility, under which states themselves can legally bear responsibility for potential harms originating from inside their borders. Importantly, the decision is not an outlier. International bodies ranging from the European Court for Human Rights to the Inter-American Court of Human Rights have recently issued similar decisions.

Compliance Challenges From the Fragmented Landscape

Even though it is nominally advisory, the ICJ opinion will likely increase challenges faced by companies operating across multiple jurisdictions that must navigate conflicting or overlapping regulatory regimes. Multinational corporations already face challenges complying with various carbon-accounting standards. (See here.) By emphasizing that international standards impose binding obligations on actors at all levels, the ICJ opinion may reignite attempts by climate activists to import international standards into jurisdictions where greenhouse gas emissions are more leniently regulated.

Heightened Litigation and Liability Risks

The opinion is also likely to incentivize climate litigation, particularly lawsuits by climate activists against carbon-intensive industries. The ICJ explicitly determines that companies may be held liable for failing to align their operations with international climate standards, even if a particular state’s regulations are lax. As has happened elsewhere, foreign plaintiffs may bring claims against domestic companies for climate harms occurring in other countries. (An example is this recently dismissed case.) The ICJ’s diligence standard as expressed in the advisory opinion may appear in future cases.

US courts may look to international legal developments and the ICJ’s reasoning when adjudicating climate-related cases. US climate litigation increasingly invokes constitutional and statutory rights to a healthy environment (see here), and it is no stretch to envision activist plaintiffs incorporating international-law focused arguments into their cases.

Investor and Market Pressures

Regulatory uncertainty undermines investor confidence and can affect access to capital. While the environmental, social, and governance-related regulatory tide has lessened in the United States, many institutional investors demand robust climate risk assessment, disclosure, and governance. The opinion underscores a potential need for companies to align with international standards, regardless of what may be required under their home jurisdiction’s laws. Companies may continue to face risks like higher capital costs posed by investors who decline to invest in businesses without clear climate-related planning and governance.

And this is true even in the United States where federal regulators’ attempts to limit mandatory climate-related disclosures may be at odds with global market expectations and emerging legal norms. Companies may be required to provide more detailed climate risk disclosures to satisfy foreign regulators, investors, trading partners, or even their own employees or customers.

Pressure for Voluntary and Preemptive Action

Finally, in response to the ICJ opinion, companies may adopt voluntary or preemptive standards to align their operations with international best practices and the ICJ’s due diligence standard.

Stay tuned for further updates. Members of the firm’s Environmental, Energy & Cleantech, and Environmental, Social & Governance teams regularly monitor regulatory and court decisions affecting the energy space.