Climate action is now a matter of law, not policy and this new ruling recalibrates the legal baseline bringing real implications for business.

In a unanimous opinion delivered on 23rd July 2025, the ICJ affirmed that states face binding legal obligations under international law to protect the climate system and failure to do so may breach international law, including entitling injured states to reparations. Critically, the Court declared that a clean, healthy and sustainable environment is a human right.

States now face binding legal obligations under international law to protect the climate system. Reflecting the science of climate change, the far-reaching ruling states that “the risk of significant harm to the climate system is indisputably established.”

So, how will the ruling impact global organisations and what steps can business take to stay ahead in such a dynamic landscape?

States must regulate corporate emissions. The opinion explicitly states that states are responsible for emissions within their jurisdictions, including those from fossil fuel production. States must regulate corporate and private sector activities to fulfil climate obligations – failure may constitute an “internationally wrongful act” attributable to the state.

Policy alignment will tighten. States are now under intensified legal pressure to align domestic regulation and obligations under both customary international law (e.g. no-harm, due diligence) and treaty-based frameworks, such as the Paris Agreement. Non-signatory countries remain vulnerable if universal human rights obligations are interpreted broadly. This will have a direct impact on businesses through renewed tightening of climate regulation.

Litigation risk will rise. Legal analysts anticipate that the opinion will serve as a legal foundation for both domestic and transnational litigation. The court’s reasoning provides a foundation for domestic and transnational litigation strategies that link business activities to breaches of international law that cause harm. Where national courts are receptive, this could extend liability to firms contributing materially to climate impacts, especially when those contributions are foreseeable and avoidable.

Disorderly transitions are more likely. The ruling increases the likelihood that climate policies will shift faster and with less notice. NGFS Phase V scenarios now feature disorderly and abrupt transition pathways, designed to reflect delayed policy action and sudden legal or regulatory shifts. Businesses should stress‑test using these scenarios, modelling the systemic impacts of litigation‑driven shocks.

Human rights law is central to climate risk. By tying the climate to core rights such as life, health, food, water, and housing, the ruling raises the stakes for corporate social licence. Reputation, human rights due diligence and operational governance must now reflect this elevated legal baseline.

This new ruling fundamentally alters the legal baseline – and increases transition risks for business. Organisations that understand and respond to systemic climate risk by using advanced analytics to translate complex scenario narratives into financial and operational intelligence will be best placed to stay ahead in an increasingly dynamic global business landscape.