The ICJ's Climate Verdict: A New Baseline for Financial Accountability

On July 23, 2025, the International Court of Justice (ICJ) issued a landmark advisory opinion on states' obligations to mitigate greenhouse gas (GHG) emissions, calling climate change an "urgent and existential threat". This unanimous decision confirmed that international law requires states to prevent significant climate harm, and failure to do so can trigger legal responsibility.

While advisory, this opinion carries immense persuasive authority, establishing a new global standard for climate accountability. It signals that climate obligations are now a matter of legal duty, not just policy discretion, creating a new landscape for all actors, including the financial sector. For finance, this means if states are legally bound to regulate private actors' emissions, then financial institutions enabling those actors face heightened indirect legal and direct reputational risks, translating into regulatory pressure, increased litigation, and escalating stakeholder demands.

From State Obligation to Financial Imperative: The Ripple Effect of Due Diligence

The ICJ’s ruling sees governments legally accountable for emissions from companies within their jurisdiction. The Court specifically highlighted fossil fuel production, consumption, exploration licenses, and subsidies as activities that "may constitute an internationally wrongful act".

This ruling creates an indirect liability loop for financial institutions. If states are responsible for failing to regulate private actors, and banks finance these actors, especially in the fossil fuel sector, then banks face increased risk.

The Uncomfortable Truth: Banking on Climate Chaos Continues

Despite climate commitments, major global banks are not only continuing but in some instances even increasing fossil fuel financing.

The Banking Climate Chaos 2025 report shows a $162.5 billion increase from 2023 to 2024, reversing a downward trend, with $7.9 trillion poured into fossil fuels since the Paris Agreement.

This continued financing, often through loopholes, exposes banks to escalating climate litigation and greenwashing claims. Litigation incidents related to environmental impact for large banks increased twelvefold between 2020 and 2023. Regulators like the US Securities and Exchange Commission (SEC), Germany's Federal Financial Supervisory Authority (BaFin), and the UK's Financial Conduct Authority (FCA) are already issuing fines for greenwashing.

Financial regulators and central banks view climate change as a systemic risk. The ICJ opinion, by defining "wrongful acts" related to fossil fuels and state responsibility, provides a new legal tool for litigators, amplifying regulatory demands for robust climate risk management. This transforms climate risk from a "soft" ESG issue into a "hard" financial stability and legal compliance imperative.

This means banks must move beyond their current and often vague commitments to comprehensive, science-based transition plans, and shifting capital towards decarbonization. Integrating climate risk management is now about building long-term resilience and competitive advantage. It's about doing smart business and avoiding severe repercussions.

Doconomy: Empowering Financial Institutions to Lead the Transition

The ICJ's emphasis on regulating GHG emissions highlights the need for actionable climate impact data. Doconomy addresses this with "Impact Transactions," which converts financial transactions into CO₂e footprints using the Åland Index, a global methodology adopted by over 90 banks. This provides granular, verifiable data for banks to understand their financed consumption emissions and enhance transparency. Doconomy's "Impact Finance" further empowers customers towards sustainable behaviors. By making climate impact visible, Doconomy enables banks to align bottom up with the new climate accountability baseline set by the ICJ.

Conclusion: The Future of Finance is Climate-Conscious

The ICJ's advisory opinion marks a turning point, establishing a clear legal baseline for climate protection and accountability. For financial services, climate-related risks are now legal, material, and subject to intense scrutiny. Executives must re-think their approach to climate risk and impact measurement, moving towards strategic transformation. By leveraging solutions like Doconomy's Impact Transaction and Impact Finance, banks can gain crucial insights to measure, manage, and reduce their climate impact, leading the transition to a low-carbon future. The future of finance is climate-conscious prosperity and increasingly risk adverse.