This study investigates the intra-industry spillover effects of climate litigation on the cost of equity capital using a sample of European climate litigations during 2005–2021. We find that high-profile lawsuits against industry leaders significantly increase the cost of equity for non-accused peers. This effect is driven by heightened risk perceptions regarding transition risks. In response to these rising capital costs and legal threats, peer firms substantively reduce their carbon emissions. However, voluntary carbon disclosure remains unchanged in the stringent European regulatory environment. Our findings demonstrate that climate litigation serves as an effective disciplinary tool for industry-wide decarbonization, although its impact on transparency is limited.
