Litigating for Regulatorily Required Social Cost Internalization: A Roadmap

Abstract

Interest has grown over the last several years in the prospect of using credit ratings and financial regulation as means of forcing the internalization, by polluting firms, of environmental costs they externalize to the public. The justification for such a strategy is straightforward: the liabilities occasioned by catastrophic toxic events can imperil the stability and even solvency of the systemically important financial institutions that often fund the activities that eventuate in such events. This can in turn imperil the stability of the financial system at large. What is less clear is whether credit rating agencies or financial regulators reluctant to act on this nexus might be forced, through litigation, to do so. This paper roadmaps means of pursuing this strategy, mapping additional, complementary prospects along the way.

Keywords: Cost-Internalization, Credit-Rating Agencies, Environmental Harms, Externalities, Financial Regulation, Litigation Strategy