ClientEarth, an environmental charity, have recently issued a judicial review claim in the High Court against the FCA, the UK’s financial regulator.

ClientEarth claims that the FCA acted unlawfully by approving the listing documents of an UK oil and gas company, Ithaca Energy PLC, despite the documents allegedly failing adequately to describe the climate-change risks faced by the company.

ClientEarth say that although Ithaca’s listing documents acknowledged that climate change posed a risk to oil and gas companies, the documentation was too general to meet prospectus regulation, which requires companies to disclose material risks. Without this information, ClientEarth argue that investors will not be able to assess how Ithaca might be affected by the global net zero transition. So what now? Well it’s now up to the High Court to decide whether to grant ClientEarth permission to bring the claim (a feature unique to judicial review claims). It’s unlikely to be plain sailing though as the FCA have already indicated that it intends to oppose the petition by ClientEarth for permission to bring the claim. Watch this space.

Recent years have seen a rise in ESG litigation against governments, corporate entities and now regulators over environmental concerns. According to a report published by the Grantham Institute of Research, as of May 2022, there were 2,002 cases of climate change litigation globally. These include cases seeking to enforce climate standards, cases using arguments based on so called “greenwashing” and cases based on personal responsibility or “failure to adapt”.

For example, ClientEarth recently issued a claim against Shell’s board of directors for setting a target to become a net-zero emissions energy business by 2050 and then failing to reflect such plans in the detail of its operating plans or budgets. This is a landmark case which may open up the floodgates to further ESG related claims; enabling action to be taken against not only businesses, but also the individuals who control the companies and make the decisions. Read our earlier article on director liability here.

The costs to companies of “getting ESG wrong” are high, potentially resulting in not only financial damage, but also reputational harm affecting the entire business. There may also be damage to recruitment capabilities and potential disruption from activists. We can advise clients further on practical steps to take to reduce the risk of ending up on the wrong side of an ESG claim. Please see here for further details on how we can help.