Across the world, climate change litigation is increasingly seen
as an important measure by which to try to effect meaningful local
or international action and change of policy. In July 2023, a global study found that
climate change cases had more than doubled since 2017 and included
thousands of actions filed before international and regional courts
and judicial bodies.
But what about the UK?
Strategic environmental litigators in the UK are increasingly
finding novel ways to hold corporates and governments to their
environmental commitments. To date, their efforts have been met
with mixed results.
In the field of judicial review, environmental groups achieved
great success in 2022 with a challenge to the government's Net
Zero Strategy for its failure to comply with the Climate Change Act
2008. This action led to the government revising its policy (which
is the subject of further challenge).
However, attempts to challenge the actions of directors for alleged
climate risk mismanagement have been less successful. In 2023, both
the High Court and the Court of Appeal dismissed attempts by some
shareholders to pursue derivative actions against the board of
directors of Shell for alleged breach of fiduciary duties.
There has also recently been significant public and media interest
in "greenwashing" – the practice by which companies
make exaggerated or unsubstantiated environmental claims to appear
more appealing. Sections 90 and 90A of the Financial Services and
Markets Act 2000 (FSMA), in particular, may provide shareholders of
listed companies with a route to seek compensation for losses
arising from "greenwashing" type statements in those
companies' public documents. However, we are yet to see any
reported judgments on this topic. Instead, complaints to the
Advertising Standards Authority have so far proven a more fruitful
avenue for airing greenwashing claims.
It is against this background that, in December 2023, Mrs Justice
Lang DBE gave a relevant judgment in judicial review proceedings.
Although the action failed, it is an interesting attempt by
environmental campaigners to use public law mechanisms to spotlight
corporate reporting issues.
R (ClientEarth) v FCA and Ithaca
Energy plc [2023] EWHC 3301 (Admin)
Ithaca Energy plc is an oil and gas exploration company operating
in the North Sea. In 2022, it wished to carry out an initial public
offering and list its shares on the Main Market of the London Stock
Exchange. It therefore submitted a listing prospectus to the
Financial Conduct Authority (FCA), which is the public body
responsible for approving such prospectuses.
The FCA approved and published the listing prospectus in October
2022. However, ClientEarth, an environmental NGO, subsequently
raised concerns with the FCA that the prospectus contained
inadequate information about climate-related risks faced by
Ithaca.
In response, Ithaca produced a revised version of the prospectus,
which the FCA approved in November 2022.
ClientEarth then brought judicial review proceedings against the
FCA. It argued that the FCA's decision to approve Ithaca's
prospectus was unlawful because the prospectus did not contain the
necessary environmental information required by the applicable
legal regime (known as the Prospectus Regulation –
see Articles 6 and 16). In particular, it failed to disclose or
describe adequately Ithaca's assessment of the materiality of
its climate-related financial risks, or the specificity of
climate-related risks associated with Ithaca's
securities.
Ithaca's prospectus contained references to climate change, the
Paris Agreement on Climate Change and the UK government's Net
Zero commitment. However, ClientEarth argued that these references
were too broad and that the Prospectus Regulation required Ithaca
to provide more specific information, such as its actual assessment
of the materiality of climate-related financial risks, information
shedding light on Ithaca's particular situation (not that of
the industry in general) and information about the potential impact
of the Paris Agreement on Ithaca's business.
Ithaca joined the proceedings as an interested party and a hearing
was held to decide whether the proceedings had permission to
proceed.
Unsurprising result
As a preliminary point, the judge held that ClientEarth had
standing to pursue the claim on a public-interest basis, because
the subject matter fell within its area of expertise and its
mission.
ClientEarth's substantive grounds, however, were found to be
unarguable. The judge was unconvinced by ClientEarth's argument
that the question of whether a company has complied with its
obligations under the Prospectus Regulation is a
"hard-edged" question of law for the court. She instead
held that the FCA has a discretion conferred by Parliament to
approve a listing prospectus, that section 87A of the FSMA requires
the FCA to be "satisfied" that a prospectus contains the
requisite information, and that this requires an evaluative
judgment which may admit of more than one view.
The judge found that the FCA's interpretation of the Prospectus
Regulation was "plainly correct on a natural reading" and
that the rules did not require Ithaca to do more than it had done.
Ithaca was not, for example, required to disclose its assessment of
relevant climate-related risks or do more than identify the Paris
Agreement as a material risk for its business.
ClientEarth was therefore refused permission to proceed with the
judicial review.
The judge's decision is not particularly surprising; public
bodies have long been afforded a margin of discretion when
exercising their decision-making powers. As soon as the judge found
that the question of approving a listing prospectus was properly a
decision for the FCA (and did not give rise to a
"hard-edged" question of law), the result seems
inevitable.
In addition, the FCA is not required to publish reasoned decisions
in relation to prospectus approval applications. Although this did
not specifically factor into the judge's decision-making, with
no written reasons on which to "hang" any purported error
of law or irrationality, ClientEarth was surely always facing an
uphill battle.
Any case involving the exercise of discretion will always turn on
its specific facts. However, in light of this decision, it is
difficult to envisage how an environmental judicial review under
this legal regime might succeed without a change to the regime or
to the guidance provided to the FCA regarding the exercise of its
discretion in such cases.
A word on costs
The decision also gives rise to a key point about costs in
environmental litigation.
Environmental claims classified as "Aarhus Convention claims"
are subject to limits on recoverable costs under CPR 46.24.
Unsuccessful litigants therefore have a real incentive to try to
bring claims within this category and avoid significant costs
awards.
An Aarhus Convention claim is a claim brought by a member of the
public challenging acts and omissions by private persons and public
authorities which "contravene provisions of its national law
relating to the environment" (see Article 9(3)). For the
purpose of CPR 46.24, the meaning is limited to judicial review
proceedings or reviews under statute.
In this case, ClientEarth argued that it had initiated an Aarhus
Convention claim. The judge was unconvinced. Instead, she found
that section 87A of the FSMA and the Prospectus Regulation were
concerned with investor protection, the proper functioning of
markets and market efficiency. Although they might, in principle,
relate to environmental circumstances, this did not change their
purpose and effect. Any connection with the environment and the
purpose of the Aarhus Convention was "incidental and
remote".
This decision, and the judge's emphasis on a meaningful link
between the relevant legal provisions and their relationship to the
environment, will be a real blow to NGOs seeking to benefit from
the more favourable fixed-costs regime.
Strategic aims
Although the action failed, it is important to recognise that
strategic litigation is not only about winning individual cases. It
is also concerned with testing and using existing legal mechanisms
to effect change and to raise awareness of issues of public
interest. One measure of success might therefore be whether a case
has led to any meaningful change.
Relevantly, the judgment in this case records that Ithaca produced
a revised prospectus after ClientEarth initially wrote to the FCA.
We do not know what changes were made – and ClientEarth
clearly considered there were still sufficient grounds to bring the
action – but it suggests that Ithaca may have felt some
pressure at an early stage and, as a result of ClientEarth's
intervention, to amend the environmental information in its
prospectus.
Given the regulatory climate, and growing public interest in
climate change, companies are feeling under increased pressure to
factor environmental issues into their decision-making processes
and policies and to ensure the accuracy and adequacy of their
publications. Recent legal developments identified in this article
suggest that, as litigators in this field become increasingly
creative about how they try to bring private law environmental
issues before the English courts, companies are right to do so.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.