Peters & Peters

Environmental complaints: testing new legal routes to effect change

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.