There has been a surge in climate change litigation activity, particularly on the part of activist groups, in just the last month. That seems set to continue, with claimants seeking to bring a range of novel and creative claims in order to push their climate agendas as far as possible in the English Courts. Below is a brief overview of some of the key developments. The way the Courts will deal with these interesting claims remains to be seen, but what is clear is that climate change litigation in the UK is on the rise, and that the focus for activists in particular is on keeping as much pressure as possible on defendants.
ClientEarth v Shell’s Board of Directors
On 9 February 2023, ClientEarth in its capacity as a shareholder of Shell, filed the first derivative action against Shell’s Board of 11 Directors[1] over failure to properly prepare for the UK Low Carbon Transition Plan[2]. A derivative claim allows a shareholder to bring a claim (in certain circumstances), on the company’s behalf, for the company’s benefit against its directors. ClientEarth has received the support of institutional investors including UK pension funds Nest and London CIV. The investors collectively hold more than 12 million shares in Shell.
ClientEarth has issued a claim form and applied to the High Court of England and Wales for permission to proceed with the claim. Before the claim can go any further, the High Court must be satisfied that there is a prima facie case on the papers.
What we know about the Claim
In May 2021 Shell was ordered by a Dutch Court to cut its greenhouse gas emissions by 45% by 2030. After the Dutch judgment, and following a failed appeal to the Dutch court, Shell moved its headquarters to the UK.
In the claim brought by ClientEarth, it is alleged that Shell’s board of directors has breached its duties under section 172(1) of the Companies Act by failing to do the following:
i. Failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement and protects and considers the long term consequences of decisions.
ii. Failing to manage risks posed to the company by climate change.
iii. Failing to deliver a 45% reduction in the group greenhouse gas emissions by the end of 2030.
ClientEarth’s claim is based on an assessment done by Climate Action, and argues that Shell’s strategy excludes necessary short to medium-term targets to cut the emissions. The group’s net emissions are calculated to fall by only 5% by 2030, which does not comply with the Dutch Court’s 2021. Shell’s strategy allegedly also entails continued overinvestment in new fossil fuel projects, contrary to the recommendations of the International Energy Agency.
Under UK company law, Shell’s directors have a legal duty to promote the success of the company and to act with reasonable care, skill and diligence. ClientEarth argues that the directors are not properly managing climate risk and are therefore breaching those duties.
ClientEarth has asked the High Court for an Order which requires Shell to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch Court judgment. It is now up to the High Court to decide whether to grant ClientEarth permission to bring the claim.
Shell claims that its Energy Transition Strategy, which includes a net zero emissions plan with a 2050 target, is consistent with the 1.5c temperature goal for the Paris Agreement.
Friends of the Earth v UK Export Finance
Also in February, Friends of the Earth lodged its appeal with the Supreme Court to continue its legal challenge against the UK government’s decision to approve $1.15 billion of financing for a gas project in Mozambique[3]. In March 2022 the High Court found the UK Export Finance (UKEF)’s conclusion that the project was compatible with the UK’s Paris Agreement commitment to be lawful.
Friends of the Earth appealed this finding on a number of grounds including that the UKEF’s view of the projects alignment with the UK obligations under the Paris agreement had to be correct, not merely tenable. According to Friends of the Earth there was no rational basis for UKEF to have found this.
On 13 January this year, the Court of Appeal rejected these arguments[4] on the basis that the obligations imposed by the Paris Agreement were aims and not hard domestic legal obligations. In the court’s view if “it was tenable for UKEF to reach the view that funding the project aligned with the UK’s obligations under the Paris Agreement, the court could not and should not hold that it had made an error in law”. The Court of Appeal said the question for the courts was whether the decision maker’s view on an unincorporated international treaty was ‘tenable’ rather than correct. As to whether the decision by the UKEF was irrational, the Court found it not to be because it “could align with the UK’s obligations under the Paris Agreement”.
The appeal to the Supreme Court maintains that the funding decision was unlawful as it failed to properly consider the enormous emissions that will result and how this aligns with the UK’s climate obligations. The appeal also highlights Friends of the Earth’s concern around the Court of Appeal’s finding setting a dangerous precedent for projects like these.
ClientEarth v FCA
ClientEarth has similar concerns to Friends of the Earth when it comes to other UK bodies’ decisions. Their most recent claim is against the Financial Conduct Authority (FCA)[5] in relation to its decision to approve the prospectus of a company with significant interests in the Cambo and Rosebank oil and gas fields in the North Sea.
In the claim, also issued in February, ClientEarth argues that the FCA acted unlawfully by approving the prospectus of Ithaca Energy plc, despite disclosures failing to adequately set out the risks to the oil and gas industry. Whilst Ithaca’s prospectus acknowledged that there are climate-related risks, ClientEarth argues that it failed to explain the significance of these risks and how they will affect the business.
ClientEarth’s case is based on the following main themes:
i. That the FCA can’t approve a prospectus unless it is satisfied that the requirements of the prospectus regulation have been met and the FCA’s failure to spot inadequate disclosure means it acted unlawfully in making its assessment. It is in breach of legal requirements.
ii. Ithaca’s intention to develop new fossil fuel assets is incompatible with the 1.5c temperature goal set out in the Paris Agreement and the prospectus fails to appropriately flag this.
iii. Ithaca’s failure to provide investors with a meaningful indication of how business and finances might be affected by partial achievement of the Paris Agreement goal deprives investors of the necessary information to make an informed assessment of the company’s financial position which is a breach of prospectus requirements and the FCA should have identified this.
The claim has been filed as a judicial review case and is waiting for the High Court’s decision on whether permission will be granted to bring the claim.
We are continuing to watch as these cases develop and eagerly await the decisions of the High Court and Supreme Court. It is clear, in the meantime, that climate activists are determined to keep the pressure on defendants and potential defendants in relation to their climate-related decision making and strategy. They are not afraid to bring creative, and sometimes controversial, claims against a range of defendants – from UK government entities, to individuals directors and even regulators. If the last few weeks are anything to go by, we can expect further developments, and more claims, in the near future.
[1] ClientEarth Press Release 9 February 2023.
[2] UK Low Carbon Transition Plan
[3] Friend of the Earth Press Release 21 February 2023
