UK financial watchdog hit with claim over prospectus climate risk disclosure

The UK’s financial watchdog has been hit with a rare legal action by an environmental group that claims the Financial Conduct Authority unlawfully signed off listing documents that allegedly failed to adequately outline oil and gas producer Ithaca Energy’s climate change risks.

The case marks the first time that the environmental law charity ClientEarth, which has a record of successful claims, has targeted the UK regulator.

The group has also recently filed a claim in the High Court against Royal Dutch Shell directors personally over their response to climate change risk. Both petitions are yet to be accepted by the court, which must now decide whether to grant permission for the cases to go ahead.

Ithaca, which has significant interests in the controversial Cambo and Rosebank oil and gasfields in the North Sea off the coast of Scotland, listed on the London Stock Exchange last November.

ClientEarth said it had filed the action against the FCA at the UK High Court over the regulator’s approval of the Ithaca prospectus, a legal document that companies are required to produce ahead of an initial public offering.

Robert Clarke, ClientEarth accountable finance lawyer, said Ithaca’s prospectus acknowledged that climate change posed a risk to oil and gas companies, but was too general to leave investors fully informed or to meet prospectus regulation, which requires companies to disclose material risks.

He argued the document did not explain how these risks affected Ithaca specifically or how significant these risks could be for the company, particularly considering the Paris agreement goal to keep the global temperature rise at 2C and ideally at no more than 1.5C above pre-industrial levels.

“One of the financial regulator’s main duties is to protect investors. A key way it does that is by ensuring companies that apply to list on the London Stock Exchange adequately disclose the risks associated with their activities, including climate-related risks, in the prospectus as required by law,” Clarke said.

“In the case of Ithaca’s listing, we believe the regulator has failed when it comes to this fundamental function by ultimately waving through Ithaca’s prospectus even though legal requirements have not been met.”

Clarke said that adequate disclosure of climate-related risk was in the “best interest of investors, the public and the planet”. “This case is about ensuring the regulator plays its part in adequately applying disclosure rules,” he said.

The claim has been filed as a judicial review case, a type of legal case that challenges a decision by a public body.

The FCA said that it intended to oppose the petition by ClientEarth for permission to bring the case to the High Court.

Ithaca said it noted the response of the FCA, and added that “at this stage it would not be appropriate for us to comment further”.

It is very rare for the UK regulator to face such a legal challenge.

In 2006, the High Court declined to grant Yukos Oil permission to continue a judicial review claim over a decision by the Financial Services Authority, the predecessor to the FCA, to approve the prospectus relating to a public share offering of Rosneft, the Russian oil company.

Climate activists have increasingly turned to legal action to target companies, governments and now regulators over environmental concerns. Since 1990, more than 2,000 climate litigation cases have been through the courts around the world, according to a database compiled by the Grantham Institute on climate change and the environment at the London School of Economics.