ClientEarth v FCA: Challenging Regulator Decisions

Quick read

In August, we reported on ClientEarth's unsuccessful derivative action against Shell's board of directors.

The environmental charity in still making headlines and has, more recently, renewed its challenge in the Administrative Court against the Financial Conduct Authority's (FCA) decision to approve the prospectus of Ithaca Energy – a, now, listed oil and gas operator in the North Sea.

What did ClientEarth want?

After permission was initially refused on the papers, ClientEarth sought a declaration from the Court that the FCA's approval of the prospectus was unlawful, broadly, because Ithaca's disclosure of climate-related risks did not meet the Prospectus Regulation requirements.

ClientEarth claimed the FCA erred in law by approving the prospectus on three grounds:

The prospectus failed to disclose or adequately describe the materiality of climate-related financial risks.
The prospectus failed to disclose or adequately describe the specificity of climate-related risks associated with Ithaca's securities.
The FCA acted irrationally in concluding the prospectus complied with Article 6 of the Prospectus Regulation on the basis that it contained necessary information material to an investor to make an informed assessment of Ithaca's financial position and prospectus.

What did the Court decide?

In Lang J's judgment of 13 December 2023, the Court refused ClientEarth's renewed application for judicial review and held that the three grounds were unarguable and had no real prospect for success.

Comment

ClientEarth's focus on financial regulatory decisions comes as no surprise against the backdrop of the UK Government's commitment to become the world's first Net-Zero aligned Financial Centre, first proposed in November 2021 at COP26. However, it is a rarity for a UK regulator to be challenged this way and is the first challenge of its kind.

Whilst ClientEarth failed to obtain permission to bring a claim against the FCA on this occasion, no doubt listed companies and companies intending to list will be conscious of increased scrutiny when preparing prospectuses and disclosing climate-related risks. However, it remains the FCA's responsibility to approve prospectuses and a high hurdle would need to be overcome to show the regulator's irrationality in coming to its decision.