UK regulator faces legal action over energy firm’s climate risk disclosures
Environmental law firm ClientEarth is suing the UK’s Financial Conduct Authority over alleged lapses in climate disclosures in the prospectus of energy company Ithaca.
The UK’s Financial Conduct Authority (FCA) has been accused of acting unlawfully by approving the prospectus of oil and gas company Ithaca Energy, despite the company’s disclosures failing to adequately describe the climate-related risks faced by its North Sea exploration projects.
The allegations against the FCA derive from a claim by environmental law firm ClientEarth, with the decision now with the High Court of England and Wales to grant permission to bring the claim to legal action.
ClientEarth has acknowledged that Ithaca did make updates regarding climate disclosure in its final prospectus but claims they did not go far enough in specifically detailing the risks of oil and gas infrastructure projects in the Cambo and Rosebank oil and gas fields in the North Sea.
Responding to the threat of legal action, an FCA spokesperson said: “ClientEarth needs to obtain permission from the court before bringing this claim and the FCA intends to oppose permission being given in this case.”
When assessing key risks that are specific to the issuer, Ithaca’s prospectus stated: “The effects of climate change, abatement legislation, changes to carbon-pricing systems and political and societal perception of the production and use of fossil fuels may have a material adverse effect on the hydrocarbon industry.”
Ithaca completed its initial public offering and listed on the London Stock Exchange in November last year.
Protecting investors
ClientEarth’s accountable finance lawyer Robert Clarke said: “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.
“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.”
Prior to Ithaca’s listing, ClientEarth wrote to the FCA twice to raise concerns about the supposedly inadequate disclosure of climate-related risk in Ithaca’s prospectus.
One of the financial regulator’s main duties is to protect investors.
Litigation momentum
Of this most recent legal action, Paul Watchman, special legal advisor at the UNEP Principles of Sustainable Insurance Net Zero Insurance Alliance, commented on LinkedIn: “Not sure if this is a way forward, as the FCA are leading the way on regulating the financial market and greenwashing, but there is clearly a huge litigation momentum at the moment.”
Only last week, ClientEarth launched legal action against oil and gas giant Shell, specifically targeting the firm’s board of directors for an alleged failure to shift the firm’s resources to a clear net-zero pathway.
Responding to its own threat of legal action, an FCA spokesperson said: “ClientEarth needs to obtain permission from the court before bringing this claim and the FCA intends to oppose permission being given in this case.”
While the subject of litigation in this instance, the FCA have also recently been commended for anti-greenwashing measures in its proposed Sustainability Disclosure Requirements.
Ithaca has been contacted for comment.
