ClientEarth took the view that it was essential for the protection of investors that, when fossil fuel companies seek to list on the London Stock Exchange, the prospectus should include full and transparent disclosure of climate-related risks. It said that this would allow investors to make informed decisions and encourage finance flows to shift to support net zero.  ClientEarth said there were risks of investors being left with unviable stranded assets and investments losing value in the face of net zero.  

Ithaca is an oil and gas operator in the North Sea, with interests in oil and gas fields including Cambo and Rosebank.  ClientEarth argued that the risks disclosed in the prospectus for Ithaca were too general in nature and that there was no explanation of how the risks would affect Ithaca’s business or how significant the risks were.  

The prospectus had to comply with the EU Prospectus Regulation, as retained EU law.  The FCA could only approve the prospectus if it met the requirements of the Prospectus Regulation.  

The grounds of challenge were that the FCA had erred in law by approving Ithaca’s prospectus in circumstances where the prospectus failed (1) to disclose adequately the climate-related risks associated with Ithaca’s securities and (2) to include Ithaca’s assessment of the materiality of its climate-related financial risks, both in breach of Article 16 of the Prospectus Regulation.  

Article 16 provides that a prospectus must include risk factors material for taking an informed investment decision, with each risk factor being adequately described, explaining how it affects the issuer or the securities being offered.  It also provides that, when drawing up the prospectus, the issuer must assess the materiality of the risk factors based on the probability of their occurrence and the expected magnitude of their negative impact, but it does not make disclosure of this assessment mandatory.  

ClientEarth argued that the prospectus only referred to climate change, the Paris Agreement and the net zero commitment in broad generic terms.  It said that references to the possibility of climate activism negatively affecting the process of obtaining approval for further development, and to effects on the hydrocarbon industry, were not specific enough, and did not shed sufficient light on Ithaca’s particular situation, as opposed to the situation of the industry in general.  

As to approach to this issue, ClientEarth argued that the question whether an issuer has complied with its obligation to disclose its assessment of the materiality of a risk factor is a hard-edged question of law for the court, and not a matter of discretion or rationality.  On this, Mrs Justice Lang held that previous case law established that the requirements of Article 16 were not hard-edged questions for the court. Instead, they required an evaluative judgment which could admit of more than one view, such that the FCA’s decision to approve Ithaca’s prospectus could only be challenged on normal public law grounds.  

The Judge concluded that Ithaca’s prospectus plainly did address risks to Ithaca’s business and securities arising out of climate change factors, associated regulatory measures and changes in consumer use.  The result was that the FCA’s judgement that the Article 16 requirements were met was not arguably unlawful.  The Judge also held that there was no obligation in Article 16 to disclose Ithaca’s risk assessment.  

ClientEarth also argued that the FCA’s conclusion that the prospectus contained the necessary information, as required by Article 6 of the Prospectus Regulation, was irrational.  Article 6 requires a prospectus to contain the information which is material to an investor for making an informed assessment of the assets, liabilities and prospects of the company.  The Judge found this ground unarguable because the prospectus did identify the Paris Agreement as a material risk for the business and did address risks arising out of climate-related factors.  

The outcome in this case was as could have been expected, given the wording of the Prospectus Regulation.  This is especially so in light of previous cases which established that compliance with the requirements of the Prospectus Regulation were not hard-edged questions for the court but matters for the expert judgement of the FCA.  In those circumstances, and where the prospectus did address climate change risks to an extent, it was always going to be very difficult to establish that the FCA had made a public law error.  It might of course have been different if the claimant could have pointed to a specific and substantial climate-related risk which had not been mentioned at all in the prospectus.  

This case is another example – like ClientEarth’s recent case against Shell – where legislation relating to corporate matters has been relied on in climate litigation, but where the case has been found to be effectively unarguable.  These outcomes are unlikely to affect how campaigning organisations use litigation to promote their objectives.  There must be a risk, however, that headline-grabbing test cases brought on a less than ideal factual matrix will lead to avenues for climate accountability via litigation being shut off or narrowed.  The vindication through litigation of fossil fuel companies – where challenges are indeed held to be unarguable – might lead other fossil fuel companies to take a more robust approach to climate risk than might otherwise have been the case.  

The case is also interesting in procedural terms.  Lang J dismissed arguments which had been raised against ClientEarth on standing and delay, despite the claim being brought at the end of the three month period.  On standing, the Judge decided 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 to ensure that public bodies act in accordance with their legal obligations in relation to the climate crisis”.

The Judge, however, rejected ClientEarth’s submission that it should benefit from Aarhus costs protection.  The issue was whether the claim included an argument that the FCA’s decision contravened provisions of national law relating to the environment, under Article 9(3) of the Aarhus Convention.  The Judge referred to the Aarhus Implementation Guide and previous case law, and explained that a mere connection between the relevant law and the environment was not enough.  The provision’s connection to the environment had to be sufficiently close to come within Article 9(3).  

Lang J noted that the stated aim of the Prospectus Regulation was to ensure investor protection and market efficiency, and that it was not part of EU environmental law.  The subject matter of the provisions relied on by ClientEarth was not environmental, and their propose was not to protect or otherwise regulate the environment.  Any consequential effect on the environment arising from the provisions was incidental and remote, so there was not a sufficiently close connection between the provisions and the environmental factors regulated by the Aarhus Convention.  The Judge concluded that the relevant provisions were not provisions of national law which related to the environment in the requisite sense and the claim was not therefore an Aarhus Convention claim attracting costs protection.  

The Judge’s analysis of Aarhus Convention status followed a well-trodden path and is in line with decisions such as Forbes v Wokingham BC [2018] EWHC 2530 (Admin), which held that a judicial review relating to the registration of land as a village green was not an Aarhus Convention claim.  Whilst the meaning of “the environment” should be interpreted broadly, it is not unlimited and there must always be a link to the physical elements of the environment.

Richard Honey KC is a barrister practising at Francis Taylor Building in public and environmental law, with experience in climate change and ESG litigation, and the Aarhus Convention costs protection regime.