UK financial regulator hit by lawsuit over disclosure of climate risks in prospectus

Britain’s financial regulator has been hit by a rare lawsuit from an environmental group alleging the Financial Conduct Authority unlawfully signed listing documents that they say do not adequately outline the risks at oil and gas producer Ithaca Energy.

The case is the first time environmental law charity ClientEarth, which has a track record of successful litigation, has targeted the UK regulator.

The group recently brought an action in the High Court against the directors of Royal Dutch Shell themselves over their response to climate change risk. Both motions have yet to be accepted by the court, which must now decide whether to authorize the cases to proceed.

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

ClientEarth said it has filed the case against the FCA in the UK High Court over the regulator’s approval of the Ithaca prospectus, a legal document companies must submit before an IPO.

ClientEarth’s Accountable Finance Lawyer Robert Clarke said Ithaca’s prospectus recognizes that climate change poses a risk for oil and gas companies, but is too general to fully inform investors or to comply with the prospectus requirements that companies do obliged to disclose significant risks.

He argued the document does not explain how these risks impacted Ithaca specifically or how significant these risks could be for the company, particularly given the Paris Agreement target of limiting global temperature rise to 2°C and ideally no more than 1, 5°C above pre-industrial levels to maintain levels.

“One of the main tasks of financial regulators is to protect investors. A key way of doing this is to ensure that companies applying for a listing 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 failed in this fundamental function by ultimately waving through Ithaca’s prospectus despite failing to meet regulatory requirements.”

Clarke said that adequate disclosure of climate-related risks is in “the best interests of investors, the public and the planet.” “The issue in this case is to ensure that the regulator is doing its bit to ensure the appropriate application of the disclosure rules,” he said.

The claim was filed as a judicial review case, a type of litigation challenging a decision by a public body.

The FCA said it intends to oppose ClientEarth’s request for leave to take the case to the High Court.

Ithaca said it took note of FCA’s response, adding that “it would not be appropriate for us to make any further comments at this time”.

It is very rare that the UK regulator is faced with such a legal challenge.

2006 the High Court declined to give permission to Yukos Oil to pursue a court review action over a decision by the Financial Services Authority, the FCA’s predecessor, to approve the prospectus relating to a public offering of shares by Russian oil company Rosneft.

Climate activists are increasingly turning to legal action to attack companies, governments and now regulators over environmental concerns. according to a more than 2,000 climate lawsuits have gone to court worldwide since 1990 Database compiled by the Grantham Institute on Climate Change and the Environment at the London School of Economics.

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Adam Bradshaw

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