ClientEarth v. Financial Conduct Authority (Ithaca Energy plc listing on London Stock Exchange)

Ithaca Energy PLC is one of the largest independent oil and gas producers in the UK North Sea, with assets including the Cambo and Rosebank fields. In 2022 it sought, and was ultimately granted, listing on the London Stock Exchange. As part of that process Ithaca submitted a ‘prospectus’ for approval by the Financial Conduct Authority (“FCA”), being the UK’s financial regulator. The FCA may only approve a prospectus if satisfied it meets the requirements of European Union Regulation 2017/1129. This Regulation remains UK law post-Brexit by virtue of Part 6 of the Financial Services and Markets Act 2000. The Regulation, aimed at investor protection, requires companies to disclose certain specific and material risks they face which are material for an investor to make an informed assessment of (among other things) an issuer’s assets and liabilities, financial position, and prospects. The FCA approved Ithaca’s prospectus, resulting in a public law claim by ClientEarth, issued in February 2023. Client Earth argued that the FCA acted unlawfully by approving the prospectus despite Ithaca’s disclosures failing to adequately describe the climate-related risks faced by the company, and how significant they are to the company, and therefore breaching legal requirements. It also argues that failure to provide investors with a meaningful indication as to how the company’s business might be affected by full or partial achievement of the Paris Agreement goal deprives them of the information necessary to make an informed assessment of the company’s financial position. In May 2023 the High Court refused permission for the claim to proceed to trial. It made this decision ‘on the papers’. ClientEarth renewed its application, resulting in a permission hearing. In December 2023, following that hearing, the High Court gave judgment. Whilst delay in bringing the claim was not a good reason for refusing permission (judgment paragraphs 4 to 6), and whilst ClientEarth had standing (paragraph 7), the grounds were not arguable and so permission was refused. The FCA had not arguably breached the Regulation. The approval of the prospectus could only be challenged on public law grounds. The Regulation’s requirements were not hard-edged, and determining whether they were met required evaluative judgement, which the court would only interfere with if irrational. Here, the FCA’s interpretation of the Regulation was plainly correct. Whilst the Regulation required disclosure of those risk factors that were material, it did not require the issuer to disclose its assessment of risk and materiality/specificity. It was for Ithaca to determine the materiality and specificity of the risks to be included, and not the FCA. The 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 FCA considered that the risk factors were adequately described, and there was no arguable error in that decision. (Paragraphs 16 to 26). Nor was it arguably irrational for the FCA to have concluded, pursuant to the Regulation, that the prospectus contained the necessary information material to an investor for making an informed assessment of Ithaca's financial position and prospects. ClientEarth, relying on FCA guidance on climate change and other ESG-related matters, argued the prospectus did not adequately deal with the potential impacts of the Paris Agreement on Ithica’s business, were it to be fully implemented. The court held, however, that this ground had ‘not come close’ to demonstrating that the FCA had acted irrationally. (Paragraphs 27 to 29.) The court also held that the claim was not one that was caught by the Aarhus Convention. The relevant provisions of the Act and the Regulations were not provisions of national law which related to the environment. As to the nature of the contraventions alleged, there was not a sufficiently close connection to the environmental factors regulated by the Aarhus Convention, and even if the claim succeeded, it would not have significant environmental benefit. ClientEarth did not therefore benefit from the limits on costs recoverable between parties in Aarhus claims. (Paragraphs 30 to 47.)