The University Superannuation Scheme (“the Scheme”) is one of the largest private occupational pension schemes in the UK. It provides superannuation benefits for academic and comparable staff in universities and other higher education institutions. The Scheme is administered by its corporate trustee, Universities Superannuation Scheme Limited ("the Company"), a company limited by guarantee with no shareholders.

The claimant academics are members of the Scheme. Through this common law derivative claim they sought permission to continue proceedings on behalf of the Company against its directors for breach of their directors' duties, alleging the following:

- The Scheme continues to invest in fossil fuels and, despite the Company’s stated ambition to be carbon neutral by 2050, its directors had no divestment plan, in breach of the directors’ duties in sections 171 and 172 of the Companies Act 2006.
- Further, or in the alternative, in failing to have a plan, the directors failed to take into account a number of relevant considerations, including the results of a members' ethical survey. The long-term interests of the Company and the Scheme could only be met by "an immediate plan for disinvestment" and that the only "rational action" that the directors could take pursuant to sections 171 and 172 was "devise and implement such a plan as soon as possible."
- The failure to take such steps had prejudiced the success of the Company which had suffered loss in consequence. The directors' breaches "furthered their own interests" and the directors "put their own beliefs with regard to fossil fuels above the interests of the beneficiaries and the Company."

The claimants sought declarations that the absence of a divestment plan constituted a breach of statutory and fiduciary duties, and that such breaches caused loss to the Company.

In August 2022, the High Court refused the claimants permission to proceed. The Court of Appeal, upholding that decision in July 2023, held:
- This cannot be characterized as a derivative action. There was no prima facie case of loss to the Company as a result of the alleged breaches of directors’ duties, meaning the claim fell at the first
hurdle.
- Also, it was not alleged the claimants suffered any loss as a result of the alleged breaches. Nor was it suggested the directors were acting in bad faith, or had done other than acted in what they considered to
be the best interests of the Company and the Scheme, having taken proper advice.
- There was no evidence the alleged directors’ breaches furthered their own interests or that the directors' actions put their own beliefs with regards to fossil fuels above the interests of the beneficiaries and the Company. It was doubtful there was a prima facie case in this regard.
- In effect, this was an attempt to challenge the Company’s management and investment decisions as trustee without any ground upon which to do so. There was nothing to suggest the Company has exercised its powers in an improper fashion.
- The claim was well suited to be brought as a direct claim in breach of trust and there was no reason, save perhaps a desire to avoid certain procedural burdens, to seek to bring it in as a derivative action. The derivative procedural mechanism is not intended to enable would be claimants to avoid other procedural hurdles. It is an exceptional remedy when a wrong would otherwise go unremedied. In effect, the claim was a challenge to the Company’s investment policy and should have been brought against it as just that.

McGaughey & Davies v. Universities Superannuation Scheme Limited

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McGaughey & Davies v. Universities Superannuation Scheme Limited - petition

Filed

United Kingdom

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

A target to reduce the prevalence of a greenhouse gas over a specific time frame

A commitment to balance GHG emissions with removal by a certain point in time, effectively reducing the net emissions to zero

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Social inclusion is the process of improving the terms on which individuals and groups take part in society—improving the ability, opportunity, and dignity of those disadvantaged on the basis of their identity.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Coal is a combustible sedimentary rock formed from carbonised plant matter, rich in carbon and hydrocarbons, and occurring in several main types including hard coal and brown coal.

People with different national or cultural traditions from the dominant population

Work that is productive and delivers a fair income, security in the workplace and social protection for all, better prospects for personal development and social integration, freedom for people to express their concerns, organize and participate in the decisions that affect their lives and equality of opportunity.

woman and genders outside of the gender binary

Activities that involve planning, designing and building infrastructure, residential, and commercial structures.

This sector involves activities that impart knowledge and skills to individuals, including formal schooling, vocational training and educational support.

This sector includes firms and individuals offering specialised expertise in fields such as law, accounting, consulting, science and engineering.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Slow onset events evolve gradually from incremental changes over many years or from increased frequency or intensity of recurring events. As defined in the Cancun Adaptation Framework (2010), slow onset events include risks and impacts from rising temperatures, desertification, biodiversity loss, land and forest degradation, glacial retreat, ocean acidification, sea level rise, and salinization.

McGaughey & Davies v. Universities Superannuation Scheme Limited - petition

Target

Risk

Impacted group

Just transition

Fossil fuel

Economic sector

Adaptation/resilience

Finance