ClientEarth files legal case against UK financial watchdog over oil and gas firm listing

Pictured: A fossil fuel project in the North Sea

Client Earth has filed a case against the Financial Conduct Authority (FCA) on climate grounds, claiming that it acted unlawfully in signing off on listing documents for the oil and gas firm Ithaca.

Ithaca completed its initial public offering and listed on the London Stock Exchange (LSE) in November last year, while climate discussions were taking place at COP27 in Egypt.

ClientEarth claims that the FCA acted unlawfully in its assessment of Ithaca, noting that the oil and gas company – which has ties to both the Cambo and Rosebank oil and gas fields in the North Sea – has failed to “adequately describe the climate-related risks faced by the company”.

ClientEarth notes that while Ithaca’s prospectus acknowledges that climate change presents risks to the oil and gas industry, it failed to explain how risks might manifest for the business specifically. The legal challenge also argues that the prospectus fails to provide investors with information as to how Ithaca’s business would be impacted if the Paris Agreement is met.

The group also claims that the FCA’s failure to spot this omission is problematic, as Ithaca has intentions to develop new fossil fuel assets. ClientEarth states that these assets would be incompatible with the 1.5C limit set out in the Paris Agreement.

Prior to Ithaca’s listing, ClientEarth wrote to the FCA twice to raise concerns about the inadequate disclosure of climate-related risk. The High Court will now decide whether to grant permission to bring the claim.

ClientEarth 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.

“The company’s plans for new oil and gas appear to be fundamentally incompatible with global climate goals and the massive risks associated with its activities have not been properly explained in its prospectus. Without this vital information, investors will not be able to assess how Ithaca might be affected by the global net zero transition.”

edie reached out to the FCA for a response, with a spokesperson for the organisation stating: “Client Earth needs to obtain permission from the court before bringing this claim and the FCA intends to oppose permission being given in this case.”

Earlier this month, ClientEarth filed a lawsuit against 11 Shell directors at England’s High Court. The aim is to get the company to set out a more ambitious and coherent strategy to reduce emissions.

ClientEarth is bringing the case by arguing that Shell is breaching the UK Companies Act. The Act compels listed businesses to adequately manage risks facing the company, which ClientEarth argues includes climate-related risks, including physical, transition and reputational risks. It calls these risks “material and foreseeable” for Shell.

ClientEarth believes this is the first time that an energy company’s directors have been taken to court on climate groups, rather than the case being brought against the business as an entity.