ESG Enforcement Tracker

Key facts:

The High Court refused environmental NGO ClientEarth’s application for permission to judicially review the FCA’s decision to approve the prospectus of oil and gas operator Ithaca Energy plc.

The FCA approved and published the listing prospectus in October 2022. However, ClientEarth subsequently raised concerns with the FCA that the prospectus contained inadequate information about climate-related risks that Ithaca faced.

In response, Ithaca produced a revised version of the prospectus, which the FCA approved in November 2022.

ClientEarth then brought judicial review proceedings against the FCA. It argued that the FCA’s decision to approve Ithaca’s prospectus was unlawful because the prospectus did not contain the necessary environmental information required by the applicable legal regime (known as the Prospectus Regulation – see Articles 6 and 16). In particular, it failed to disclose or describe adequately Ithaca’s assessment of the materiality of its climate-related financial risks, or the specificity of climate-related risks associated with Ithaca’s securities.

Ithaca’s prospectus contained references to climate change, the Paris Agreement on Climate Change and the UK government’s Net Zero commitment. However, ClientEarth argued that these references were too broad and that the Prospectus Regulation required Ithaca to provide more specific information, such as its actual assessment of the materiality of climate-related financial risks, information shedding light on Ithaca’s particular situation (not that of the industry in general) and information about the potential impact of the Paris Agreement on Ithaca’s business.

Dismissing the application, the High Court held that the prospectus did address these risks and that the FCA in its capacity as an expert regulator was required to exercise judgment as to whether the legal requirements of Article 6 (the ‘necessary information’ test) and Article 16(2) (requiring disclosure of risk factors) of the UK Prospectus Regulation were met. While ClientEarth disagreed with the FCA’s evaluation, it failed to demonstrate any arguable error of law in the FCA’s approach or its conclusions, such to demonstrate that the FCA had acted irrationally.