Activists look for new ways to bring climate change-related litigation to English courts
Published on 25th Oct 2023
Court of Appeal has rejected a claim that pension trustees breached their duties by continuing to invest in fossil fuels
Climate change activists are seeking novel ways in order to bring climate change-related litigation before the English courts. In McGaughey & Anor v Universities Superannuation Scheme Ltd, the claimants were members of a pension scheme. They sought approval to bring a derivative claim against the directors of the pension trustee company.
Breach of directors' duties?
One of the claims they wished to bring was based on an alleged failure by the directors to form an adequate plan to deal with the financial risks involved in investing directly and indirectly in fossil fuels. It was argued that this failure was a breach of the directors' duties under sections 171 and 172 of the Companies Act 2006 (namely, the duty to act within their powers and the duty to promote the success of the company – taking into account, among other things, the impact of the company's operations on the environment). At first instance, permission to bring the claim was refused and the Court of Appeal has now dismissed the appeal from that decision.
The Court of Appeal concluded that a derivative action can only be brought to benefit the company and to remedy a harm caused to the company: "A derivative action is not an opportunity for someone to pursue their own grievances or claims or to further their own particular interest in the name of the company". Here, any loss would have had to have been caused to the trustee company and not the pension fund that the trustee company ran, and so the claim failed because the claimants lacked standing.
Commenting on the fossil fuels claim, the Court of Appeal also noted that it had not been shown that the investment decision had resulted in a loss. Furthermore, the directors had a statutory duty to invest in a manner designed to ensure profitability, without excessive reliance on any particular type of investment. The directors were said to have achieved that and to have taken appropriate professional advice.
Climate-related guidance
Separately, lawyers have been issued with climate-related guidance from the Law Society on how to advise boards on mitigating the risk of greenwashing claims and how to advise on sound climate governance. The guidance includes a list of climate-related issues to be covered in best practice advice, legal advice on greenwashing (listing relevant regulatory risks) and guidance on solicitors' conduct. In-house lawyers, in particular, are encouraged to raise their boards' awareness of the need to adopt sound management of climate-related risks, by a list of questions to be put to the board.
