Climate Change Action Against Directors Dismissed

• Published date: 13 June 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Lewis Silkin
• Author: Mr Mark Lim

In one of the first cases of its kind, the High Court has dismissed an application to bring a claim for breach of duty against directors who, it was said, had failed to create a credible plan for disinvestment from fossil fuels.

The legal context

In November last year I wrote about the statutory obligation on directors to have regard to the environment under s172(1)(d) of the Companies Act 2006. Because the duties are owed to the company, it is for the company to bring a director to account if s/he fails meet the appropriate standard. Shareholders have no direct right: they either need to have control of the board (and therefore the company) or must seek permission to bring a derivative action (and proceed in the name of the company). The latter course requires the court's blessing.

The climate claim against USSL

In McGaughey v USSL [2022] EWHC 1233 (Ch) the claimants were members of the Universities Superannuation (pension) Scheme (the 'Scheme'). They sought permission to bring claims against the corporate trustee of the Scheme, the aptly named Universities Superannuation Scheme Limited ('USSL') and USSL's directors.

USSL is a company limited by guarantee. It does not have its own shareholders. This meant the claimants were a step removed from USSL and its directors. As a so-called multiple-derivative claim, the application for permission was to be assessed by common law rules.

Of particular interest was the fourth claim that, in breach of duty, USSL's directors had continued to cause the Scheme to invest in fossil fuels, without an immediate plan for disinvestment contrary to the company's long-term interests. It was also alleged that this prejudiced (and would continue to prejudice) the interests and success of the company, which had suffered loss (and would continue to) in consequence.

The claimants' evidence indicated that the Scheme held '0.5bn of investments in Russia with a significant fraction of this in Russian fossil fuel companies. This exposure was said to exemplify risk and cost associated with investment in fossil fuels. In contrast the company's evidence was that its ambition to be net zero for greenhouse gas emissions by not later than 2050, through stewardship (rather than immediate disinvestment), was in the financial interest of the Scheme and, by extension, its members.

The court's refusal to grant permission

The High Court dismissed the application for permission. The court's reasons included findings that:

• The claimants did not...