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Climate change litigation update: Ewan McGaughey et al v Universities Superannuation Scheme Limited

Insights / / London

A claim has been brought against the directors of the Universities Superannuation Scheme (the “USS”), the largest private pension scheme in the UK, for inaction around climate change commitments.

Background

On 29 October 2021, a group of academic staff issued proceedings in the High Court of Justice against the USS and its directors for, amongst other claims, failing to create a credible disinvestment plan for its fossil fuel investments.

The issuing of proceedings followed the USS’ announcement in May 2021 that, in light of its existing view of climate change as a financial risk to the returns generated by its assets, its ambition was to be carbon net zero by 2050, if not before, to align with the Paris Agreement.

In order to achieve their carbon net zero ambition, the USS released a set of “likely actions”, including:

  • Reviewing and possibly changing the benchmarks used to guide and measure performance to ensure that these take carbon (and other ESG factors) into account.
  • Ensuring that assets are resilient in the face of a move to a net zero world.
  • Developing a portfolio of low carbon investments such as wind, solar and other sources of renewable energy.
  • Divesting over time from high carbon sectors which are at financial risk from the transition.

Claim

The claimants issued proceedings alleging that the USS continues to invest directly and indirectly in fossil fuel emitting companies, including Royal Dutch Shell and Glencore, without any adequate plan for disinvestment. The claimants argue that such inaction constitutes a breach of the directors’ duties pursuant to sections 171 and 172 Companies Act 2006 to act within their powers, including making investments that avoid significant risk of financial detriment to the USS, and to promote the success of the company having regard to the USS’s long term interests.

Furthermore, the claimants allege that the directors failed to take into account the terms and consequences of the Paris Agreement.

Procedural status

Where an alleged wrong has been committed against a company, whether by a director or a third party, the proper claimant is the company itself. The ability of the company to decide whether to take any actions or not generally vests in the board of directors. However, where the wrong has been committed by the directors, as alleged in the present case, the members of the company can apply to the High Court for permission to bring a claim in their own name on behalf of the company, known as a derivative claim.

This derivative claim is now pending a decision on permission from the High Court to proceed.

Comment

The claims brought by the members of the USS follows the growing trend in climate change litigation to hold governments and corporates accountable for climate change inaction.

We previously reported on the landmark decision handed down by the District Court of The Hague on 26 May 2021 in the matter of Milieudefensie et al. v. Royal Dutch Shell PLC (“RDS”), where RDS’s plan for lowering emissions was described as “intangible, undefined and non-binding”, breaching the duty of care owed by RDS to Dutch residents.

The Hague Court decision has paved the way for similar claims in Europe. In Germany, in Saul Luciano Lliuya vs RWE, the claimants are seeking to extend the duty of care principles. A Peruvian farmer and mountain guide brought a civil action in Germany against RWE, one of Germany’s largest energy producers, demanding they be held liable for climate damages from emissions and pay towards the expenses for appropriate safety measures to protect his property in Peru even though RWE had no coal power plants on the ground in Peru or the rest of South America.

Whatever the outcome, the claims brought against the USS should serve as a timely reminder to all corporates, fund managers and fiduciaries, whether in the energy sector or not, that there is an increasing momentum by activists, shareholders and others to hold them accountable for climate change.

We are closely monitoring and will report on developments as they arise.

For further information please listen to our podcast on global trends in climate change litigation, the legal and practical significance of these trends and the impact on oil and gas companies as well as those in the renewables sector.

If you have any questions about the content in this article or would like to discuss further, please do not hesitate to reach out.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

Waled Salih

Waled Salih Associate

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