UK watchdog considers legal complaint about oil firms’ climate risk disclosures

Law firm ClientEarth issues detailed letters to Financial Reporting Council

The Financial Reporting Council watchdog in the UK has confirmed that it is considering a legal complaint from environmental law firm ClientEarth about the climate disclosures of London-listed oil exploration firms Cairn Energy and SOCO International.

ClientEarth is the law firm backed by Coldplay and Brian Eno that has made a splash in the responsible investment world by teaming up with Prince Charles’ Accounting for Sustainability (A4S) initiative on the Commonwealth Climate & Law Initiative. The CCLI will look at the legal liability risk of pension funds that fail to consider the risk of climate change.

Now the firm has issued a formal complaint against Cairn and SOCO, saying they are in breach of the Companies Act’s stipulations around risk closures by making “scant reference” to climate-related risks to their business in their annual reports. “This means investors are not fully informed of risks to the business,” the law firm says.

Natasha Landell-Mills, Head of Stewardship at Sarasin & Partners, the £13.6bn (€15.8bn) boutique, said the complaints were “a timely opportunity” for the FRC to send a “clear message that climate risks must be treated like any other risk to capital, and properly disclosed.”ClientEarth says it has triggered a review by the FRC. The watchdog told RI: “We have seen the referrals and we will be considering them in accordance with our normal operating procedures.”

The FRC – which also oversees corporate governance and the Stewardship Code – added that the way it goes about enforcing narrative reporting requirements under the Companies Act is no different to the way it enforces accounting requirements.

“Where we think there is a question to be addressed, we write to the company chairman setting out our concern and asking for more information or explanation to help us understand any basis on which they believe that they have complied.

“If little progress is made, then the Corporate Reporting Review Committee may propose that a Review Group of FRRP members be set up to take the case forward.”

SOCO has rejected ClientEarth’s claims, according to the Financial Times. The FT quoted the firm as saying it took allegations of non-compliance seriously and was reviewing the complaint. Cairn told the paper it is a constituent of the FTSE4Good index and that it took its commitments to responsible and transparent reporting “very seriously”.