Following a decision on the papers refusing permission in April 2023, the Administrative Court has again, in a resounding judgment, refused ClientEarth's application for judicial review of the FCA's decision to approve Ithaca Energy Plc's (Ithaca) (a North Sea oil and gas operator) prospectus. The FCA approved Ithaca's LSE Main Market IPO documents under the Prospectus Regulation (EU) 2017/1129 (the PR). As we have reported previously, ClientEarth sought to challenge the FCA's approval on the basis that the prospectus inadequately described the climate-related risks faced by Ithaca. This latest decision is not particularly surprising, given the broad scope of the FCA's powers in this regard and the strategic nature of ClientEarth's challenge.

Section 87A of the Financial Services and Markets Act 2000 grants the FCA the power to approve a prospectus where it is satisfied that it contains the information required under the PR. Under Article 16 of the PR, a prospectus must adequately describe risk factors that are specific to the issuer (here Ithaca) and that are "material for taking an informed investment decision". Such risk factors may be (but are not required to be) assessed using a qualitative scale of low, medium or high. Article 6 requires a prospectus to contain the necessary information (again material to an investor making an informed assessment) on a number of matters including the assets and liabilities, profits and losses, financial position and prospects of the issuer.

Ithaca's prospectus made reference to a number of climate risk factors faced by the oil and gas industry in general. In particular, Ithaca's prospectus contained two pages of risk factors discussing "[t]he effects of climate change, abatement legislation, changes to carbon pricing systems and political and societal perception of the production and use of fossil fuels may have a material adverse effect on the hydrocarbon industry".

ClientEarth, an environmental activist group, sought to challenge the FCA's decision to approve Ithaca's prospectus ahead of the IPO on the basis that it was unlawful by reference to the Paris Agreement and the UK government's net zero commitment, asserting:

• the FCA erred in law by approving Ithaca's prospectus in circumstances where the prospectus failed to disclose, or describe adequately, Ithaca's assessment of (a) the materiality of its climate-related financial risks, or (b) the specificity of the climate-related risks associated with Ithaca's securities, in breach of Article 16 of the PR. ClientEarth argued that this was due to Ithaca's failure to disclose its ranked assessment of these risks and their materiality and that they only identified these risks in broad generic terms; and

• the FCA's conclusion that the prospectus contained the necessary information which is material to an investor for making an informed assessment of Ithaca's financial position and prospects, as required by Article 6 of the PR, was rationally unsustainable, due to Ithaca's failure to include the assessment referred to above.

Lang J held that all the grounds advanced by ClientEarth were unarguable and had no realistic prospect of success. For each ground, Lang J held there was no public law basis for the challenge i.e. there was no evidence to suggest the FCA had acted irrationally or committed an error of law. That ClientEarth may disagree with the FCA's decision to approve the prospectus was insufficient – in particular, in circumstances where the FCA had considered evidence and reached a considered judgment, it was not for the court to substitute its view or the claimant's view for the FCA's.

This is the first time a decision of the FCA to approve a prospectus has been challenged on the basis of its treatment of climate risk. It remains to be seen if the court's response may discourage ClientEarth and other groups from bringing similar challenges to decisions of other regulators and public bodies, or at least encourage a more selective approach. As Lang J emphasised in her judgment, public law grounds of challenge pose a "high hurdle to overcome".

That being said, and similarly to ClientEarth's recent derivative action against Shell's directors, the application has received significant attention within the legal community and media. As such, those preparing prospectuses (particularly within the oil and gas industry and other carbon-intensive sectors) should expect to face increased scrutiny when preparing prospectuses or making market announcements which may have a knock-on effect on those making investment decisions.

With thanks to Jake Duxbury for his assistance in drafting this article.