In July 2023, the Court of Appeal dismissed an application by members of a pension scheme to bring a derivative action against the directors of the scheme’s trustee company. The court also made it clear that derivative actions are not appropriate when direct challenges are available: McGaughey & Anor v Universities Superannuation Scheme Limited [2023] EWCA Civ 873.

This decision will be of interest to financial institutions as, when taken together with ClientEarth v Shell (see see our blog post here), it confirms that the courts of England and Wales remain wary of challenging reasonably made decisions of company directors.

So, while derivative actions may continue to be brought as a disruptive tactic by activist shareholders, there is likewise continued judicial reluctance to second-guess corporate decision-making. The courts are aware that climate risks are just one of the many risks which executives consider when deciding on strategy. In the absence of evidence of egregious disregard for climate risks, the courts seem unwilling to find that directors have the balance wrong.

For more information, please see our ESG blog post.

For a deeper analysis of emerging shareholder litigation related to climate change, see this article in our series on climate disputes: Global perspectives on climate disputes – A recent history of shareholder claims.