There are various routes open to Claimants in order to pursue legal claims in relation to Environmental Social and Governance (ESG) investments. One of the available routes is to try to bring an action for breaches of section 171 and 172 Companies Act 2006.

• Section 171 Companies Act 2006 provides for the Directors to act in good faith and in its best interests.
• Section 172 Companies Act 2006 provides for the Directors to act in a way which would be most likely to promote the success of the company for the benefit of its members.

On October 29, 2021, Dr Neil Davies and Dr Ewan McGaughey issued proceedings in the High Court against the Directors of the University Superannuation Scheme Limited (USSL), Corporate Trustee of the private pension scheme for academic staff university superannuation scheme (USS) for breaches of section 171 and 172 Companies Act 2006.

The Claimants were both academics and contributors to the USS pension fund which is considered to be one of the largest pension funds in the UK.  The USSL does not have shareholders and the case was a derivative action against the USSL Directors based on the Directors’ duties to act in the beneficiaries’ best interests. 

The Claimants asserted that fossil fuels have been the worst performing asset class since 2017 and the failure of the current and former directors to create a credible plan for disinvestment for fossil fuel investments was prejudicial and will continue to prejudice the success of the company. 

On the 24^th May 2022, the High Court refused permission to bring a derivative action against USSL. The Court indicated that sufficient interest and evidence of a loss suffered by the Company and subsequently by the Claimants must be shown.  The Claimants could not demonstrate this.  The established exception needed to bring the claim against the USSL was not met.  Specifically it could not be shown that the Directors had acted in a way that was a deliberate breach of a duty and pursued their own interests at the expense of USSL. 

Conclusions:

1. This was an innovative ESG action instituted by the Claimants in relation to alleged breaches of sections 171 and 172 Companies Act 2006 by USSL.
2. The Court almost certainly does require expert evidence to support such a claim for actual losses suffered by Claimants and in the absence of which an action is unlikely to succeed. Claimants will typically not be able to afford to bring such a claim without the benefit of third party litigation funding.