The activist environmental law organisation, ClientEarth, has submitted formal complaints to the Financial Reporting Council (FRC) in relation to what it believes are failures by certain listed oil and gas companies to make adequate disclosures on business risks associated with climate change. The FRC has not yet made any response to these complaints, but previously wrote to all audit committee chairmen last December noting that investors had expressed surprise that certain risks, including climate change risks, are not reported more often as principal risks.

The complaints, which were submitted on 18 August, say that SOCO International and Cairn Energy made insufficient reference to climate change risks in their 2015 strategic reports such that they had failed to comply with their obligations under section 414C of the Companies Act 2006. Specifically, they allege that the reports do not contain a "fair review of the company's business", a proper account of the "main trends and factors likely to affect the future development, performance and position of the company's business" or a proper "description of the principal risk and uncertainties facing the company" as required by section 414C meaning that investors are not fully able to make appropriate and informed decisions.

According to the complaints, whilst the Cairn report contains limited information on climate change risks, the SOCO report contains no information other than greenhouse gas emissions data which all companies listed in the UK must report. ClientEarth contrast the disclosures made in the SOCO and Cairn strategic reports with more detailed climate change risk disclosures made by Shell and Tullow Oil. They also use information submitted voluntarily by both companies to the Carbon Disclosure Project to support the case that risks from climate change are material to shareholders' understanding of the business: this highlights the need for all companies to be conscious of the uses to which information disclosed voluntarily may be put, and to ensure the consistency of all publicly disclosed information.

ClientEarth have called upon the FRC to open an enquiry and appoint a review group to investigate; and, if SOCO or Cairn is found to be in breach of their reporting obligations, to issue a Committee Reference or Press Notice. The complaints also draw attention to the FRC's power to apply to the Court for a declaration that a strategic report does not comply with the requirements of the Companies Act. ClientEarth has a strong track record of success, most notably in legal challenges against the UK government over air quality.

The FRC has not yet issued any specific guidance on how companies should approach climate change risks, and the outcome of these complaints will be of interest to many companies in the oil and gas and other sectors.

The ClientEarth press release can be found here.