ACTION STATIONS – Activist investors are hoping to influence the ESG agenda; what are the likely wider repercussions for the financial services sector?


The ESG litigation landscape is rapidly developing. Activist claimants, whose end-goal is to effect change in the management, ESG policies or ESG credentials of companies or regulated firms, are progressively pressurising entities to modify their approach to ESG issues. These activist claimants are using increasingly innovative methods to do this, including attempting to challenge directors’ decisions by way of High Court proceedings, and attempting to bring judicial review proceedings against the FCA. Although so far unsuccessful from a legal point of view, these challenges have served to shine a very public spotlight on ESG policies and decision-making. What can we expect to see from these activist claimants next?

Activist investors

We believe that public companies, pension funds and their directors are at particular risk of such ‘activist investor’ claims. Climate change groups, activists or groups of individuals can freely purchase shares in public companies or invest in pension funds. They can then act as a Trojan horse to open several different methods by which they can pursue an ESG-related agenda or force change from within.

AGM resolutions

There is a growing trend of activist investors tabling ESG-related resolutions at AGMs to influence ESG targets and policies. In the 2023 AGM season, activist shareholders filed resolutions at the AGMs of five major financial institutions urging them to adopt policies to reduce their clients’ engagement in new fossil fuel exploration and development. Two of the ‘Big Three’ asset managers were also subject to shareholder proposals asking them to report on how they could improve returns by focussing on climate-related investment stewardship.

Increasingly, it is not just activist shareholders who are challenging financial institutions on their ESG policies. The wider shareholder population is becoming more and more engaged. In the 2023 AGM season, several large financial institutions were subjected to ESG demands from a substantial proportion of their shareholders. For example, 30% of voting shareholders in one major financial institution went against the recommendation of its Board to support a resolution calling for it to put forward a climate risk transition plan. Shareholders voting against Board recommendations on ESG issues is certainly something we can expect to see more of, and it may only be a matter of time before a substantial enough proportion of shareholders vote for a resolution which forces a Board to change its ESG policies or adopt new ones.

We can also expect to see a broadening of the issues being scrutinised by activist shareholders beyond climate change and emissions. We started to see this in the 2023 AGM season, where ESG resolutions tabled also covered companies’ approaches to, for example, living wage provision.

These resolutions demonstrate a growing trend among investors and shareholders to scrutinise companies’ and financial institutions’ plans to meet climate change targets and other ESG criteria. To be ahead of the curve, firms should consider whether their ESG policies are vulnerable to facing this kind of challenge and, if so, what their response might be, or indeed whether their policies could be changed if they cannot stand up to scrutiny.

To be ahead of the curve, firms should consider whether their ESG policies are vulnerable to facing this kind of challenge

Derivative claims

In February 2023, ClientEarth brought a highly publicised derivative action against Shell plc and its directors, alleging that the directors were in breach of their duties under the Companies Act by failing to adopt and implement a climate change strategy that aligned with the Paris Agreement.

On two occasions, the High Court refused permission for ClientEarth to continue with the derivative action, and were somewhat disparaging about ClientEarth’s motivations, concluding that they were pursuing their own policy agenda and were not bringing the claim in good faith. The High Court also noted that the shareholders expressing support of ClientEarth’s case were a “very small proportion of the total shareholder constituency”, and that most of Shell’s shareholders were supportive of the directors’ strategic approach to climate change risk.

The Shell decision has brought into focus a number of difficulties that activist shareholders could face if they attempted to bring another derivative action of this nature, including the potential for a large adverse costs order. However, if in the future a larger proportion of shareholders bring an ESG-based derivative action against a company or a financial institution, it will be interesting to see whether the Court takes a different approach to director autonomy and ESG decision-making.

Regulator involvement

It is not just directors who have been the target of activist ESG claims. ClientEarth filed an application for judicial review in February 2023 against the FCA, alleging that the FCA acted unlawfully by approving the prospectus of UK oil and gas company Ithaca Energy. ClientEarth alleged that Ithaca Energy’s prospectus did not adequately disclose the climate-related risks faced by the company, and therefore breached statutory requirements. The Court refused permission for the judicial review to proceed, but ClientEarth indicated they would be applying for the decision to be reconsidered.

Whilst ClientEarth has been clear that it is not seeking to interfere with Ithaca’s listing, this case is an example of another tool in the armoury of the ESG activist claimant. Firms may be subjected to increased scrutiny by the FCA or other regulatory bodies, as those regulatory bodies themselves face challenge in the Courts.

Plan your defence in advance

Regulated firms and their boards must effectively plan their response to a swiftly evolving landscape for ESG-related actions. The risk for firms is well-established, but there can also be significant regulatory and reputational consequences for individuals, particularly at Board level.

The risk for firms is well-established, but there can also be significant regulatory and reputational consequences for individuals, particularly at Board level.

To mitigate risk effectively, firms need to anticipate potential legal challenges and devise robust strategies. This includes assessing the vulnerability of their ESG policies, and in particular their climate change policies, to challenges from activist investors or the wider shareholder population.

Investment banks and other financial institutions who act as brokers or advisers to any listed corporate will need to be aware of the risks their clients face to help them prepare for such challenges. Fund managers that are held within a larger listed group may find that their parent group becomes the subject of such challenges because of the way they invest their funds. Bearing in mind that the aim of activist investors is not just to succeed in their claim, but also bring as much publicity to the issue as possible, often using well-oiled PR machines, the methods they choose to use, and the targets of their actions, are likely to come from a surprising angle.


Although the derivative action might now look like an unappealing route for activist investors hoping to influence the ESG agenda of firms, the innovative attitude of these claimants will likely yield another attempt by way of a different method. And whilst the primary target of activist investors has so far been those in the oil and gas sector, we anticipate that their energies will soon take root in other sectors, including financial services.

Clearly these risks are most pressing for those financial institutions that are themselves listed. But this would also have wider repercussions for the financial services sector.


4 Articles

Georgia Henderson-Cleland

Senior Associate, London