So-called ‘activist’ shareholders have a perfect right to seek to influence the strategy of companies in which they hold a stake. In a guideline ruling, however, the High Court shut the door on an environmental charity’s novel attempt to make the board of a multinational oil company reform its approach to climate change risks.

As owner of a small number of shares in the company, the charity made use of its right under the Companies Act 2006 to lodge a derivative claim on behalf of the company against its board. It sought declaratory relief against the directors and a mandatory injunction requiring them to implement a strategy to manage climate change risks in compliance with their statutory obligations.

In refusing permission for the charity to proceed further with its claim, however, the Court found that it had failed to establish a reasonably arguable – or prima facie – case that the directors were in breach of their duties in the respects alleged or that their current approach fell outside the range of reasonable responses to climate change risks and would cause harm to the company’s members.

The law respects the autonomy of directors in making commercial decisions and the charity was, the Court found, seeking to impose absolute duties on the board which cut across its general duty to have regard to many competing factors in deciding how best to promote the company’s success for the benefit of all its members. The proper balancing of such factors was a classic management decision with which the Court was ill equipped to interfere.

The Court acknowledged that the charity’s views in respect of the company’s climate change strategy were genuinely held. It espoused a genuine belief that it was acting in the best interests of all the company’s members and with the aim of protecting its long-term value. Given its single-minded focus on the imposition of its views as to the right strategy for dealing with climate change risks, however, the Court inferred that it also had a collateral motive in seeking to pursue its case. The Court gave considerable weight to voting statistics which indicated that the charity’s case enjoyed only minority shareholder support.