Legal & Regulatory News

UK Court of Appeal gives UK Export Finance significant margin of appreciation in assessing climate change impacts of project

In the case of R (Friends of the Earth Ltd) v Secretary of State for International Trade (UK Export Finance), the UK Court of Appeal considered the way in which the UK Government should take into account the UK's climate change commitments under the Paris Agreement when deciding whether to finance overseas projects. It was decided that UK Export Finance (UKEF) had a significant margin of appreciation in their judgment about what information to consider to reach their investment decision.

Friends of the Earth (FoE) appealed against the UK High Court's decision to deny judicial review of UKEF's decision to provide financial support for a liquified natural gas (LNG) project in Mozambique. In assessing the project's climate change impact under the Paris Agreement, a report showed that climate change matters considered by UKEF included the fact that potential Scope 3 emissions from the use of the project's exported LNG would be very high. FoE claimed that UKEF's financing of the LNG project was based on an error of law that the project was compatible with the UK's commitments under the Paris Agreement and had been reached without regard to essential relevant considerations.

In affirming the High Court's judgment, the Court of Appeal concluded that the UK Government had lawfully approved the investment by UKEF in the LNG project. Key to the conclusion was a point on the interpretation of unincorporated international treaties, which the Paris Agreement falls under. Only treaties incorporated into English law give rise to legally enforceable obligations. Despite choosing to do so, UKEF was under no legal obligation to take into consideration the UK's commitments under the Paris Agreement, which was only one among the other factors considered. It was not the court's role to allocate weight between competing factors. Therefore, it was tenable for UKEF to reach the view that funding of the LNG project was aligned with the UK's commitments under the Paris Agreement.

This case is another example of the wave of ESG litigation that has emerged across EMEA in recent years. The LMA intends to look further at this topic and greenwashing risks, in particular, through the course of 2023. 

R (Friends of the Earth Ltd) v Secretary of State for International Trade/Export Credits Guarantee Department (UK Export Finance) [2023] EWCA Civ 14

Click here to access the judgment.