Why we are taking action against Just Eat and Carnival over their climate failings

Just Eat and Carnival cruises have one thing in common: they are both unprepared to handle the impacts climate change and the energy transition will have on their businesses.

The shift to a more sustainable world presents both UK-listed companies with significant challenges to tackle, including reducing their reliance on fossil fuels and single-use plastics.

Yet, neither the food delivery platform nor the cruise line operator – despite being major players in their respective sectors – are addressing how the climate crisis will affect their operations and finances in their investor reports.

This is why we have referred the two firms for investigation and enforcement action to the Financial Conduct Authority (FCA), the regulator in charge of overseeing conduct and setting legal standards for listed firms, including rules for reporting climate change.

Our lawyers argue that Just Eat and Carnival’s failure to be clear with shareholders about the climate-related risks they are exposed to breaches their legal obligations.

Just Eat and Carnival are not immune to the impacts of climate change. Recent global efforts to phase-out fossil fuels and single-use plastics, shifts in consumer behaviour, and abrupt changes to regulatory and business environments all present very real challenges to their financial and operational health, - Maria Petzsch, ClientEarth lawyer.

Why do climate risk reporting and disclosure matter?

Every listed company, no matter the size of their carbon footprint, has a part to play in mitigating climate change and reducing global greenhouse gas emissions to net zero.

That involves getting to grips with how they are impacted by its physical threats, such as extreme weather events, as well as shifts in their respective business and regulatory environments.

It is essential too that investors are presented with a clear picture of these risks – for asset managers, this is the only way they can fulfill their own responsibility to protect the funds they are in control of.

Achieving net zero will require a massive reallocation of capital, pulling money out of polluting industries and freeing it up for those that are helping to create a more sustainable world.

This redirection of finance flows is one of the most critical ways in which business, investors, and the wider community can help protect the entire economic and financial system from the impacts of climate change.

But, currently, reporting failures on climate are endemic across the UK corporate sector. To ensure transparency on, and market resilience to, climate risk we need drastic improvements to the current market practices now.

Robust enforcement of existing and upcoming rules is also paramount to ensuring companies adhere to those rules, and to meeting the high bar the UK Government has set in committing to reach net zero by 2050.

ClientEarth climate lawyer, Maria Petzsch, said: “Just Eat and Carnival are not immune to the impacts of climate change. Recent global efforts to phase-out fossil fuels and single-use plastics, shifts in consumer behaviour, and abrupt changes to regulatory and business environments all present very real challenges to their financial and operational health.

“These impacts are material to investors, who expect to be given the full picture. As market leaders in highly exposed sectors, Just Eat and Carnival are in a strong position to lead by example and tackle climate risk head on – but they have to get their act together.”

How have Just Eat and Carnival failed to address climate change?

Key findings from Just Eat’s 2020 reporting include that it:

• Makes no reference to climate change;
• Provides limited commentary on environmental impacts and opportunities, including reducing food packaging along its supply chains, particularly plastics, and the end-to-end emissions associated with manufacturing plastic packaging; and,
• Risks ‘greenwashing’ investors by giving a potentially misleading impression of how resilient to climate change it is, and by appearing to position itself as “sustainable” without disclosing a Paris-aligned strategy, or aligning with emissions reduction commitments in the countries where it operates.

Key findings from Carnival’s 2020 reporting include that it:

• Makes no reference to climate change in the Carnival Corporation and Carnival plc consolidated annual report;
• Makes only vague statements about climate change in its strategic report, and does not include any concrete analysis of climate impacts on its business model; and,
• Includes potentially misleading information about how it intends to achieve its commitments to decarbonisation by failing to give investors information, among other things, about the negative environmental impacts associated with transitioning to fossil gas – presented as a core component of its climate transition plan.

FCA failing markets on climate change

In its role as financial conduct regulator, the FCA is required to ensure markets function well, protect consumers, enhance financial market integrity and promote competition.

Proper oversight of climate risk and climate change-related reporting in relevant markets falls squarely within these statutory objectives.

However, analysis by ClientEarth into climate-related disclosures by the largest 250 UK companies from 2019-2020 found widespread reporting failures across sectors. And yet the FCA has failed to take public, if any, enforcement action to date.

In a letter to the regulator sent alongside the referrals, our lawyers warn that the FCA’s continued failure to hold businesses accountable for reporting infringements is unacceptable and puts it at risk of breaching its own statutory objectives.

They argue that the FCA’s current inaction is out of kilter with its new remit from the Treasury on climate change, and leaves it open to legal challenge.

“The FCA risks its own integrity as a regulator, and that of the UK economy. Future regulation may simply be ignored if the FCA continues to turn a blind eye to inconsistencies and – at worst – misleading statements in climate reporting,” Petzsch said.

“It must show now that it is serious about enforcing against laggards if it is to fulfil its remit on climate change, and deliver on its promise to ensure a sustainable financial system.”

Auditing inefficiencies

The referrals also put Just Eat and Carnival’s respective auditors, Deloitte and PwC, on notice for failing to address climate risk in their audits of the companies’ financial statements.

Despite auditors publicly acknowledging the materiality of climate impacts to investors, they continue to sign off on reports that do not adequately disclose or address climate risk.

Petzsch added: “If auditors continue to give the stamp of approval to annual reports that ignore climate risks to investor capital then their trust value will depreciate.

“Auditors must take proper account of climate risk transparently, and consistently, for investors to keep faith in the quality of audits. This is the only way investors can determine how to achieve the massive reallocation of capital required to achieve the net zero transition.”