Treasury faces legal action against "dirty and destructive" RBS investment

The growing legal risks faced by carbon intensive businesses was hammered home this week with news a coalition of environmental groups is taking legal action against the Treasury for its tacit endorsement of the Royal Bank of Scotland's (RBS) investments in projects linked to climate change and human rights violations.

The World Development Movement, Platform and People & Planet, allege that the Treasury's failure to curb RBS' lending to carbon intensive projects after it was bailed out with public money last autumn puts it in violation with the government's own requirement for all departments to consider the social and environmental impact of policy decisions.

The group claims that since RBS was bailed out it has invested an estimated £10bn in coal, oil and gas companies, including £6bn to E.ON, which is planning to build the new coal-fired power plant at Kingsnorth, and £116m for Cairn Energy, which is planning to undertake drilling operations in the Arctic.

"We're launching this action because the Treasury has displayed a blatant disregard to the government's own commitments to tackling climate change, and its rules for spending public money," said the World Development Movement's Julian Oram. "The taxpayers' interests would be vastly better served by RBS investing in a low carbon future than in undemocratic regimes and environmentally devastating projects around the world."

The Treasury has 21 days to respond to the challenge, although a government spokesman said that it would "strongly resist any legal action".

"The government intervened in the banking sector in order to preserve the stability of the UK financial system and to protect people's savings," he added. "Our shareholdings in banks must be managed on a commercial, arms length basis if we are to achieve those aims and ensure the best return for the taxpayer."

However, the green groups believe they have a strong case built on the Treasury's admission in a letter to their legal council stating that RBS' environmental and human rights records were of "no relevance" to the decision to bail out the bank, "and therefore the appraisal of the decision that was carried out did not consider the environmental or human rights records or policies of the individual banks".

Rosa Curling, a solicitor from Leigh Day, which is representing the green groups, said: "The government has the power and control to ensure public money provided to UK banks is not invested in or lent to projects that harm the climate or individual human rights.

"The refusal by the Treasury to even consider whether an investment could contribute to climate change or result in human rights abuses is clearly unlawful and completely out of line with the government's own guidance, policies and targets on these issues."

The case highlights the growing legal and reputational risks faced by firms operating in carbon intensive industries and is likely to prove a forerunner for future cases.

Carbon intensive firms are already facing increased pressure from investors to take account of climate change risks and this US proxy season has already seen a record number of environmentally related shareholder resolutions.

Meanwhile, legal experts are increasingly speculating as to whether existing human rights legislation could be used by communities and nations impacted by climate change to take legal action against large polluters.