RBS and Treasury face court over carbon-intensive investments

A potential landmark legal battle gets under way in the High Court later today when a coalition of environmental groups attempts to sue the Treasury for allowing the taxpayer-controlled Royal Bank of Scotland (RBS) to continue to invest in carbon-intensive firms, allegedly in breach of the government's own regulations.

The oral hearing will decide if environmental and human rights groups Platform, People & Planet and the World Development Movement will be allowed to proceed to a full substantive hearing on whether RBS' investments breach both the Companies Act and the government's environmental guidelines.

The green groups allege that since it was bailed out by the government last year, RBS has been involved in loans to coal, oil and gas companies worth an estimated £10bn, including a £6bn deal with energy giant E.ON and a £1.4bn loan to Irish firm Tullow Oil, which is involved in the exploration and extraction of oil on the war-torn border between Uganda and the Democratic Republic of Congo.

They will also seek to highlight RBS and its subsidiary ABN Amro's decision to provide letters of credit to Sterlite, a company majority owned by the mining firm Vedanta. Vedanta is at the centre of a major row over plans to build an opencast bauxite mine near the holy mountain of Niyamgiri in the Indian state of Orissa. The firm insists it is in compliance with Indian regulations and has consulted with the local community, but a report from an arm of the UK Department of Business proposals criticised the plans last week, accusing them of "disrespecting" the indigenous people.

Rosa Curling, solicitor at leading human rights law firm Leigh Day & Co, which has taken on the case, will argue that these investments are both in violation of the Companies Act requirement for directors to consider the environmental impact of their firms' activities and in contradiction of the government's wider climate change policies.

Curling added that the campaigners have already secured a significant victory after the Treasury shifted its initial opposition to carrying out a review on the environmental and human rights impact of RBS' activities and undertook a so-called "Green Book" assessment on whether it should use its 70 per cent stake in the firm to influence lending policy. It concluded that the bank should be managed in a "commercial" manner and that the Treasury should not intervene, but Curling will today argue that that decision was "unlawful".

"The Treasury, having strenuously resisted any suggestion that it should consider applying environmental and human rights standards to RBS, has now conceded that it does have to, and has undertaken an assessment on whether such standards should be imposed," she said. "The Treasury has decided it should not. When it comes to climate change and human rights, it has decided it should not go beyond what is narrowly in the "commercial" interest of RBS. However, this conclusion is unlawful. It is based on a misunderstanding of the law and flies in the face of the government's wider policies on corporate social responsibility and climate change."

The Treasury is preparing to vigorously contest the case and has appointed one of its top barristers, James Eadie QC, to defend its position. Meanwhile, RBS said all its investments were in line with the voluntary Equator Principles governing environmentally and ethically sound investments.

However, the environmental groups insist they have a strong case and will also today release a new report arguing that it is in the interest of both taxpayers and the bank's commercial performance for it to reduce its exposure to carbon-intensive investments.

The report, Towards a Royal Bank of Sustainability: protecting taxpayers' interests; cutting carbon risk, will argue that the rising price of carbon, coupled with new legislation, make investments in carbon-intensive industries increasingly high risk.

"The court case today is clearly showing the legal reasons why the Treasury under the Company Law Act must take action to stop RBS from investing in companies that trash the climate," said Mel Evans, finance and climate campaigner at Platform. "But there is also a business case, which is demonstrated in this new report. In an increasingly carbon-constrained world, investors, and in this case, the public as owners of RBS, are exposing themselves to more and more risk in continuing to pump billions into new fossil fuel projects."