Shell directors personally sued over ‘flawed’ climate strategy
Claimants ClientEarth say the oil company’s plan puts the company at financial risk as the world transitions to clean energy
The directors of oil major Shell are being personally sued over their climate strategy, which the claimants say is inadequate to meet climate targets and puts the company at risk as the world switches to clean energy.
Environmental lawyers ClientEarth have filed the lawsuit against the 11 directors at the high court in England. It is the first case in the world seeking to hold corporate directors liable for failing to properly prepare their company for the net zero transition, ClientEarth said.
ClientEarth, which has a token shareholding in Shell, is suing under the UK Companies Act, and is supported by a group of large pension funds and other institutional investors. It argues a global transition to low-carbon energy is inevitable as world governments act to end the climate crisis and that Shell’s failure to move fast enough threatens the company’s success and would waste its investors’ money on unneeded fossil fuel projects.
Shell recently announced a record annual profit of $40bn (£33bn), driven by the high energy prices resulting from Russia’s war in Ukraine. But, as climate litigation increases across the world, the company has suffered a flurry of recent legal and regulatory challenges. These include a Dutch court order to cut emissions from its oil and gas by 45% by 2030 and a claim that Shell is investing less in green energy than it says.
“Shell may be making record profits now, but the writing is on the wall for fossil fuels long term,” said ClientEarth lawyer Paul Benson. “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet the board is persisting with a transition strategy that is fundamentally flawed, despite the board’s legal duty to manage those risks.
“Long term, it is in the best interests of the company, its employees and its shareholders – as well as the planet – for Shell to reduce its emissions harder and faster than the board is currently planning,. The International Energy Agency said in 2021 that no new oil and gas projects were compatible with net zero emissions by 2050. “Doubling down [by Shell] on new oil and gas projects isn’t a credible plan – it’s a recipe for stranded assets,” Benson said.
Nest, the UK’s largest workplace pension scheme with 10 million members, has backed the lawsuit. “Investors want to see action in line with the risk climate change presents and will challenge those who aren’t doing enough to transition their business,” said Mark Fawcett, Nest’s chief investment officer. “We hope the whole energy industry sits up and takes notice.”
London CIV manages the assets of the London local government pension scheme and its head of responsible investment, Jacqueline Amy Jackson, said: “Over the next few decades 1 billion lives and trillions of pounds will be at risk due to a single issue: climate change. We do not believe the board has adopted a reasonable or effective strategy to manage the climate risks affecting Shell. In our view, the board of a high-emitting company has a fiduciary duty to manage climate risk.”
The group of investors also includes Swedish national pension fund AP3, French asset manager Sanso IS and Danske Bank Asset Management.
ClientEarth is asking the high court to order Shell’s board to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch court’s order for big cuts in emissions. The high court will now decide whether ClientEarth’s claim will proceed.
A Shell spokesperson said: “We do not accept ClientEarth’s allegations. Our directors have complied with their legal duties and have, at all times, acted in the best interests of the company. We believe our climate targets are aligned with the more ambitious [1.5C] goal of the Paris agreement. Our shareholders strongly support the progress we are making on our energy transition strategy, with 80% voting in favour of this strategy at our last AGM.”
In May 2021, the Dutch court ordered Shell to cut carbon emissions from its oil and gas products by 45% by 2030. The case was brought by Friends of the Earth and more than 17,000 co-plaintiffs, who successfully argued the company had been aware of the dangerous consequences of CO2 emissions for decades, and that its climate targets did not go far enough. Shell is appealing the verdict.
Earlier in February, a non-profit group lodged a complaint against Shell with the US Securities and Exchange Commission, alleging that the company had overstated how much it is spending on renewable energy. Shell, which is headquartered in London, but is listed on the New York stock exchange, denied misleading investors.
The company was also sued this month in London’s high court by 14,000 people from two Nigerian communities, who claim Shell is responsible for devastating pollution of their water sources. Shell said it bears no responsibility for the siphoning off of oil from its pipelines by organised gangs, which it says causes many of the spills, and that is not liable for the actions of its Nigerian subsidiary company.
Shell has taken legal action itself this month in an attempt to end the occupation of its oil and gas platform by Greenpeace International protesters. The platform is now in the English Channel, being transported to the North Sea. The protesters are demanding the company stops expanding oil and gas production around the world and pays for the climate destruction they say the company is causing.
COVER PHOTO: A placard outside Shell’s headquarters in London. Directors of the company are being sued in the first case of its kind. Photograph: Vuk Valcic/Sopa Images/Rex/Shutterstock