A lawsuit filed against the directors of Shell 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, has been given support by a group of European institutional investors in a case that could have far-reaching implications for how companies tackle emissions.
The lawsuit was filed by ClientEarth, an environmental law charity which has a token shareholding in Shell, against the oil giant’s 11 directors over their failure to manage the “material and foreseeable” risks posed to the company by climate change – and that they are breaking company law.
The group which is suing under the UK Companies Act, argues that 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.
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The lawsuit is coming a week after Shell said it recorded a record $40 billion profit for 2022, having been helped by the energy crunch after Russia’s invasion of Ukraine and two years after it was ordered to slash carbon emissions in a landmark Dutch climate case. It is the first notable case by a shareholder against a board over the alleged failure to properly prepare for a shift away from fossil fuels.
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.
“The board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success – despite the board’s legal duty to manage those risks,” said ClientEarth’s senior lawyer Paul Benson.
British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium and Denmark’s Danske Bank Asset Management and Danica Pension and AP Pension are among those to have written letters supporting the claim made by ClientEarth even though Shell has claimed to have ramped up spending on renewable energy and low-carbon technologies and has plans to reduce the carbon intensity of its products by 20% by 2030, 45% by 2035 and by 100% by 2050 from 2016 levels.
The investor group has around 450 billion pounds ($543 billion) in assets under management collectively and owns about 12 million of Shell’s 7 billion shares.
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.”
Meanwhile, Shell has rejected the allegations as it maintains its climate targets were ambitious and on track and that its directors complied with their legal duties and acted in the company’s best interests
“ClientEarth’s attempt to overturn the board’s policy as approved by our shareholders has no merit,” a spokesperson for the company was quoted to have 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”.
Story was adapted from Reuters.
