Climate group in world first as it looks to sue directors for lack of action

Climate campaigners have filed a case against global energy firm Shell in which they are seeking to sue the company’s board of directors for failing to move away from fossil fuels fast enough.

ClientEarth said the claim has been filed in the UK High Court in what is the first ever case of its kind seeking to hold corporate directors personally liable.

In a statement the campaign group said Shell’s board is legally required to manage risks to the company that could harm its future success, and the climate crisis presents the biggest risk of them all.

The group said it will take a “derivative action” against Shell in the UK.

A derivative action is a claim brought by a shareholder of a company, ultimately on behalf of the company, in this case to argue alleged breaches of duty by the board. The shareholder bringing the claim is effectively seeking to step into the company’s shoes, to pursue the board for wrongs allegedly committed against the company.

The group added under UK company law, Shell’s board has a legal duty to promote the success of the company and to act with reasonable care, skill and diligence.

“We argue the board is breaching those requirements if it is not properly managing climate risk,” the statement added.  “Shell publicly maintains that its strategy is consistent with the goals of the Paris Agreement (to keep global temperature rise to 1.5C) and has set a target to become a net zero emission energy business by 2050.

“The problem is that its interim targets and strategy to get there simply don’t add up. Analyst research suggests that Shell’s strategy would in fact result in a reduction of just 5% in net emissions by the end of the decade.”

“Ensuring the company stays competitive in the energy markets of the future, as countries and customers worldwide choose cheaper, cleaner energy, means Shell needs to move away from fossil fuels towards an alternative business model,” it added.  “But we’re arguing that the plan Shell’s board currently has for making that shift is simply unreasonable.”

ClientEarth added the strategy “fails to deliver the reduction in emissions that is needed to keep global climate goals within reach and continues with fossil fuel production for decades to come. This will tie the company to projects and investments that are likely to become unprofitable as the world cleans up its energy systems.

“That puts the company’s long-term commercial viability at risk, and also threatens efforts to protect the planet, further increasing the risk to the company.”

The statement added: “The future consequences of Shell’s flawed climate plans could cause the company’s value to plummet, costing jobs and running the risk of shareholders and investors losing significant amounts of money, including people’s pension funds.

“We believe this puts Shell’s Board in breach of its legal duties under the UK Companies Act to manage the climate risk facing the company. So we’re going to court.”

The filing will ask are the court to order the board to strengthen Shell’s climate plans.

The group said the case has already received support from institutional investors who together hold over 12 million shares in the company, including, among others, UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management (DPAM) in Belgium, as well as Danske Bank Asset Management and pension funds Danica Pension and AP Pension in Denmark. The investors are concerned that the Board’s strategy does not reduce the company’s emissions fast enough.

“We argue that putting sufficient emissions reduction targets in place in the short and medium term will secure the company’s long-term value, as well as protecting investors’ capital,” the group added.

“Shell is seriously exposed to the risks of climate change, yet its climate plan is fundamentally flawed. In failing to properly prepare the company for the net-zero transition, Shell’s Board is increasing the company’s vulnerability to climate risk, putting its long-term value of in jeopardy,” explained Paul Benson senior lawyer, at ClientEarth

Shell has stated it will defend its position robustly, but as 0f yet the High Court has yet to make a decisions as to whether it will hear the case.

Shell’s shareholders need certainty that the company is using their capital effectively in its navigation of the global energy transition and is genuinely pursuing the climate goals that it says it is,” Benson added.

Mark Fawcett CIO of Nest added: “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. We hope the whole energy industry sits up and take notice. 2023 is a crucial year if we are to keep net-zero by 2050 on track and this case can be a springboard for Shell introducing key changes.”

Shell has responded to news of the action. It rejected the allegations, saying 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.

A derivative action is a claim brought by a shareholder of a company, ultimately on behalf of the company, in this case to argue alleged breaches of duty by the board. The shareholder bringing the claim is effectively seeking to step into the company’s shoes, to pursue the board for wrongs allegedly committed against the company.

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