Shell’s board members set for court case over firm’s climate strategy
Directors at Shell are being personally sued over the firm’s emissions targets and climate risk approach, with environmental law firm ClientEarth supported by several of the energy major’s investors in its case.
ClientEarth has today (9 February) announced that it has filed a lawsuit against 11 Shell directors at England’s High Court. The aim is to get the company to set out a more ambitious and coherent strategy to reduce emissions.
ClientEarth is bringing the case by arguing that Shell is breaching the UK Companies Act. The Act compels listed businesses to adequately manage risks facing the company, which ClientEarth argues includes climate-related risks, including physical, transition and reputational risks. It calls these risks “material and foreseeable” for Shell.
“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,” ClientEarth said in a statement.
“But we’re arguing that the plan Shell’s Board currently has for making that shift is simply unreasonable.”
As other environmental groups have done before, ClientEarth is arguing that Shell’s existing plans to reduce emissions are not aligned with the Paris Agreement. This will either leave it exposed to physical risks from a warming world, or to transition risks, as investors and policy move more rapidly than Shell, risking stranded assets.
ClientEarth has a token shareholding in Shell only but has garnered the support of several of the Anglo-Dutch energy major’s other shareholders for its campaign. They include pension funds London CIV, Nest, Danica Pension, AP Pension and AP3; plus asset managers Sanso IS, Danske Bank Asset Management and Degroof Petercam. In total, the institutional investors supporting ClientEarth’s efforts here hold more than 10 million Shell shares.
London CIV’s head of responsible investment Jacqueline Amy Jackson said: “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.”
“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,” added Nest’s chief investment officer Mark Fawcett.
Shell has stated that it does “not accept the allegations” from ClientEarth and these shareholders.
A spokesperson said: “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.”
What happened before, what happens next?
This is not the first time that Shell has wound up in court over its climate impact and commitments.
The Hague District Court ruled in May 2022 that Shell’s ambition to reduce the carbon intensity of products by 20% by 2030 is not aligned with the UK or EU’s net-zero goal for 2050, as it could technically see Shell pushing for growth.
Shell maintained that it believes it will not exceed its 2018 ‘peak’ in absolute emissions and argued the credibility of its 2050 net-zero goal covering emissions across all scopes.
But the Court sided with Greenpeace and Friends of the Earth. It ordered shell to set a target to slash its absolute emissions by 45% by 2030, against a 2019 baseline. Shell appealed the court ruling and, as of yet, has not set this kind of target.
However, ClientEarth believes this is the first time that an energy company’s directors have been taken to court on climate groups, rather than the case being brought against the business as an entity. If the High Court grants permission for ClientEarth to bring the claim, this could set the precedent for more similar cases in the future.
Shell and competitors BP and Equinor have been the target of much ire over the past few weeks after posting record profits amid the cost-of-living crisis. Critics argue that this is not down to innovation, but down to direct profiteering off of the gas price increase resulting in a large part from Russia’s war in Ukraine.
Shell posted record annual profits of almost $40bn globally – more than a 100% increase year-on-year. Critics in the UK are heaping pressure on the Government to increase tax on companies like Shell beyond the agreed windfall tax level and to further scale back tax-free allowances for energy majors. Shell has countered by stating that only a small minority of its profits (less than 5%) were made via UK activity.
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