The claim filed by environmental law charity ClientEarth has the backing of investors who hold 12 million shares in the company.
Shell’s board of directors are being personally sued over their alleged failure to properly manage risks associated with the climate crisis.
The lawsuit says the British oil giant’s 11 directors have breached their legal duties under the UK’s Companies Act by failing to bring their climate strategy in line with the Paris Agreement.
Environmental law charity ClientEarth, which filed the lawsuit, says it is the first case in the world that looks to hold corporate directors personally responsible for failing to prepare for the energy transition.
“Shell may be making record profits now due to the turmoil of the global energy market, but the writing is on the wall for fossil fuels long term,” says Paul Benson, a senior lawyer at ClientEarth.
“The shift to a low-carbon economy is not just inevitable, it’s already happening.”
But the Shell board is persisting with a transition strategy that is “fundamentally flawed,” Benson claims. He says it leaves the company seriously exposed to the risks climate change poses to their success in the future - “despite the board’s legal duty to manage those risks”.
Lawsuit against Shell has support from investors
ClientEarth filed the first of its kind climate case at the High Court of England and Wales in its capacity as a shareholder.
The legal claim also has the backing of institutional investors and pension funds who together own over 12 million of Shell’s 7 billion shares. These investors include pension funds like Nest - the UK’s largest workplace pension scheme - and London CIV in the UK and Swedish national pension fund AP3.
In a letter to the board of directors notifying them of the legal action last year, ClientEarth said its lawsuit was in the “best interests” of the company as the economy “inevitably shifts away from fossil fuels.”
They also said it was in the best interests of investors.
“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,” says Mark Fawcett, Nest’s chief investment officer.
“We hope the whole energy industry sits up and takes notice.”
Shell says its climate plans are ‘industry-leading’
Shell says its ‘Energy Transition Strategy’ - including its plan to be net zero by 2050 - is consistent with the 1.5C temperature goal of the Paris Agreement. The company also claims its plan to halve emissions by 2030 is “industry-leading”.
But ClientEarth says this covers less than 10 per cent of its overall emissions and independent assessments have found that Shell’s climate strategy is not Paris-aligned.
The environmental law charity is asking the high court to order Shell to adopt a strategy that properly manages climate risks and complies with a 2021 legal order by Dutch courts to cut emissions by 45 per cent.
A spokesperson from Shell said they “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.”
“ClientEarth’s attempt, by means of a derivative claim, to overturn the board’s policy as approved by our shareholders has no merit. We will oppose their application to obtain the court’s permission to pursue this claim.”