Shell board sued over “fundamentally flawed” climate transition strategy

February 16, 2023

British oil giant Shell’s board of directors are being personally sued over an alleged failure to manage climate risks facing the company.

The civil action has been brought about by ClientEarth, a non-profit organisation that is also a shareholder in the company.

It is alleged the 11 directors are in breach of their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

Filed at the UK high court, this is the first case of its kind with ClientEarth taking aim at Shell’s “fundamentally flawed” climate transition strategy.

Using third party analysis which is at odds with Shell’s conclusions about its own path forward, ClientEarth argues the fossil fuel giant’s group net emissions will only fall by 5% before 2030.

This is significantly less than the 45% reduction ordered  by a Dutch court in May 2021 – a judgement Shell has appealed.

Shell recently announced a record £40bn in profit which ClientEarth argues is at odds of continued underinvestment in 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,” said Paul Benson, senior lawyer at ClientEarth.

“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.”

A spokesperson for Shell has stressed the company does “not accept ClientEarth’s allegations”.

In a statement, the energy giant said: “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.”

Supporting the action are several institutional shareholders, with a combined £450bn in AUM, that hold over 12 million shares in the company between them.    

These include UK pension funds Nest and London CIV, Swedish national pension fund AP3, and pension funds Danica Pension and AP Pension in Denmark.

Nest CIO Mark Fawcett commented: “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. Robust short- to medium-term strategies are needed to meet the goal of the Paris Agreement, whereas the company’s new oil and gas projects in development pose risks to investors in terms of carbon lock-in and stranded assets.”