Shell Directors Sued by ClientEarth for Breach of Climate Duties
ClientEarth is not only a nonprofit environmental law organization — it has also been a shareholder in the Shell oil company since 2016. Now, ClientEarth is suing Shell’s 13 directors and holding them personally and legally responsible for failing to devise a strategy to prepare the company for net zero emissions, which it says is a breach of their duties under the UK Companies Act.
The Companies Act requires that directors exercise reasonable care, skill and diligence and act in a way that would be most likely to promote the company’s success “for the benefit of its members as a whole.”
If the lawsuit succeeds, Shell’s board of directors could be forced to take specific steps to be in alignment with the 2015 Paris agreement, which has a goal of limiting global heating to less than two degrees Celsius by cutting fossil fuel emissions, reported The Guardian.
“Shell is seriously exposed to the physical and transitional risks of climate change, yet its climate plan is fundamentally flawed,” said Paul Benson, a lawyer for ClientEarth, as Fortune reported. Benson went on to say that if Shell is promising to adhere to the Paris agreement but not actually doing so, “then there is a risk of misleading investors and the market at large.”
According to Fortune, ClientEarth has been a shareholder in Shell in order to have voting rights and obtain investor information about the company.
ClientEarth said it was inviting other shareholders to join the lawsuit, reported The Guardian. A windfall of $19 billion in profits for the oil company in 2021 may make some shareholders reluctant, however. Shell announced last month that they intend to buy back shares, which increases the value of those in the hands of the remaining shareholders.
Lawyers for ClientEarth said that Shell’s plan to achieve net zero by 2050 isn’t in line with critical targets scientists assert are needed to avoid the worst effects of the climate crisis.
“We say in our claim that Shell’s board is mismanaging the material and foreseeable climate risk facing the company,” Benson said, as The Guardian reported.
A ClientEarth shareholder litigation FAQs statement said this mismanagement puts the company, shareholder investments and global climate objectives at risk.
“That not only threatens global climate goals, it puts the company’s long-term commercial viability – and therefore its investors’ capital, including people’s pension funds – at risk,” the statement said. “ClientEarth is taking legal action to compel Shell’s Board to strengthen its climate transition plans, in the best interests of the company in the long-term.”
The lawsuit is the first case that has been brought with the intent to hold a company’s board of directors liable for improperly preparing for the climate transition.
“It’s the first of its kind, this case. It’s the first time that anyone has sought to hold the board accountable for failing to properly prepare for the net zero transition,” said Benson, as reported by The Guardian. “It is highly novel, we’re in uncharted territory here but we see real merit with this claim.”