Groundbreaking Lawsuit Says Shell’s Lack of Climate Action Is Bad for Company’s Future

It is clearly in the best interest of maintaining a livable climate that major energy companies shift away from fossil fuels and towards renewable sources, but a groundbreaking lawsuit argues it is in the best interest of these companies as well. 

Environmental law non-profit ClientEarth filed a lawsuit today against Shell’s 11-member Board of Directors, arguing that the oil major’s leaders are not acting on the real risks that the climate crisis poses to their company.

“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,” ClientEarth senior lawyer Paul Benson said in a press release. “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet the Board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success — despite the Board’s legal duty to manage those risks.”

ClientEarth filed the suit with the High Court of England and Wales. It is suing Shell under the UK Companies Act, which mandates that company directors must act to ensure the success of their enterprises, as Reuters explained. It is the first lawsuit by a shareholder against a company over failing to act on the climate crisis and, if judges allow it to move forward, it could inspire similar suits against other fossil fuel companies. 

Notably, ClientEarth has the backing of Shell investors that together hold more than 12 million shares in the company and more than half a trillion U.S. dollars in total assets under management, according to the press release. Those investors include UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Belgian Degroof Petercam Asset Management and the Danish Danske Bank Asset Management and pension funds Danica Pension and AP Pension.

“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,” Nest chief investment officer Mark Fawcett said in the press release. “We hope the whole energy industry sits up and take[s] notice.”

The suit comes a week after Shell announced a record $40 billion in profits for 2022, joining other oil and gas companies in announcing a historic haul from a year that saw energy prices soar following Russia’s invasion of Ukraine. At the same time, the company faces accusations of under-investing in renewable energy. Global Witness asked the U.S. Securities and Exchange Commission (SEC) to investigate whether Shell had overstated its renewable investments in its annual report, as The Guardian reported at the time. 

In response to the ClientEarth lawsuit, Shell defended its board’s business strategy.

“We do not accept ClientEarth’s allegations,” a Shell spokesperson said, as The Guardian reported. “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 [annual general meeting.”

Shell has a stated goal of halving emissions from global operations by 2030, according to ClientEarth. However, independent assessments find that Shell’s plans don’t account for short-to medium-term “scope 3” emissions, which are the emissions from the use of Shell’s products — like gasoline — and make up more than 90 percent of the company’s total emissions. In total, its plans would only reduce its net emissions by five percent by 2030. At the same time, Shell has plans to invest in new oil and gas developments, despite the recommendation from the International Energy Agency that no new oil and gas developments should be launched beyond 2021 if corporate and world leaders want to meet the Paris agreement goal of limiting global heating to 1.5 degrees Celsius above pre-industrial levels. 

“The Board’s ‘transition’ strategy clings to fossil fuels not just in the next few years, but for decades to come. Its reduction targets barely touch the sides of its total emissions. And doubling down on new oil and gas projects isn’t a credible plan — it’s a recipe for stranded assets,” Benson said in the press release.

This isn’t the first time that Shell has faced legal action over the pace of its climate plans. Friends of the Earth Netherlands won a historic legal victory against the company in 2021 when a Dutch court ruled that Shell must comply with the Paris agreement and reduce its emissions by 45 percent by 2030. Shell is currently appealing that verdict.