Shell’s board of directors sued for ‘failing to properly prepare’ for the energy transition

A Shell logo seen at a petrol station in London. A court in The Hague has ordered oil giant Shell to reduce its carbon emissions by 45% compared to 2019 levels by 2030, in what is widely seen as a landmark case.
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Shell‘s board is being sued for failing to prepare the multinational oil and gas company for the transition away from fossil fuels.

Environmental law firm ClientEarth, a Shell shareholder, said Tuesday that it had notified Shell of its claim against the company’s 13 executive and non-executive directors. It argues the board’s failure to implement a climate strategy that truly aligns with the landmark Paris Agreement is a breach of their duties under English law.

The case is thought to mark the first-ever attempt at holding a company’s board of directors personally liable “for failing to properly prepare for the net zero transition.”

“Shell is seriously exposed to the physical and transitional risks of climate change, yet its climate plan is fundamentally flawed,” Paul Benson, a ClientEarth lawyer, said in a statement.

“The longer the Board delays, the more likely it is that the company will have to execute an abrupt ‘handbrake turn’ to retain commercial competitiveness and meet the challenges of inevitable regulatory developments,” Benson said.

The not-for-profit group, which has a strong track record of winning climate-related cases, says it has notified Shell and will await the firm’s response before formally filing papers in the High Court of England and Wales for permission to bring the claim.

If the legal case is ultimately successful, the court could force Shell’s board to align its climate strategy with the goals of the 2015 Paris Agreement. It could also declare that Shell’s board is in breach of its legal duties. If the claimants lose, however, they could be liable for the full costs of the case.

In response to the legal action, Shell told CNBC via email that it was delivering on its global strategy that supported the Paris accord. This includes plans to transform its business “to provide more low-carbon energy for customers,” the company added.

The Paris Agreement aims to pursue efforts to limit global heating to 1.5 degrees Celsius above pre-industrial levels by slashing greenhouse gas emissions.

To be sure, it is the burning of fossil fuels, such as oil and gas, that is the chief driver of the climate emergency.

“Addressing a challenge as big as climate change requires action from all quarters. The energy supply challenges we are seeing underscore the need for effective, government-led, policies to address critical needs such as energy security while decarbonising our energy system,” a spokesperson for Shell said. “These challenges cannot be solved by litigation.”

Shares of Shell dipped 0.8% during early afternoon trade in London. The firm’s stock price is up more than 17% year-to-date.

Long-term interests

ClientEarth says it is acting in the best long-term interests of Shell by pursuing shareholder litigation. It claims the Shell board’s mismanagement of climate risk puts its directors in breach of their duties under the U.K. Companies Act. This law stipulates directors are legally required to promote the firm’s success and to exercise reasonable care, skill and diligence.

ClientEarth has called on other shareholders to join the legal action, saying many of Shell’s largest institutional shareholders have expressed concern about the firm’s climate strategy.

At the firm’s annual general meeting last year, more than 30% of shareholders voted against the board in support of a resolution calling for Paris-aligned emissions targets.

Shell has faced legal action over its climate strategy before.

In May 2021, a Dutch court ordered the oil giant to reduce its global carbon emissions by 45% by the end of 2030, compared with 2019 levels. It also said Shell is responsible for its own carbon emissions and those of its suppliers, known as Scope 3 emissions.

Shell is appealing the ruling.

The legal case comes at a time when Russia’s onslaught on Ukraine has triggered the biggest energy market shock in decades, with oil prices soaring to multi-year highs as international allies imposed a barrage of sanctions on Russia’s corporate and financial system.

Last month, Shell CEO Ben van Beurden described 2021 as a “momentous year” for the company after rebounding commodity prices resulted in a sharp upswing in profit.

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