For the first time ever, ClientEarth has launched a case against the Board of Directors of Shell plc for failing to adequately manage the serious and foreseeable risks that climate change poses to the business. The lawsuit asserts that by failing to establish and carry out an energy transition strategy that is consistent with the Paris Agreement, Shell’s 11 directors have violated their legal obligations under the Companies Act.
An unprecedented number of institutional investors, who jointly own more than 12 million shares of the company and more than half a trillion dollars (£450 billion) in assets under management, have backed the claim that ClientEarth made in the High Court of England and Wales. Among the investors are the UK pension funds Nest and London CIV, the Swedish state pension fund AP3, the French asset management Sanso IS, the Belgian Degroof Petercam Asset Management (DPAM), and the Danish pension funds Danica Pension and AP Pension.
ClientEarth informed the Board of its claim in a pre-action letter in March 2022 and is launching the lawsuit in its position as a shareholder. The legal group claims that the litigation is in the best interests of the corporation and emphasises how Shell must get ready for a carbon-constrained world if it wants to survive as the economy inexorably moves away from fossil fuels. Investors supporting ClientEarth’s claim, the first derivate action against a board of directors for failing to adequately plan for the energy transition, assert that the matter is also in their best interests as shareholders.
The Board of Shell, on the other hand, insists that the 1.5°C temperature objective of the Paris Agreement is consistent with its “Energy Transition Strategy,” which includes its plan to be a net zero emissions firm by 2050. Furthermore, it says that its strategy to cut emissions from its worldwide operations in half by 2030 is “industry-leading,” although this only accounts for less than 10% of its total emissions.
ClientEarth claims that the Shell’s strategy is not in line with the Paris Agreement, according to reputable third-party evaluations. The strategy specifically leaves out short- to medium-term goals to reduce scope 3 emissions, or emissions from the company’s products, despite the fact that these emissions account for more than 90% of the company’s total emissions. In contrast to the net 45% decrease in group-wide emissions by the end of this decade mandated by a Dutch Court in May 2021, the group’s net emissions are predicted to reduce by just 5% by 2030.
After Russia’s invasion of Ukraine caused the largest shock to the energy markets in decades and sent prices rising, Shell reported last week that it had delivered $40 billion in profit, setting another another record-breaking year. The Board launched a new share buyback programme and increased dividends for the upcoming quarter.
“If you look closer, the amount of money currently invested in renewable energy is, relatively speaking, extremely small. The Board is squandering a golden chance to prepare the company for the company for the future energy markets, despite the fact that increasing dividends and buybacks would momentarily appease some investors”, according to the ClientEarth press release. A non-profit organisation called ClientEarth employs the legal system to bring about systemic change that safeguards the planet for and alongside its inhabitants.