ClientEarth has said it is taking the action against Shell in the company’s best interests. Photograph: Matthew Horwood/Getty Images
The directors of Shell are being sued for failing to properly prepare the multinational oil and gas company for net zero.
In what is thought to be a first-of-its-kind action, the lawsuit brought by activist shareholders claims that Shell’s 13 directors are personally liable for failing to devise a strategy in line with the Paris agreement, which aims to limit global heating to below 2C by slashing fossil fuel emissions.
The lawsuit claims the failure puts the directors in breach of their duties under the UK’s Companies Act.
If successful, Shell’s board could be forced by the courts to change its strategy, taking specific concrete steps to align its plan with the Paris deal. But if the claimants lose, they could be liable for the full costs of the case, including directors’ legal fees.
ClientEarth, the environmental law organisation taking the action against Shell, said it was calling for other shareholders to join.
At Shell’s 2021 annual general meeting more than 30% of shareholders voted against the board in support of a resolution calling for Paris-aligned emissions targets.
But other shareholders may be reluctant to join after Shell announced in February an increase in dividends and a plan to buy back shares – increasing the value of those remaining in investors’ hands – after reporting a staggering $19bn profit.
ClientEarth has said it is taking the action against Shell in the company’s best interests. Their claim says the board has failed to properly account for the risks climate change poses to the company. Under the Companies Act, directors are legally bound to act in a way that promotes the company’s success and to exercise reasonable care, skill and diligence.
Paul Benson, a ClientEarth lawyer, said: “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.”
“It is highly novel, we’re in uncharted territory here but we see real merit with this claim. We think, frankly, the longer the board delays with this the more likely it is that the company is going to have to execute this sort of handbrake turn to retain commercial competitiveness, to meet the challenges of inevitable regulatory developments.”
It will not be the first time Shell has faced action over emissions. In May 2021, a Dutch court ruled the company must reduce its emissions – including those from the fuel it sells – by 45% by the end of 2030.
But Shell’s directors have appealed against that verdict and published an “energy transition strategy” outlining the company’s aim to reach net zero by 2050 – a transition it describes as “in step with society”. ClientEarth’s lawyers say the strategy does not meet the targets scientists say are critical to avoid catastrophic climate change.
“We say in our claim that Shell’s board is mismanaging the material and foreseeable climate risk facing the company,” Benson said.
“Shell is actually really quite exposed to the risks of climate change those are physical risks and transitional risks. They are exposed to what we call stranded asset risk, where their assets – for example their facilities, their physical infrastructure – the value of that is just going to reduce or it will become a liability as the net zero transition progresses.
“And they are exposed to massive write-downs of those assets.”
A Shell spokesperson said: “To be a net-zero emissions business by 2050, we are delivering on our global strategy that supports the Paris agreement. This includes the industry-leading target we have set to halve emissions from our global operations by 2030, and transforming our business to provide more low-carbon energy for customers.
“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. These challenges cannot be solved by litigation.”