Investors back climate lawsuit against Shell’s board

ClientEarth says its claim is 'in the interest of shareholders'

Institutional investors representing £4.5trn in assets under management are supporting a lawsuit against the board of directors at Shell filed by ClientEarth.

The non-profit today filed what it calls a world-first lawsuit against directors for failing to manage the material and foreseeable risks posed to the company by climate change.

The lawsuit, filed in the High Court of England and Wales, alleges Shell’s 11 directors have breached their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

The supporting investors, which include UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium, as well as Danske Bank Asset Management and pension funds Danica Pension and AP Pension in Denmark, said the case is also in the interest of shareholders.

London CIV’s head of responsible investment Jacqueline Amy Jackson said: “Our key concern is we do not believe the board has adopted a reasonable or effective strategy to manage the risks associated with climate change affecting Shell.

“A board of directors of a high-emitting company has a fiduciary duty to manage climate risk, and in so doing, consider the impacts of its decisions on climate change, and to reduce its contribution to it. We consider that ClientEarth’s claim is in our client funds’ interests as a shareholder of Shell, and we support it.”

Mark Fawcett, Nest’s chief investment officer, said: “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. We hope the whole energy industry sits up and take notice.”

New fossil fuel investment

The International Energy Agency has said there should be no investment in new oil and gas production in order to limit warming to 1.5C, yet ClientEarth said Shell’s strategy includes continued overinvestment in new fossil fuel projects.

Fawcett added these new oil and gas projects “pose risks to investors in terms of carbon lock-in and stranded assets”.

Tony Burdon, CEO of the Make My Money Matter campaign, who applauded Nest’s support of the lawsuit, said: “We know there can be no new fossil fuel expansion if we are to keep global warming to 1.5 degrees. Yet despite this, companies like Shell continue to recklessly develop new oil and gas fields – putting record breaking profits ahead of people and the planet.” 

On 2 February, Shell reported its highest profits in 115 years, after the energy price surge last year. Profits hit $39.9bn (£32.2bn) in 2022 – double last year’s total.

ClientEarth senior lawyer Paul Benson said: “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.

“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.”

Shell’s strategy

Shell’s board maintains that its Energy Transition Strategy – including its plan to be a net zero emissions business by 2050 – is consistent with the 1.5°C temperature goal of the Paris Agreement. It also claims that its plan to halve emissions from its global operations by 2030 is “industry-leading”, although ClientEarth said this covers less than 10% of its overall emissions.

A Shell spokesperson told the Guardian: “We do not accept ClientEarth’s allegations. Our directors have complied with their legal duties and have, at all times, acted in the best interests of the company… 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 AGM.”

Shell’s top shareholder list is dominated by the leading providers of FTSE and global equities tracker funds: Blackrock, Vanguard and State Street.

Investor initiative Climate Action 100+ found Shell’s strategy is not Paris-aligned. In particular, the strategy excludes short- to medium-term targets to cut the emissions from the products it sells – Scope 3 emissions – despite these accounting for more than 90% of the company’s overall emissions. 

The group’s net emissions are calculated to fall by just 5% by 2030, which is a far cry from the net 45% reduction in group-wide emissions by the end of this decade ordered by a Dutch Court in May 2021, ClientEarth said.

The non-profit alleges that the board’s failure to fully comply with the Dutch Court’s judgment is also a breach of its legal duties. Shell has appealed the judgment.

See also: – ‘The tide is turning’: Historic week for clean energy transition as oil majors suffer blows

Attractive investment

ClientEarth, which is bringing the lawsuit in its capacity as a shareholder, notified the board of its claim in a pre-action letter in March 2022. It said the litigation is in the company’s best interests, highlighting how Shell must prepare for a carbon constrained world if it is to remain viable as the economy inevitably shifts away from fossil fuels.

“If you scratch beneath the surface, the proportion of investment currently going to renewable energy is, relatively speaking, miniscule,” ClientEarth’s Benson added.

“The board is wasting a golden opportunity to position the company for the energy markets of the future.”

AkademikerPension, a Danish pension fund that divested from Shell in 2019 in order to shield its investments from long-term climate risk amid concern with the company’s transition plans, has also written in support of the claim.

Anders Schelde, chief investment officer, said: “If ClientEarth’s claim was successful and Shell’s strategy was to become Paris-aligned, the company could become an attractive investment again.”

ClientEarth, represented by London litigation firm Pallas Partners, is asking the High Court for an Order that requires the board to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch Court judgment. The board has said it will defend its position robustly.

It is now up to the High Court to decide whether to grant ClientEarth permission to bring the claim. 

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Natasha Turner

Natasha is global editor at ESG Clarity, part of Mark Allen Financial, and has been a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the...