On February 9, 2023, ClientEarth filed a derivative action against Shell's Board of Directors alleging mismanaging of material and foreseeable climate risk and breach of company law. The claim is supported by institutional investors collectively holding over 12 million shares in the company, and more than half a trillion US dollars (£450 billion) in total assets under management (AUM). The group of investors includes, among others, UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management (DPAM) in Belgium, as well as Danske Bank Asset Management and pension funds Danica Pension and AP Pension in Denmark. 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.
The lawsuit 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. While Shell claims that its "Energy Transition Strategy," which includes a net zero emissions plan with a 2050 target, is consistent with the 1.5°C temperature goal of the Paris Agreement. However, ClientEarth, based on a third-party assessment done by Climate Action 100+, claims that the strategy excludes short to medium-term targets to cut the emissions from 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 does not comply with the Dutch Court's 2021 order order to reduce emissions by 45% in group-wide emissions by the end of this decade. ClientEarth 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. The Board’s strategy also entails continued overinvestment in new fossil fuel projects, contrary to the recommendations of the International Energy Agency.
Under UK company law, Shell’s Board has a legal duty to promote the success of the company and to act with reasonable care, skill and diligence. ClientEarth argues that the Board is breaching those requirements if it is not properly managing climate risk.
ClientEarth has asked the High Court for an Order which 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. t is now up to the High Court to decide whether to grant ClientEarth permission to bring the claim.
Case Documents:
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