This story was originally published by the Guardian and is reproduced here as part of the Climate office collaboration.
Shell directors are being sued for failing to properly prepare the multinational oil and gas company for net zero.
In what is believed to be a first-of-its-kind lawsuit, the lawsuit brought by activist shareholders alleges that Shell’s 13 directors are personally responsible for failing to develop a strategy consistent with the Paris Agreement, which aims to limit the global warming to below 2 degrees Celsius by reducing fossil fuel emissions.
The lawsuit claims the failure puts the directors in breach of their obligations under UK company law.
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 agreement. But if the plaintiffs lose, they could be held liable for the full costs of the case, including administrators’ legal fees.
ClientEarth, the environmental law organization taking action against Shell, said it was calling on other shareholders to join.
At Shell’s 2021 annual general meeting, more than 30% of shareholders voted against the board in favor of a resolution calling for Paris-aligned emissions targets.
But other shareholders may be reluctant to join after Shell in February announced a dividend hike and a share buyback plan – boosting the value of those that remain in investors’ hands – after announcing a staggering profit of $19 billion.
ClientEarth said it was taking action against Shell in the best interests of the company. Their complaint indicates that the board of directors did not properly consider the risks that climate change poses to the company. Under the Companies Act, directors are legally required to act in a manner that promotes the success of the business and to exercise reasonable care, skill and diligence.
Paul Benson, a ClientEarth attorney, said: “This case is the first of its kind. This is the first time anyone has sought to hold the board accountable for not properly preparing for the transition to net zero.
“It’s very new, we’re in uncharted territory here, but we see real merit in that assertion. We believe, frankly, that the longer the board delays this, the more likely the company will have to execute this kind of handbrake to maintain its commercial competitiveness, to meet the challenges of inevitable regulatory developments.
This won’t be the first time Shell has faced action on emissions. In May 2021, a Dutch court ruled that 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 the verdict and released an “energy transition strategy” outlining the company’s goal of reaching net zero by 2050 – a transition it describes as “in line with the society”. ClientEarth lawyers say the strategy falls short of what scientists believe are essential to averting catastrophic climate change.
“We say in our statement that Shell’s board is mismanaging the material and foreseeable climate risk the company faces,” Benson said.
“Shell is actually very exposed to the risks of climate change, namely physical risks and transient risks. They are exposed to what we call the risk of stranded assets, where their assets – for example their facilities, their physical infrastructure – the value of that will just go down 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 company by 2050, we are implementing our global strategy which supports the Paris Agreement. This includes the industry-leading goal we have set to halve emissions from our global operations by 2030 and transform our business to deliver more low-carbon energy to our customers.
“Tackling a challenge as big as climate change requires action from all sides. The energy supply challenges we are seeing highlight the need for effective, government-led policies to address critical needs such as energy security while decarbonizing our energy system. These challenges cannot be resolved through litigation.