Campaign group ClientEarth is calling on institutional investors to join or support its legal claim against the directors of Shell, alleging that the board is failing to ensure the company’s long-term viability because of a “fundamentally flawed” climate strategy. 

 

In a move that shows the growing litigation risk in failing to transition, ClientEarth has hired high stakes litigation firm Pallas Partners for the first ever case in which a claimant seeks to hold board directors personally liable for net zero failures. 

 

 

The group, as a shareholder of Shell, claims that the oil and gas giant’s board is in breach of its duties under UK company law, jeopardising its long-term viability for the pursuit of short-term profits.  

 

Shell has set itself a net zero target of 2050, but the Australasian Centre for Corporate Responsibility has previously forecast that Shell will be unable to achieve the 45% reduction in net carbon emissions by 2030 compared to 2019 as required by the Hague District Court – a ruling which Shell has since appealed. What is more, the ACCR said the energy firm will instead increase net emissions by 4.4% in that timeframe.  

 

ClientEarth has now notified the firm of its claim against the 13 executive and non-executive directors, arguing that the board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement, in breach of their legal duties; the UK Companies Act stipulates that boards must act in a way that promotes the company’s success, and to exercise reasonable care, skill and diligence. 

 

“Shell is seriously exposed to the physical and transitional risks of climate change, yet its climate plan is fundamentally flawed,” said ClientEarth lawyer Paul Benson. 

 

Not preparing sufficiently for climate change increases Shell’s vulnerability to stranded asset risk and big write-downs, he said: “Shell risks going the way of Kodak and Blockbuster. Unless the board changes course, long-term value will be eroded, and eventually destroyed.” 

 

The campaigners noted that the war in Ukraine and its impact on energy markets could further increase stranded assets risk, with the EU declaring last week that it would set out a plan to wean itself off fossil fuels. 

 

  

In May 2021, Shell became the first energy company to put its energy transition strategy to a vote of shareholders at its annual general meeting, getting 89% support. It said it will continue to give investors an annual vote on its progress in delivering the strategy.  

 

However, more than 30% also voted against Shell’s board in support of a special shareholder resolution calling for Paris-aligned emissions targets at the May meeting. Five months later, Shell responded by announcing a new target to halve scope 1 and 2 absolute emissions by 2030 compared to 2016 levels. 

 

In February this year, Shell’s board also announced an increase to the company’s dividends and plans to buy back more shares after quadrupling its profits to $19bn because of recent high energy prices.   

“The proportion of investment currently going to Shell’s transition is, relatively speaking, miniscule. There needs to be greater focus on the long term and greater investment in renewables to break free from fossil fuels and their inherent volatility,” Benson said. 

 

 

Shell’s short-term targets, which are linked to the pay of 16,500 staff, include a new set to reduce its net carbon intensity by 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050 against 2016. Its total carbon emissions are expected to have peaked in 2018 and its oil production did so in 2019.

 

The firm plans to work with the Science Based Targets Initiative and Transition Pathway Initiative among others to develop standards for the industry and align with those standards. 

 

“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,” a spokesperson said. 

  

“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,” the spokesperson added. 

 

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