Shell Board of Directors Sued over “Flawed” Climate Strategy
Environmental law organization ClientEarth announced today that it has launched legal action against the board of directors of energy giant Shell in the UK, arguing that the company’s “flawed” energy transition strategy puts shareholder value at risk, and asking the court to order the board to strengthen the company’s climate plans.
According to ClientEarth, the suit is the first of its kind to seek to hold corporate directors personally accountable to prepare for the energy transition.
In a statement provided to ESG Today, a Shell spokesperson said:
“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.”
In 2020, Shell announced a commitment to achieve net zero in its operations by 2050, and in 2021, the company launched its “Powering Progress” strategy, detailing how it will achieve its target to be a net-zero energy business by 2050 across Scope 1, 2 and 3 emissions, with initiatives including investing in renewable and clean energy solutions. The energy transition strategy was approved by shareholders in an advisory vote in 2021.
In a statement announcing the legal action, however, ClientEarth described the plan as “simply unreasonable,” arguing that the strategy fails to deliver sufficient emissions reductions to align with global climate goals, and continuing with fossil fuel production for decades, tying the company to investments that may become unprofitable amidst the global transition to cleaner energy sources. ClientEarth said that it is bringing the case as a shareholder in the company.
“The future consequences of Shell’s flawed climate plans could cause the company’s value to plummet, costing jobs and running the risk of shareholders and investors losing significant amounts of money, including people’s pension funds.”
The suit marks the latest in a series of shareholder and legal challenges to face Shell over its energy transition strategy, including a complaint filed earlier this month to the SEC by advocacy group Global Witness accusing the company of greenwashing by misleading investors about the amount of investment it is directing towards renewable energy. In 2021, a case filed in a Dutch court resulted in an order for the company to slash emissions by 45% by 2030. In the ruling, the Dutch court judge said that Shell’s energy transition plan was “not concrete and is full of conditions.”
In its statement, ClientEarth said that Shell’s interim targets and strategy to become a net zero emission energy business by 2050 “simply don’t add up,” citing analyst research suggesting that the plans would only achieve a 5% net emissions reduction by 2030.
ClientEarth Senior Lawyer Paul Benson said:
“Shell is seriously exposed to the risks of climate change, yet its climate plan is fundamentally flawed. In failing to properly prepare the company for the net-zero transition, Shell’s Board is increasing the company’s vulnerability to climate risk, putting its long-term value of in jeopardy.”
Several institutional investors have announced support for the action by ClientEarth, including UK Government-backed pension scheme Nest, UK local government pension scheme London CIV, the Swedish Government pension fund AP3, Danske Bank Asset Management & Danica Pension in Denmark, and AP Pension in Sweden.
In a social media statement following the announcement, Mark Fawcett, Chief Investment Officer of Nest said, “we hope the whole energy industry sits up and takes notice.”
“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.”
In the company’s statement, the Shell spokesperson said that the company will oppose ClientEarth’s application in the court to pursue the claim. The spokesperson added:
“We believe our climate targets are aligned with the more ambitious goal of the Paris Agreement: to limit the increase in the global average temperature to 1.5°C above pre-industrial levels. 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.
“ClientEarth’s attempt, by means of a derivative claim, to overturn the board’s policy as approved by our shareholders has no merit.”