A climate-focused legal action against the board of directors of energy giant Shell in the UK will not be permitted to proceed, the High Court ruled Friday.
The lawsuit, launched in February by environmental law organization ClientEarth argued that Shell’s energy transition strategy was flawed, putting shareholder value at risk, and asked the court to order the board to strengthen the company’s climate plans. The suit was the first of its kind seeking to hold corporate directors personally accountable to prepare for the energy transition.
In a statement released following the ruling, a Shell spokesperson said:
“This is the right outcome. The court has clearly found that ClientEarth’s claim is fundamentally flawed and has dismissed it. The claim is utterly misconceived and a clear misuse of the English courts. Our Directors have always complied with their duties and acted in the company’s best interests.”
The legal action claimed that the Directors’ duties to promote the success of the company and to exercise reasonable care, skill and diligence included several climate-related duties, including adopting strategies likely to meet the company’s targets to mitigate climate risk.
In the ruling by Mr Justice Trower, however, the judge agreed with Shell’s argument that the apparent incidental duties were vague, and against principles that require directors to determine the weight to attach to the factors they consider, “and amount to an unnecessary and inappropriate elaboration of the statutory duty of care.” The judge added:
“The formulation of these incidental duties makes plain that they seek to impose specific obligations on the Directors as to how the management of Shell’s business and affairs should be conducted, notwithstanding the well-established principle that it is for directors themselves to determine (acting in good faith) how best to promote the success of a company for the benefit of its members as a whole.”
The judge also pointed out in the ruling that ClientEarth’s very small stake in Shell, holding only 27 shares, “gives rise to a very clear inference that its real interest is not in how best to promote the success of Shell for the benefit of its members as a whole.”
The Shell spokesperson added:
“The judge found that ClientEarth’s claim entirely ignores how Directors of a business as large and complex as Shell must balance a range of competing considerations, which the court is not equipped to do. The judgment also inferred that ClientEarth had an ‘ulterior’ motive in bringing the proceedings, given the de minimis extent of its shareholder interest in Shell; that ClientEarth’s primary purpose in bringing the claim was to advance its ‘own policy agenda’.”
In a statement provided to ESG Today, ClientEarth Senior Lawyer Paul Benson that the organization was “surprised and disappointed by the Court’s decision.”
“We are currently reviewing the terms of the Court’s judgment in full, and considering our next steps in the proceedings accordingly.”