Dive Brief:
- Shell’s board of directors is being sued by one of its investors “for failing to manage the material and foreseeable risks posed to the company by climate change,” according to a Thursday announcement.
- The lawsuit, filed by environmental law nonprofit ClientEarth, alleges Shell’s directors failed to create and implement an energy transition strategy that aligns with the Paris Agreement — the international treaty that aims to limit global warming.
- Shell denies ClientEarth’s allegations. A spokesperson noted in an email that the company’s directors have “at all times, acted in the best interests of the company.”
Dive Insight:
ClientEarth first notified Shell of its lawsuit in a pre-action letter sent in March 2022. The letter stated that Shell’s board was “fundamentally mismanaging climate risk,” and that ClientEarth sought out an order for Shell to adopt a strategy that included greenhouse gas reduction goals in line with the Paris Agreement.
ClientEarth’s lawsuit has received the support of a group of investors collectively holding more than 12 million shares in Shell and more than $500 billion in total assets under management, according to the announcement. ClientEarth is requesting an order that requires Shell to adopt a strategy to manage climate risk in compliance with both the U.K. Companies Act and the Dutch Court judgment.
“ClientEarth’s attempt, by means of a derivative claim, to overturn the board’s policy as approved by our shareholders has no merit,” Shell’s spokesperson said. “We will oppose their application to obtain the court’s permission to pursue this claim.”
The news comes about a week after London-based Shell posted 2022 adjusted earnings of nearly $40 billion — its highest annual profit ever. Shell’s spokesperson said that 80% of its shareholders voted in favor of its current climate strategy at its last annual meeting.
Paul Benson, senior lawyer for ClientEarth, said Shell’s current transition strategy is “leaving the company seriously exposed to the risks that climate change poses” to its success.
“Long term, it is in the best interests of the company, its employees and its shareholders — as well as the planet — for Shell to reduce its emissions harder and faster than the Board is currently planning,” Benson said in the announcement.
Shell has made a series of climate-focused moves over the past few months. In November, the company agreed to acquire the largest renewable natural gas producer in Europe, receiving the company’s operating plants, feedstock supply and infrastructure, new project pipeline and RNG expertise along the way. In January, Shell’s USA division acquired electric vehicle charging company Volta for $169 million, an initiative that further builds out Shell’s Recharge Solutions network that began in 2019.
However, ClientEarth believes Shell’s recent activity in renewable energy isn’t as notable as it seems.
“If you scratch beneath the surface, the proportion of investment currently going to renewable energy is, relatively speaking, miniscule,” Benson said in the announcement.
Shell has openly stated its goal of reducing the carbon intensity of its energy products by 100% by 2050. If it wants to reach that goal, it should take advantage of this opportunity, the group said.
“2023 is a crucial year if we are to keep net zero by 2050 on track and this case can be a springboard for Shell introducing key changes,” Mark Fawcett, chief investment officer for pension funds group Nest — one of the investors in agreement with the case — said in the announcement.
