A legal claim has been filed in the UK against Shell directors individually by an environmental group with backing from institutional investors, alleging board members had failed to prepare the oil and gas company adequately in response to the risks of climate change and were legally accountable.
ClientEarth, a non-profit organisation in environmental law and a Shell shareholder, is supported by a small band of pension fund and asset managers, including London CIV, Swedish national pension fund AP3 and Danske Bank Asset Management, though they are not joined in the action.
The claim brought to the High Court involves the allegation that 11 current directors of Shell, led by chair Andrew Mackenzie, had breached their duties under UK law to properly manage the “material and foreseeable” risks from climate change.
The case comes after the world’s oil majors, including the UK-headquartered Shell and BP, have in recent weeks reported record 2022 profits thanks to soaring energy prices driven by Russia’s war on Ukraine.
BP also drew the ire of climate change experts this week for scaling back its commitment to cut oil and gas production. The plan launched three years ago by chief executive Bernard Looney for a 40 per cent cut in output by 2030 was revised to a drop of 25 per cent, meaning its emissions will also decline more slowly. Looney cited pressure from governments for greater energy investment.
Shell is committed to reducing the carbon intensity of the energy products it sells by 20 per cent by 2030, and by 45 per cent by 2035, but not to a reduction in absolute emissions, which would require bigger cuts to the amount of oil and gas it produces.
New chief executive Wael Sawan defended the record profits from high energy prices last week, describing them as a consequence of “underinvesting” in fuels such as gas.
Litigation has come to be seen as a means to force fossil fuel producers to change their climate-related policies.
Shell lost a high-profile climate case in the Netherlands that was led by Milieudefensie, the Dutch wing of Friends of the Earth, in 2021, when it was ordered by a court to reduce its emissions by 45 per cent by 2030 compared with 2019 levels.
Shell has appealed against the decision. The group argues it cannot be held responsible for the carbon emitted by the products it sells, particularly while governments are doing little to regulate consumer demand.
Jacqueline Amy Jackson, head of responsible investment at London CIV, which manages £48.9bn in pension savings for local authority workers in England’s capital, said she had written to Shell to express concerns over its climate strategy but had received no response.
London CIV, which holds about £11mn worth of Shell shares, was concerned that directors “weren’t prepared to take on board what happened with the previous court case or even set a meaningful target”, she added.
“One of our primary drivers is around financial risk and ignoring this kind of risk poses a very big concern from a legal standpoint alone,” Jackson said. “We are faced with short-term financial risk from a legal standpoint and long-term financial risk — because we know not investing in renewables now will have bigger consequences.”
ClientEarth put the Shell board on notice nearly a year ago of its intention to petition the High Court, where a judge must now decide whether to accept the case.
The Shell response to the concerns raised by ClientEarth “did not fully engage with the flaws in its energy transition strategy that we identified”, said the legal charity’s lawyer Paul Benson.
“We do not have confidence that the board is properly preparing the company for the energy transition,” Benson said. “It’s telling that the amount of money going into renewables is considerably less than the amount going to shareholders.”
But Shell said it did “not accept” the allegations, and that directors had acted in the best interests of the company in line with their legal duties. The company’s climate targets were “aligned” with the Paris Agreement goals, it added, contradicting the claim from ClientEarth.
Shareholders traditionally have been reluctant to target individual directors, saying it could leave potential board recruits reluctant to take up positions.
In recent years, however, BlackRock, the world’s largest asset manager, Fidelity International and other big investors have begun voting against the re-election of directors over a lack of progress over climate change.
