In a world-first lawsuit, ClientEarth is suing the Board of Directors of Shell for failing to manage the risks posed to the company by climate change. The legal action, which was filed in the High Court of England and Wales, alleges that the 11 directors of Shell have breached their legal obligations under the Companies Act by not adopting an energy transition strategy that aligns with the Paris Agreement. The claim has received the unprecedented support of a group of institutional investors, who collectively hold over 12 million shares in the company and manage over half a trillion US dollars in assets.
ClientEarth’s Senior Lawyer, Paul Benson, stated that the shift to a low-carbon economy is already underway and that the Board’s failure to adopt a credible energy transition strategy is leaving the company exposed to serious risks posed by climate change. The Board’s current strategy, which involves overinvesting in fossil fuel projects, fails to manage these risks, says Benson, and is a breach of their legal duties under English law. The Board’s strategy is also not in line with the goals of the Paris Agreement, as it does not include short to medium-term targets for reducing emissions from the products it sells, which account for over 90% of the company’s total emissions.
Investors are supportive of ClientEarth’s legal action, as they want to see action being taken to address the risks posed by climate change and are looking to challenge those who are not doing enough to transition their business. Shell announced last week that it had delivered a record-breaking profit of $40 billion, which was driven by higher oil and gas prices. However, the investors argue that robust short to medium-term strategies are needed to meet the goals of the Paris Agreement, and that Shell’s continued investment in new fossil fuel projects poses risks to investors in terms of carbon lock-in and stranded assets.
ClientEarth’s lawsuit is aimed at holding the Board of Directors of Shell accountable for their failure to properly prepare for the energy transition and manage the risks posed by climate change. The legal action, which has the support of significant institutional investors, is a reminder that companies must take their obligations to the environment seriously and prepare for a carbon-constrained world if they want to remain viable in the future.