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Shell board of directors sued over corporate climate strategy
Shell’s board of directors is being taken to court by ClientEarth for failing to move away from fossil fuels fast enough.
The board of directors at Shell is being taken to court by ClientEarth, an international environmental law charity based in London, Brussels, Warsaw, Madrid, Berlin, and Beijing. This case will mark the first time a company’s board has been challenged for failing to devise a strategy that suitably prepares its company for the energy transition.
The case against Shell
The charity is bringing this case as a Shell shareholder. This legal action against the British multinational oil and gas company is based on the legal requirement for Shell’s board, under United Kingdom company law, to manage the risks that could hinder its future success and to employ reasonable care, skill, and diligence. ClientEarth argues that Shell’s board’s current plan for staying competitive in the future energy markets is unreasonable and that the oil and gas giant is breaching those legal requirements by failing to manage climate risk in its interim targets and strategy.
With this derivative action, ClientEarth is asking the court to compel Shell’s board of directors to strengthen the company’s climate plans. “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,” said Paul Benson, senior lawyer at ClientEarth, in a statement.
Support for the case
ClientEarth argues that adequate short and medium-term emissions reduction targets will ensure Shell’s long-term value. Other Shell investors have expressed support for the environmental charity’s case against Shell’s board of directors, as they believe that the oil giant board’s strategy does not decrease Shell’s emissions fast enough. Institutional investors supporting ClientEarth’s case against the board include British pension funds Nest and London CIV. Support came from outside the United Kingdom, too, with the Swedish national pension fund AP3, the Belgian independent active asset management firm DPAM, the French asset management company Sanso IS, the Danish asset manager Danske Bank Asset Management, and the pension funds AP Pension and Danica Pension also supporting the case.
“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. We hope the whole energy industry sits up and take notice. 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,” said Mark Fawcett, CIO of Nest, Shell investor, in a statement.
Shell keeps on investing in new oil and gas extraction
Shell is no stranger to legal action. In 2021, the Hague district court in the Netherlands ruled that Shell must reduce its CO2 emissions by a net 45 per cent by 2030, compared to 2019. Yet according to a briefing by Oil Change International (OCI) and Milieudefensie, Shell continues to approve new oil and gas extraction projects, ranking third amongst international oil and gas companies for new oil and gas production approved for development in 2022.
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