19th May 2023
In February 2023, we filed a case against Shell’s Board of Directors for failing to move away from fossil fuels fast enough. This is the first ever case of its kind seeking to hold corporate directors personally liable.
In May 2023, the UK High Court dismissed the case, but has since granted us an oral hearing at which we will ask the Judge to reconsider.
Shell’s Board is legally required to manage risks to the company that could harm its future success, and the climate crisis presents the biggest risk of them all.
Ensuring the company stays competitive in the energy markets of the future, as countries and customers worldwide choose cheaper, cleaner energy, means Shell needs to move away from fossil fuels towards an alternative business model.
But we’re arguing that the plan Shell’s Board currently has for making that shift is simply unreasonable.
Why? It fails to deliver the reduction in emissions that is needed to keep global climate goals within reach and continues with fossil fuel production for decades to come. This will tie the company to projects and investments that are likely to become unprofitable as the world cleans up its energy systems.
That puts the company’s long-term commercial viability at risk, and also threatens efforts to protect the planet, further increasing the risk to the company.
The future consequences of Shell’s flawed climate plans could cause the company’s value to plummet, costing jobs and running the risk of shareholders and investors losing significant amounts of money, including people’s pension funds.
We believe this puts Shell’s Board in breach of its legal duties under the UK Companies Act to manage the climate risk facing the company.
So we’ve gone to court.
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.
We’re bringing this case as a shareholder in the company and are asking the court to order the Board to strengthen Shell’s climate plans.
This will be the first time ever that a company’s board has been challenged in court on its failure to properly prepare for the energy transition.
The case has already received support from institutional investors who together hold over 12 million shares in the company, including, among others, UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management (DPAM) in Belgium, as well as Danske Bank Asset Management and pension funds Danica Pension and AP Pension in Denmark. The investors are concerned that the Board’s strategy does not reduce the company’s emissions fast enough.
We argue that putting sufficient emissions reduction targets in place in the short and medium term will secure the company’s long-term value, as well as protecting investors’ capital.
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 takes 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.
We are bringing a ‘derivative action’ against Shell in the UK.
A derivative action is a claim brought by a shareholder of a company – ultimately on behalf of the company – in this case to argue alleged breaches of duty by the Board. That means the shareholder bringing the claim is effectively seeking to step into the company’s shoes, to pursue the Board for wrongs allegedly committed against the company.
Under UK company law, Shell’s Board has a legal duty to promote the success of the company and to act with reasonable care, skill and diligence.
But we argue the Board is breaching those requirements if it is not properly managing climate risk.
Shell publicly maintains that its strategy is consistent with the goals of the Paris Agreement (to keep global temperature rise to 1.5C), and has set a target to become a net zero emission energy business by 2050.
The problem is that its interim targets and strategy to get there simply don’t add up.
Analyst research suggests that Shell’s strategy would in fact result in a reduction of just 5% in net emissions by the end of the decade.
The Board’s plans also fall short of the Dutch court judgment handed to Shell in 2021, which ordered the company to cut its overall emissions by 45% by 2030 after it lost a lawsuit challenging its climate inaction.
Shell has appealed the court’s decision and the Board has since rebuffed parts of the verdict, indicating that it is unreasonable and essentially incompatible with Shell’s business.
But delay will only increase the risks the company faces, kicking its inevitable transition down the road. 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 it is currently planning.
Shell’s shareholders need certainty that the company is using their capital effectively in its navigation of the global energy transition and is genuinely pursuing the climate goals that it says it is.
We filed our claim against Shell’s Board in February 2023. In May, the High Court dismissed it on the papers.
We’ve now been granted a hearing, at which we’ll ask the Court to reconsider the decision to dismiss our claim. If the decision is overturned, we will go ahead with the lawsuit.