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ClientEarth Communications

24th January 2024

Fossil fuels
Climate finance

Our groundbreaking case against Shell’s Board of Directors comes to an end

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, and now, our application to appeal the decision has been rejected. 

We are deeply disappointed by the Court of Appeal’s refusal to hear our lawsuit against Shell’s Board of Directors, which we think is wrong. This case was a world-first, seeking to hold corporate directors personally liable, and a groundbreaking attempt to secure much-needed clarification on the legal obligations of directors in a time of environmental crisis.

What happened?

We brought this case as a ‘derivative action’ against Shell in the UK, arguing that the company needs to move away from fossil fuels, as continuing to invest in them presents significant financial risk to its investors.

We filed the case in February 2023, and in May the UK High Court dismissed it. We applied for this decision to be appealed, but that application was rejected, meaning the decision to dismiss the case is final.

What were we trying to do with this case?

Shell’s Board is legally required to manage risks to the company that could harm its future success, and we believe 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.   

We were arguing that the plan Shell’s Board currently has for making that shift is simply insufficient. 

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 would 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, still further increasing the risk to the company and the global economy.

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 decided to go 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 in jeopardy.

Paul Benson

Senior lawyer, ClientEarth

How did we bring a case against Shell’s Board?

We brought this case as a shareholder in the company and are asking the court to order the Board to strengthen Shell’s climate plans.

It was 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 received unprecedented 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, and therefore does not manage climate risk.

We argued that putting sufficient emissions reduction targets in place in the short and medium term would 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.

Mark Fawcett

CIO of Nest (largest workplace pensions scheme in the UK and Shell investor)

How does shareholder litigation work?

We brought 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.

How is Shell’s Board failing its duties?

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 far 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.

Paul Benson

Senior lawyer, ClientEarth

Lead lawyer Paul Benson answers the difficult questions on the case outcome

What happens next?

Let us be clear: this is not a vindication of Shell’s climate strategy, and corporate directors should not be breathing a sigh of relief.  

The Court dismissed this claim without considering its merits, although acknowledged that climate change presents material and foreseeable risks to companies like Shell. While this claim did not pass procedural hurdles, the legal risk facing corporate boards is still very real. So too is the rapidly escalating threat that climate change and the energy transition presents to all fossil fuel majors.

We will keep fighting to hold companies that are steering us further into climate catastrophe accountable for their actions. It is companies like Shell that are most exposed to climate risk, and which have the most to lose from their directors chasing short-term wins over long-term prosperity.

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