Shell's directors face legal action from climate group shareholder

London Environmental lawyers ClientEarth said on Tuesday they were preparing legal action against the directors of Shell over the company's climate transition plan, in what they said would be the first such case of its kind.

The lawyers from ClientEarth — which is a Shell shareholder — said they are seeking to hold the oil and gas company's 13 directors personally liable for what they consider to be a failure to adequately prepare for the global shift to a low-carbon economy. They say that the board has failed to adopt and implement a climate strategy that aligns with the 2015 Paris Agreement, claiming that amounts to an alleged breach of the directors' duties under the UK Companies Act.

ClientEarth said it had written to Shell notifying it of its claim and was waiting for it to respond before filing papers at the High Court of England and Wales. For the case to proceed, ClientEarth would then need permission from the court to do so.

"We believe that there are sufficient grounds to assert that Shell's board is mismanaging the material and foreseeable climate risk facing the company," said ClientEarth lawyer Paul Benson in a statement. "Unless the board changes course, long-term value will be eroded, and eventually destroyed," he added.

In a written response to Reuters, Shell said it was delivering on its global strategy that supported the Paris Agreement on climate, including by "transforming our business to provide more low-carbon energy for customers."

"Addressing a challenge as big as climate change requires action from all quarters. The energy supply challenges we are seeing underscore the need for effective, government-led policies to address critical needs such as energy security while decarbonizing our energy system. These challenges cannot be solved by litigation," Shell said.

The legal action comes less than a year after a Dutch court made a landmark ruling that Shell must dramatically reduce its carbon emissions. Shell is appealing that ruling.

ClientEarth, a not-for-profit, has a track record of winning climate litigation cases. Last year it won a case against the European Investment Bank, in which the Court of Justice of the European Union ruled it had illegally avoided environmental scrutiny of its financing decisions. In 2020, the company Enea suspended construction of a coal plant in Poland after the group took it to court. The court ruled that authorizing the project was legally invalid.

Energy companies are facing a challenge to their business model as countries look to cut use of fossil fuels, a major cause of human-made global warming, and reach net-zero greenhouse gas emissions by mid-century.

Shell has pledged to halve the greenhouse gas emissions from its operations by 2030, but its plans to reduce emissions from the actual use of its products was not far-reaching enough, ClientEarth said.

Shell's net-zero target was also not reflected in the company's operating plans or budgets, ClientEarth added.

UN climate scientists have reiterated the need for faster global action and said failure to hit the Paris Agreement goal of limiting warming to well below 2 degrees Celsius above pre-industrial norms would cause irreparable damage.

The UK Companies Act would require Shell to act in a way that promotes the company's success, and to do so whilst exercising reasonable care, skill and diligence.

ClientEarth said it was bringing the action as a shareholder in Shell on behalf of all stakeholders to help protect the long-term viability of the company.