Investors Sue Shell Directors Over Climate Strategy Mismanagement

A group of shareholders has filed a suit against the board of directors of oil giant Shell (LON: SHEL) over allegedly failing to manage the company’s climate risks. The lawsuit, which was brought against the directors personally and not the company, is the first of its kind and may set a precedent for how companies manage their plans to cut emissions.

Environmental law firm and Shell shareholder ClientEarth filed the suit under the UK’s Company Act at London’s High Court on Thursday. They allege that the 11 members of the board had failed to implement an energy transition strategy that aligns with the 2015 Paris Agreement, thereby breaching their legal duties.

“The board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success — despite the board’s legal duty to manage those risks,” Paul Benson, a senior lawyer at ClientEarth, said in a statement.

The suit is backed by a host of European institutional investors including British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Belgium’s Degroof Petercam Asset Management, and Denmark’s Danske Bank Asset Management, Danica Pension, and AP Pension. Together, these investors hold about $543 billion in assets including 12 million of the oil giant’s 7 billion shares.

Shell has denied the allegations, saying it has no merit.

“We do not accept ClientEarth’s allegations,” a Shell spokesperson said. “Our directors have complied with their legal duties and have, at all times, acted in the best interests of the company.”

“ClientEarth’s attempt, by means of a derivative claim, to overturn the board’s policy as approved by our shareholders has no merit. We will oppose their application to obtain the court’s permission to pursue this claim.”

The suit follows after Shell reported record-breaking profits of close to $40 billion in 2022, more than twice its 2021 profits of $19.3 billion and well above its 2008 record of $28.4 billion. 

Its success in 2022 was largely driven by its oil and gas business amid the supply crunch caused by Russia’s war in Ukraine. The company’s investments in renewables were also at a record high in 2022, but they spent twice that amount on exploration and fossil fuel extraction.

The lawsuit, which holds the oil company’s leaders legally accountable for making sure that the company does its part in tackling climate change, carves a new path for climate activists and campaigners to make oil companies liable for their contributions to the climate crisis. 

“We hope the whole energy industry sits up and take notice,” said Nest chief investment officer Mark Fawcett.

Information for this story was found via CNBC, Reuters, Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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