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Shell's directors are getting sued for failing to shift the oil giant to renewables fast enough

Environmental advocacy organization ClientEarth is suing the board of directors of the multinational oil and gas company, Shell, for not preparing the company for the transition away from fossil fuels quickly enough.

The group of activist lawyers, which is a shareholder in the energy company, is trying to hold the company's executives and board members personally liable for failing to prepare the company for the renewable energy transition, according to a statement released earlier this week.

In a clever bit of legal wrangling, the organization is claiming that the board's failure to adopt and implement a climate strategy that aligns with the Paris Agreement is a breach of their duties under the UK Companies Act.

“We believe that there are sufficient grounds to assert that Shell’s Board is mismanaging the material and foreseeable climate risk facing the company," Paul Benson, ClientEarth lawyer, said in a statement. “Shell is seriously exposed to the physical and transitional risks of climate change, yet its climate plan is fundamentally flawed. If, as we claim, the company’s plan is being held up to be Paris-aligned when it is not, then there is a risk of misleading investors and the market at large."

The organization's claims hinge on what's called "stranded asset risk", which is the theory that as the world increasingly turns to renewable power, the investments that Shell makes in new oil and gas wells is at risk of being completely lost when there's no more demand for the gas.

“Despite Shell’s current profits, failing to properly prepare the company for the inevitable net zero transition only increases the company’s vulnerability to stranded asset risk, and to massive write-downs of its fossil fuel assets,” Benson said.

The environmental advocate drew parallels between Shell's current business and that of Kodak and Blockbuster, two companies that were once giants in their respective industries, but have now become punchlines for jokes about failing to adapt to new technological and social realities.

If history is any judge, Shell may not have the courts on its side in this lawsuit. Last year, a Dutch court ordered Shell to reduce its emissions -- including those from the fossil fuel products the company sells -- by 45% at the end of 2030.

And Shell may fall short of that court mandated target. Research from the Australasian Center for Corporate Responsibility revealed that Shell's current strategy may result in emissions from the company rising 4% by 2030.

Instead of investing the bulk of its $19 billion in profits into renewable energy, the board of directors at Shell increased its dividend and share buyback plans, the advocate group noted in a statement.

Benson added: “The longer the Board delays, the more likely it is that the company will have to execute an abrupt ‘handbrake turn’ to retain commercial competitiveness and meet the challenges of inevitable regulatory developments.

“Boosting dividends and buybacks might placate investors temporarily, but that approach is short-sighted, if – as the Board maintains – the money is critically needed to prepare the company for a net zero landscape," Benson said. “The proportion of investment currently going to Shell’s transition is, relatively speaking, miniscule. There needs to be greater focus on the long term and greater investment in renewables to break free from fossil fuels and their inherent volatility.”

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