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Shell board of directors personally sued over ‘flawed’ climate strategy

A Shell gas station is photographed at night. close up on logo in black and white
Photo credit: Unsplash / Keming Tan

Environmental law firm, ClientEarth, is taking Shell’s Board of Directors to court because as the world desperately needs to leave fossil fuels in the past, the firm alleges that Shell is failing to move away “fast enough.”

Based in London, ClientEarth is, as the firm puts it, “the world’s most ambitious environmental organization,” comprising 250 people in 50 countries dedicated to wielding the law to protect the planet.

The organization is personally suing Shell’s 11 directors due to allegations that they are neglecting their duties by mismanaging climate risk and breaching company law by failing to implement an energy transition strategy that aligns with the landmark 2015 Paris Agreement.

The papers are served just as Shell, and other major oil companies like BP and Total Energies, are recording record profits while sinking investment in renewable energy.

In fact, BP specifically announced its record $28 billion in profits, while scaling back plans to cut oil and gas output. In 2020 the plan was to reduce output by 35-40% by 2030 and now that ambition is fractioned, with a new goal to cut output by a lesser 20-30% by 2030.

Commitments to reduce fossil fuel production by 40% by 2030 will also be decreased to 25%. Falling in line with standard greenwashing practice, the rollbacks were announced along with a goal to increase spending on renewables by $1 billion.

BP isn’t the only company back-peddling. In addition to hitting the brakes on its growing renewables unit, Shell is inflating its financial commitment to renewables, the environmental activist organization, Global Witness reports.

About 1.5% of Shell's total expenditure in 2021 was invested in wind and solar electricity projects, despite the company claiming that 12% of capital expenditure was earmarked for that very purpose. Thus, as Global Witness concludes, the actual renewable spending is a small fraction of what the oil giant claims.

ClientEarth uses this as evidence and reports that between 2010 and 2018 only 1% of Shell’s long-term investments went toward clean energy. As Shell records $40 billion worth of record annual profit, the firm believes only a sliver will be invested in the company’s clean energy transition, leaving shareholders with a skewed view.

Shell denies misleading investors on the amount they’re actually investing in renewables, but according to Global Witness senior legal advisor, Zorka Milin, “tiny investments” are being used “as a fig leaf to cover up the reality that it is continuing to profit from the energy crisis at the expense of people and the planet.”

“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, a senior lawyer at ClientEarth, said in a statement.

ClientEarth hopes that taking the case to Britain’s High Court will grant shareholders that certainty.

As ClientEarth outlines in its “Greenwashing Files” despite 2050 net-zero plans, Shell is not planning for the near future, as the company does not have any plans to reduce the overall amount of oil and gas it produces by 2030, the date by which IPCC scenarios say emissions from oil, gas, and coal have to be substantially reduced.

In fact over the coming years, Shell plans to expand its fossil fuel developments by at least 20%. ClientEarth argues that expanding these developments and refusing to meaningfully scale back production this decade puts the company’s financial viability at risk because these projects and investments “are likely to become unprofitable as the world cleans up its energy systems.”

“Shell may be making record profits now due to the turmoil of the global energy market, but the writing is on the wall for fossil fuels long term,” Benson said in a statement.

He adds, “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet 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.”

ClientEarth argues that the impact of these decisions will reverberate throughout the global market. Aside from threatening efforts to protect the planet, these plans could cost thousands of jobs and put shareholders and investors at risk.

The lawsuit is the first of its kind — according to ClientEarth, never before has a company’s board been challenged on its failure to properly prepare for the energy transition.

So far, the case has received support from a slew of institutional investors who together hold over 12 million shares in the company and more than half a trillion U.S. dollars in total assets under management. They include U.K. pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, and Danske Bank Asset Management, among others.

Each of these investors agrees that Shell is not reducing emissions fast enough, which a spokesperson for Shell denies.

“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,” they added. ClientEarth confirms the Board plans to defend their plans “robustly.”

As The Guardian reports, ClientEarth is asking the High Court to order Shell’s board to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch court’s order for big cuts in emissions. It is up to the High Court whether or not the firm’s claims will proceed.

The Guardian’s Damian Carrington goes further in-depth on Shell’s recent legal history, but the sum of it is that in the past few years alone, Shell has been sued for negligence to cut emissions and excessive pollution in Nigeria, as well as endured legal action for inflating renewable spending and oil and gas expansion.

In spite of Shell’s plans to oppose, ClientEarth’s case could set a precedent, as it may have widespread implications for how other companies plan to cut emissions.

As Chief Information Officer of Shell investor Nest, Mark Fawcett put it, “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 take 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.”


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