Shell lawsuit: Institutional investors back legal challenge over climate risk

BY:CITY AM REPORTER


A group of European institutional investors is backing a novel London lawsuit against energy giant Shell’s board over alleged climate mismanagement in a case that could have far-reaching implications for how companies tackle emissions.

Client Earth, an environmental law charity turned activist Shell investor, said it had filed a High Court claim on Wednesday, alleging Shell’s 11 directors have failed to manage the “material and foreseeable” risks posed to the company by climate change – and that they are breaking company law.

It is the first, notable lawsuit by a shareholder against a board over the alleged failure to properly prepare for a shift away from fossil fuels – and comes one week after Shell posted a record $40 billion profit for 2022, partly fuelled by the energy crunch after Russia’s invasion of Ukraine.

Shell rejected the allegations, saying its climate targets were ambitious and on track and that its directors complied with their legal duties and acted in the company’s best interests.

READ MORE
Equinor joins rivals Shell and BP with record £23.8bn profits as Norwegian energy giant props up Europe’s gas supplies

Carbon conflict: Shell struggles with green agenda

Shell has ramped up spending on renewable energy and low-carbon technologies.

But British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium and Denmark’s Danske Bank Asset Management and Danica Pension and AP Pension are among those to have written letters supporting the claim.

The investor group has around £450bn ($543bn) in assets under management collectively, and owns about 12m of Shell’s seven billion shares.

London CIV said its Shell stake was a “primary hotspot of risk and exposure within our portfolio”.

“We hope the whole energy industry sits up and takes notice,” added Mark Fawcett, Nest’s chief investment officer.

If judges allow the so-called derivative action to proceed, it could encourage investors in other companies, including in those funding carbon emitters, to litigate against boards that fail to adequately manage climate-related risks, experts say.

Some banks are reducing their funding of fossil fuel companies.

The case comes two years after Shell was ordered to slash carbon emissions in a landmark Dutch climate case.

Shell, which is appealing, plans to reduce the carbon intensity of its products – which measures greenhouse gas emissions per unit of energy produced – by 20 per cent by 2030, 45 per cent by 2035 and by 100 per cent by 2050 from 2016 levels.

According to third-party assessments, the strategy excludes short to medium-term targets to cut the absolute emissions from products Shell sells, known as Scope 3 emissions, although they account for more than 90 per cent of overall emissions, Client Earth said.

“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,” said Client Earth’s senior lawyer Paul Benson.

The UK Companies Act imposes a legal duty on directors to promote the success of businesses.

Client Earth declined to divulge which other companies it has invested in.

Reuters – Kirstin Ridley, additional reporting by Simon Jessop and Shadia Nasralla