Shell’s board of directors sued over climate strategy

Shell recently reported its highest annual profit of nearly $40 billion.

Paul Ellis | Afp | Getty Images

Shell’s directors are being personally sued for allegedly failing to adequately manage the risks posed by the climate emergency in a first-of-its-kind lawsuit that could have wide-ranging implications for how other companies plan to cut emissions.

Environmental law firm ClientEarth, as a shareholder, filed a lawsuit against the board of the British oil company in the Supreme Court of England and Wales on Thursday.

It alleges that 11 members of Shell’s board of directors are mismanaging climate risks by violating company law by failing to implement an energy transition strategy that is in line with the landmark 2015 Paris Agreement.

The lawsuit, backed by institutional investors holding more than 12 million shares in the company, is said to be the first case in the world to hold the board of directors accountable for failing to properly prepare for the energy transition.

“Shell may be making record profits right now due to the turmoil in the global energy market, but the long-term outlook for fossil fuels is unknown,” Paul Benson, Senior Associate at ClientEarth, said in a statement.

“The transition to a low-carbon economy is not only inevitable, it is already happening. However, the Board is pushing for a transition strategy that is fundamentally flawed, leaving the company severely exposed to the risks that climate change poses to Shell’s future success, despite the Board’s legal obligation to manage those risks,” Benson said.

We hope the entire energy industry will sit down and take note.

Mark Fawcett

Chief Investment Officer Nest

The group of investors supporting the suit includes UK pension funds Nest and London CIV, Swedish national pension fund AP3, French asset management company Sanso IS and Danske Bank Asset Management. In total, institutional investors own more than half a trillion US dollars in assets.

“We do not accept ClientEarth’s charges,” a Shell spokesman said. “Our directors fulfilled their legal obligations and acted in the best interests of the company at all times.”

“ClientEarth’s attempt, through a derivative suit, to overturn a board policy approved by our shareholders does not make sense. We will oppose their application to obtain court permission to consider this claim, ”they added.

Shell, which aims to be a zero-emissions business by 2050, said it believes its climate targets are in line with those of Paris.

ClientEarth reported that leading third-party evaluations proposed however, this is not the case as Shell’s strategy excludes short- and medium-term emission reduction targets from the products it sells, known as Scope 3 emissions, despite accounting for over 90% of the company’s total emissions.

The desired goal of the Paris Agreement is to continue efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels by reducing greenhouse gas emissions. The fight to keep global warming below 1.5 degrees Celsius is widely seen as critical because so-called tipping points become more likely beyond that level. These are the thresholds at which small changes can lead to drastic shifts in the Earth’s entire support system.

To be sure, the burning of fossil fuels such as oil and gas is the main cause of the climate emergency.

Big oil profit

The case was brought shortly after Shell reported its highest annual profit of nearly $40 billion.

The energy giant’s 2022 earnings broke its previous annual profit record of $28.4 billion in 2008 and more than doubled the firm’s full-year 2021 earnings of $19.3 billion.

Shell CEO Wael Sawan called 2022 a “huge year” for the company, saying he is honored to take on the role he started on January 1st.

“Looking ahead, I think we have a unique opportunity to succeed as winners in the energy transition. We have a portfolio that I think is unmatched,” Sawan said.

Results Shell became part of a major oil company last year, helped by high fossil fuel prices and robust demand following Russia’s full-scale invasion of Ukraine.

Greenpeace activists set up a fake gas station price sign showing Shell’s 2022 net profit during a demonstration in front of the company’s headquarters in London on February 2, 2023.

Daniel Leal | Afp | Getty Images

Nest chief investment officer Mark Fawcett said the case against Shell’s board of directors showed that investors were willing to challenge those deemed not doing enough to transition their businesses.

“We hope the entire energy industry will sit down and take note,” Fawcett said.

Separately, Head of Responsible Investments at London CIV, Jacqueline Amy Jackson, said: “In our view, the board of directors of a high emission company has a fiduciary duty to manage climate risks while also considering the impact of their decisions on the climate. change and reduce your contribution to it.

“We believe the ClientEarth requirement is in the best interests of our clients’ funds as a Shell shareholder and we support it,” Jackson added.

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