Shell Board Sued Over Improper Preparation For Energy Transition
Environmental law charity organization ClientEarth has decided to take legal action – a first of its kind – against the board of directors of Shell for not preparing properly for the energy transition.
ClientEarth is arguing that the Board’s failure to properly manage climate risk to Shell means that it is breaching its legal duties. The Board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement goal to keep the global temperature rising to below 1.5 degrees Celsius by 2050.
“We believe the Board is breaching its duties under the UK Companies Act, which legally requires it to act in a way that promotes the company’s success, exercising reasonable care, skill, and diligence,” the organization said.
The oil major is now sued under UK law as it moved its headquarters from the Netherlands to the UK, simplified its share structure, and renamed itself from Royal Dutch Shell to simply Shell.
“Shell is seriously exposed to the risks of climate change while its climate plan is fundamentally flawed. In failing to properly prepare the company for the net-zero transition, Shell’s Board is increasing the company’s vulnerability to climate risk, putting the long-term value of the company in jeopardy,” Paul Benson, Lawyer, Climate Accountability, stated.
It is worth noting that this will be the first time that a company’s board has been challenged on its failure to properly prepare for the net-zero transition.
ClientEarth is pursuing shareholder litigation to compel Shell’s Board to act in the best long-term interests of the company by strengthening Shell’s climate plans.
“Its current strategy and insufficient targets put the enduring commercial success of the company and employees' jobs at risk and is no good for people or the planet. We want to make sure the Board’s ‘wait and see’ approach to the energy transition does not come at the expense of long-term viability for the company’s stakeholders, including shareholders and employees,” the charity explained.
The organization further stated that putting in place sufficient targets to reduce its emissions over the next 3, 5, and 10 years to meet net-zero would secure the company’s long-term value while protecting investors’ capital and the climate.
To put things more into context, ClientEarth is taking derivative action against Shell in the UK. A derivative action is a claim brought by a shareholder of the company, ultimately on behalf of the company, in this case, to argue alleged breaches of duty by the Board. That means the shareholder bringing the claim is effectively seeking to step into the company’s shoes, to pursue the Board for wrongs allegedly committed against the company.
Shell’s Board failing its duties
The world’s biggest investors are calling on all companies to align their business plans with the goals of the Paris Agreement.
In 2021, Shell was ordered by a Dutch Court to reduce its overall emissions – including those from the fossil fuel products it sells – by a net 45 percent by the end of 2030. However, its Board has since rebuffed parts of the verdict, indicating that it is unreasonable and essentially incompatible with its business. The company has also appealed the Court’s decision.
Scientists say that to avoid the worst impacts of climate change, we need to halve the world’s greenhouse gas emissions by 2030. Currently, more than 70 percent of the world’s emissions come from fossil fuels, and fossil fuel producers must focus on cutting their production every year if we are to avoid the worst climate impacts.
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