Action against Shell’s board ‘is a wake-up call for all directors’

An activist shareholder group claims Shell’s board of directors bears personal responsibility for not preparing to cut emissions fast enough. This is the first significant attempt to hold the board members of an organisation legally accountable for climate change-related failures.

The activist shareholder group, ClientEarth, notified Shell that it would file legal proceedings against the company’s 13 executive and non-executive directors over the board’s failure to adopt a strategy that complies with the 2015 Paris climate agreement.

“This is a real wake up call for boards and directors,” says David Duffy, CEO of the Corporate Governance Institute. “ClientEarth argues that Shell’s efforts to reduce emissions do not meet the Paris Agreement’s aim. They say Shell’s directors are in breach of their obligations under the UK Companies Act to act in a way that ‘promotes the company’s success’. It’s an interesting case and one all directors should pay attention to.”

Shell says its plan to become a ‘zero-emission’ business by 2050 is in line with the Paris Agreement.

“The energy supply challenges we are seeing underscore the need for effective, government-led policies to address critical needs such as energy security while decarbonising our energy system,” said Shell. “These challenges cannot be solved by litigation.”

ClientEarth is asking institutional investors to join its claim ahead of Shell’s May annual meeting.

“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,” said ClientEarth’s lawyer Paul Benson.