Shell recently reported its highest-ever 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 related to the climate emergency in a first-of-its-kind lawsuit that would have widespread implications for a way other corporations plan to chop emissions.
Environmental law firm ClientEarth, in its capability as a shareholder, filed the lawsuit against the British oil major’s board on the high court of England and Wales on Thursday.
It alleges 11 members of Shell’s board are mismanaging climate risk, breaching company law by failing to implement an energy transition strategy that aligns with the landmark 2015 Paris Agreement.
The claim, which has the backing of institutional investors with over 12 million shares in the corporate, is claimed to be the primary case on this planet in search of to carry a board of directors responsible for failure to properly prepare for the energy transition.
“Shell could also be making record profits now as a result of the turmoil of the worldwide energy market, however the writing is on the wall for fossil fuels long run,” Paul Benson, senior lawyer at ClientEarth, said in an announcement.
“The shift to a low-carbon economy will not be just inevitable, it’s already happening. Yet the Board is persisting with a transition strategy that’s fundamentally flawed, leaving the corporate seriously exposed to the risks that climate change poses to Shell’s future success — despite the Board’s legal duty to administer those risks,” Benson said.
We hope the entire energy industry sits up and take notice.
Mark Fawcett
Chief Investment Officer at Nest
The group of investors supporting the claim include U.K. pension funds Nest and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS and Danske Bank Asset Management, amongst others. Altogether, the institutional investors hold greater than half a trillion U.S. dollars in total assets under management.
“We don’t accept ClientEarth’s allegations,” a Shell spokesperson said. “Our directors have complied with their legal duties and have, in any respect times, acted in the very best interests of the corporate.”
“ClientEarth’s attempt, by way of a derivative claim, to overturn the board’s policy as approved by our shareholders has no merit. We’ll oppose their application to acquire the court’s permission to pursue this claim,” they added.
Shell, which is aiming to develop into a net-zero emissions business by 2050, said it believes its climate targets are Paris-aligned.
ClientEarth said leading third-party assessments have suggested this will not be the case, nonetheless, noting Shell’s strategy excludes short to medium-term targets to chop the emissions from the products it sells, often known as Scope 3 emissions, despite this accounting for over 90% of the firm’s overall emissions.
The aspirational goal of the Paris Agreement is to pursue efforts to limit global heating to 1.5 degrees Celsius above pre-industrial levels by slashing greenhouse gas emissions. The fight to maintain global heating under 1.5 degrees Celsius is widely considered critically essential because so-called tipping points develop into more likely beyond this level. These are thresholds at which small changes can result in dramatic shifts within the Earth’s entire support system.
To ensure, the burning of fossil fuels, akin to oil and gas, is the chief driver of the climate emergency.
Big Oil profit bonanza
The case comes shortly after Shell reported its highest-ever annual profit of nearly $40 billion.
The energy giant’s 2022 earnings smashed its previous annual profit record of $28.4 billion in 2008 and were greater than double the firm’s full-year 2021 profit of $19.3 billion.
Shell CEO Wael Sawan described 2022 as a “huge 12 months” for the corporate, saying he felt privileged to be moving into the role he began on Jan. 1.
“As we glance ahead, I believe we now have a novel opportunity to find a way to succeed because the winner within the energy transition. We have now a portfolio that I believe is second to none,” Sawan said.
Shell’s results got here as a part of a Big Oil profit bonanza last 12 months, bolstered by soaring fossil fuel prices and robust demand since Russia’s full-scale invasion of Ukraine.
Activists from Greenpeace arrange a mock-petrol station price board displaying the Shell’s net profit for 2022 as they reveal outside the corporate’s headquarters in London on Feb. 2, 2023.
Daniel Leal | Afp | Getty Images
Nest Chief Investment Officer Mark Fawcett said the case against Shell’s board of directors showed investors were prepared to challenge those that aren’t deemed to be doing enough to transition their business.
“We hope the entire energy industry sits up and takes notice,” Fawcett said.
Individually, London CIV’s Head of Responsible Investment Jacqueline Amy Jackson said, “In our view, a Board of Directors of a high-emitting company has a fiduciary duty to administer climate risk, and in so doing, consider the impacts of its decisions on climate change, and to scale back its contribution to it.”
“We consider that ClientEarth’s claim is in our client funds’ interests as a shareholder of Shell, and we support it,” Jackson added.