Unusual lawsuit aims to hold Shell directors personally responsible for climate failures

The board of directors at Shell is being sued by a group of shareholders who claim the board is personally liable for mismanaging the company’s climate risk. The lawsuit filed by ClientEarth, an activist shareholder group, attempts to hold all 13 of Shell’s directors responsible—not the company itself—for failing to devise a climate strategy that, it argues, cuts fuel emissions in line with the Paris agreement.

“Today, we have taken the first step in legal action against the Board of Directors of Shell, seeking to hold it liable for failing to properly prepare for the energy transition,” reads a statement posted by ClientEarth. “This is the first ever case of its kind.”

On a webpage announcing the suit, Paul Benson, a lawyer for ClientEarth, rips into Shell’s board, arguing the company is “seriously exposed to the risks of climate change, yet its climate plan is fundamentally flawed. Shell’s Board is increasing the company’s vulnerability to climate risk, putting the long-term value of the company in jeopardy.”

For its 2021 annual meeting last May, Shell published a climate plan that outlined a strategy to become net-zero by 2050, a timetable it described as “in step with society’s progress towards the goal of the UN Paris Agreement on climate change.”

However, 11% of shareholders voted against it, versus 19 other resolutions that garnered near-unanimous support. In its own opposition to the plan, ClientEarth has pointed to recent research showing that Shell’s new strategy would actually result in a 4% rise in net emissions by 2030, and concluding that the company is unlikely to meet even its own targets, much less more aggressive ones set by scientists.

The group filed its lawsuit in England, where it can allege the directors have breached their duties under the Companies Act, an extremely comprehensive law covering British businesses. If their suit were successful, Shell could be ordered to adopt a climate strategy with new, concrete steps that align better with the Paris agreement. However, a loss could hurt ClientEarth, which could have to shoulder the entire case’s costs, including all 13 Shell directors’ legal fees. The environmental group has created a whole URL, RedirectingShell.com, where it implores other shareholders to join them.

Online, the group also lays out why it believes Shell’s board has acted unlawfully:

We’re 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 global temperature rises to below 1.5°C 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.”

Reached for comment, a Shell spokesperson told Fast Company, “Addressing climate change requires a truly collaborative, society-wide approach. We do not believe the courtroom is the right venue to address climate change, but that smart policy from government, supported by inclusive action from all business sectors, including ours, is the appropriate way to reach solutions and drive progress.”

Shell has faced previous legal action over the pace at which it’s moving to curb emissions. Last May, a Dutch court ruled the company had to step up its efforts to reduce CO2 emissions, ruling Shell was “obligated” to cut them by 45% before 2031, including emissions coming from any fuel that it sells. Shell is currently appealing that ruling.

This post has been updated with Shell’s statement.