Shell directors sued for ‘failing to prepare for net zero’

Environmental law group ClientEarth has begun legal action against the board of directors of Shell, arguing that their failure to properly prepare the company for net zero puts them in breach of their legal duties.

The organisation has notified Shell, in its capacity as a shareholder, of its claim against the company’s 13 executive and non-executive directors, in what it says is the first ever case seeking to hold company directors personally liable for failing to properly prepare for the energy transition.

ClientEarth argues that the board’s failure to adopt and implement a climate strategy that truly aligns with the Paris Agreement is a breach of their duties under the UK Companies Act. Under that Act, Shell’s board is legally required to act in a way that promotes the company’s success, and to exercise reasonable care, skill and diligence.

Paul Benson, ClientEarth lawyer, said: “We believe that there are sufficient grounds to assert that Shell’s board is mismanaging the material and foreseeable climate risk facing the company. Shell is seriously exposed to the physical and transitional risks of climate change, yet its climate plan is fundamentally flawed. If, as we claim, the company’s plan is being held up to be Paris-aligned when it is not, then there is a risk of misleading investors and the market at large.

“Despite Shell’s current profits, failing to properly prepare the company for the inevitable net zero transition only increases the company’s vulnerability to stranded asset risk, and to massive write-downs of its fossil fuel assets.”

ClientEarth says it is acting in Shell’s best interests by pursuing shareholder litigation, to ensure that near-term profit does not come at the expense of enduring commercial viability for all of the company’s stakeholders, including its shareholders and employees. It is encouraging other shareholders – including institutional investors – to join or support its claim.

“The business world is littered with examples of companies that failed to adapt,” added Benson. “Shell risks going the way of Kodak and Blockbuster. Unless the board changes course, long-term value will be eroded, and eventually destroyed.”

Shell says it has set a target to halve emissions from its global operations by 2030 as part of its aim to be a net-zero emissions business by 2050, adding that tackling climate change requires action from all parties – including effective, government-led policies – and cannot be solved by litigation.

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