On 14 March 2022, ClientEarth, an environmental law organisation and shareholder of Shell announced that it has notified Shell of its intention to issue proceedings in the High Court of Justice against Shell and its 13 executive and non-executive directors for failing to put in place sufficient targets to reduce its emissions. Shell now has the opportunity to respond.
The issuing of proceedings follows Shell’s Energy Transition Strategy, published in 2021, outlining the group’s plans to reach net-zero emissions by 2050. At Shell’s 2021 annual general meeting, a growing minority of shareholders defied the director's recommendation and voted in support of a resolution calling for Paris Agreement aligned emissions targets through to 2030.
ClientEarth allege that Shell's directors have adopted a 'wait and see' approach to the energy transition. The claimants argue that such inaction constitutes a breach of the directors duties under Chapter 2 of Part 10 of the Companies Act 2006 (CA 2006) and the general duty to act in the company's best interests. ClientEarth is also calling for other shareholders to join the action.
In circumstances where an alleged wrong has been committed against a company, the proper claimant is the company itself. The ability of the company to decide whether to take any actions or not generally vests in the board of directors. However, where the wrong has been committed by the directors, as alleged in the present case, the members of the company can apply to the High Court for permission to bring a claim in their own name on behalf of the company, known as a derivative action.
This derivative claim will now be pending a decision on permission from the High Court to proceed.
This new claim comes less than a year after Shell lost the landmark climate case Milieudefensie et al. v. Royal Dutch Shell PLC in the Netherlands, where the District Court of The Hague ordered Shell to reduce its overall emissions, including those from the fossil fuel products it sells – by net 45% by the end of 2030. The District Court described Shell's plan for lowering emissions as “intangible, undefined and non-binding”, breaching the duty of care owed by RDS to Dutch residents. Shell has since appealed that decision.
This is the second time in a matter of months that a derivative action has been brought against a board of directors for climate change inaction. In October 2021, a group of academic staff issued proceedings in the High Court of Justice against the Universities Superannuation Scheme, the largest private pension scheme in the UK, and its directors for, amongst other claims, failing to create a credible disinvestment plan for its fossil fuel investments.
These claims come at a time when the world’s largest corporate emitters are under pressure from activists, shareholders and others, holding them accountable for climate change inaction.
We are monitoring these derivative actions and will report on developments on both of these cases as they arise.
“We are 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.”