On Thursday, climate group ClientEarth filed a lawsuit against energy giant Shell’s Board of Directors for failing to adequately respond to the material risk that climate change poses.
The lawsuit is supported by a number of investors holding 12 million of the company’s seven billion shares – just over 17%.
Shell is no stranger to lawsuits. Just last week, over 13,000 Nigerians took the fossil fuel giant to the English and Welsh High Court over its alleged pollution of the Niger Delta. In December, Shell settled a separate lawsuit in the Netherlands about four oil spills in Nigeria between 2004 and 2007 brought forward by Millieudefensie for €15 million on a no-liability basis.
This case, however, is a world-first in that it is personally suing the 11 members of Shell’s Board. The NGO says the lawsuit “represents a milestone in climate litigation: company directors can – and will – be challenged to uphold their legal duties to manage climate risk, by preparing their companies for that transition.”
Last year, we announced the start of legal action against Shell’s Board of Directors, for failing to move away from fossil fuels fast enough.
And now, we’re going to court. Read more: https://t.co/IMPaFGhX7g
— ClientEarth (@ClientEarth) February 9, 2023
The lawsuit, which is taking place in the High Court of England and Wales, comes just one week after Shell announced its $40 billion profit in 2022 – twice what it made in 2021, and the largest profit in its 115-year history.
“Shell may be making record profits now due to the turmoil of the global energy market, but the writing is on the wall for fossil fuels long term.”
“Shell may be making record profits now due to the turmoil of the global energy market, but the writing is on the wall for fossil fuels long term,” ClimateEarth senior lawyer Paul Benson said. “The shift to a low-carbon economy is not just inevitable, it’s already happening.”
Despite their record profits, Shell invests shockingly little in renewable energy. The company claims that it invests 12% of its capital expenditure in its Renewables and Energy Solutions division.
However, climate group Global Witness alleges that just 1.5% of Shell’s capital expenditure has been used to develop genuine renewables such as wind or solar. The remaining 10%, it seems, has been used to develop lower-carbon methods of extracting natural gas, a fossil fuel.
Global Witness is urging the US’s Securities and Exchange Commission to launch an investigation into the corporation on the grounds of false advertisement.
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ClientEarth has alluded to similar findings: “If you scratch beneath the surface, the proportion of investment currently going to renewable energy is, relatively speaking, minuscule.”
“Although boosting dividends and buybacks might placate some investors temporarily, the Board is wasting a golden opportunity to position the company for the energy markets of the future,” said Benson.
The NGO is arguing not only that Shell underinvests in the transition, but that the energy giant’s current transition strategy is lacking.
Although Shell’s board claim that the company’s Energy Transition Strategy is consistent with the 1.5°C Paris Agreement goal, ClientEarth maintains that this is not the case.
Although Shell ostensibly plans to halve its global emissions by 2030, and become net zero by 2050, its strategy currently covers less than one tenth of the company’s emissions.
In effect, this is because it does have any short or medium-term targets for cutting scope 3 emissions from the product it sells, although these account for more than 90% of the company’s overall emissions.
The scopes were laid out by the Greenhouse Gas Protocol. Scope 1 is direct greenhouse gas (GHG) emissions; emissions that occur from sources owned by the company. This includes emissions from combustion in owned or controlled boilers, furnaces, or vehicles.
Scope 2 is electricity indirect GHG emissions, i.e., the GHG emissions from the generation of electricity purchased by the company.
Scope 3 is a category for other indirect GHG emissions. For Shell, this would include emissions from the fossil fuels it mines and sells.
In fact, Shell’s net emissions are anticipated to fall only by 5% by 2030, despite the group being ordered by the Dutch courts to cut emissions 45% by 2030 in May 2021. Although Shell is appealing this ruling, ClimateEarth alleges that the Board’s failure to comply with the judgement is a breach of its legal duties.
Combined with continued overinvestment in new fossil fuel projects, ClientEarth argues that the Board’s approach has failed to manage the risks posed to the company, and is therefore in breach of its duties under English law.
ClientEarth’s supporters are mostly pension funds, from the UK, Sweden, France, and Denmark among other countries, while a few are other asset management companies.
Combined, they have more than half a trillion US dollars (£450 billion) in total assets under management.
By not properly anticipating and responding to the business and legal changes in the energy market that climate change has engendered, the organisation argues that they are improperly endangering the assets and pension funds that many ordinary people have in the company through these pension and asset management systems.
The outcome of this court case could have considerable impact on the energy sector.
On Tuesday, fossil fuel company BP also announced record profits in 2022, at $28 billion (€26.1 billion). Subsequently, the company cut their emissions targets. The energy giant initially planned to cut emissions by 35-40% by 2050. Following their fourth quarter results, they reduced this to 20-30%.
Although BP’s shares rose 17% since Tuesday, emissions-conscious investors have voiced concern following the reduction in emissions targets.
The idea that this might be reflected in court as an illegal business failure is novel, and could have far-reaching consequences.
Simultaneously, ExxonMobil is facing a number of lawsuits in the US by a number of states and municipalities for concealing early knowledge of climate change.
This latest lawsuit comes as part of a consistent drive to hold energy companies accountable to climate change and the environment. However, the novel approach – both of holding the Board of Directors personally liable and in attacking the corporation’s climate change policy on its own terms, arguing that its failure is poor practice and irresponsible business – could well be the effective approach that is needed.
Depending on how the case proceeds, the terms of it could well shake investor faith in the 115-year-old company, and might yet push for real change.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: Shell logo. Featured Photo Credit: Keming Tan.
