© Reuters. A view shows the logo of a Shell petrol station in south-east London, Britain, February 2, 2023. REUTERS/May James
By Kirstin Ridley
LONDON (Reuters) – A group of European institutional investors is backing a groundbreaking lawsuit in London against the board of energy giant Shell (LON:) for alleged climate mismanagement in a case that could have far-reaching implications for how companies address emissions.
ClientEarth, an environmental law charity turned Shell activist investor, said it had filed a claim with the High Court on Wednesday, alleging that Shell’s 11 directors have failed to manage the “material and foreseeable” risks that climate change represents for the company, and that they are breaking company law.
It’s the first notable shareholder lawsuit against a board of directors for an alleged lack of adequate preparation to switch from fossil fuels, and it comes a week after Shell posted a record $40 billion profit by 2022, partly driven by by the energy crisis after Russia’s invasion of Ukraine.
Shell denied the allegations, saying its climate targets were ambitious and on track and that its directors fulfilled their legal duties and acted in the best interests of the company.
“ClientEarth’s attempt… to override board policy approved by our shareholders is without merit,” a spokesperson said.
CARBON CONFLICT
Shell has increased spending on renewable energy and low carbon technologies.
But UK pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium and Danske Bank Asset Management and Denmark’s Danica Pension and AP Pension are among those who they have written letters supporting the claim.
The investment group has about 450 billion pounds ($543 billion) in assets under collective management and owns about 12 million of Shell’s 7 billion shares.
London CIV said its Shell stake was a “main access point of risk and exposure within our portfolio.”
“We hope the entire energy industry will sit up and take notice,” added Mark Fawcett, Nest’s chief investment officer.
If judges allow the so-called derivative action to proceed, it could encourage investors in other companies, including those that finance carbon emitters, to sue boards that fail to adequately manage climate-related risks, experts say.
Some banks are reducing funding for fossil fuel companies.
The case comes two years after Shell was ordered to slash carbon emissions in a landmark Dutch climate case.
Shell, which is attractive, plans to reduce the carbon intensity of its products – which measures greenhouse gas emissions per unit of energy produced – by 20% by 2030, 45% by 2035 and 100% by 2050 from 2016 levels.
Based on third-party assessments, the strategy excludes short- and medium-term targets to reduce absolute emissions from the products Shell sells, known as Scope 3 emissions, even though they account for more than 90% of total emissions, ClientEarth said.
“The board persists with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success, despite the board’s legal duty to manage those risks.” said ClientEarth senior attorney Paul Benson.
The UK Companies Act imposes a legal obligation on directors to promote the success of companies.
ClientEarth declined to disclose what other companies it has invested in.
($1 = 0.8280 pounds)
