Overview
On March 15, 2022, activist shareholders ClientEarth initiated a derivative action in the UK against Shell’s Board of Directors, seeking to hold them personally liable for failing to properly manage climate risk.1 The lawsuit is the first of its kind and underscores investors' and shareholders' continued focus on ESG (Environmental, Social, and Governance) issues.
In its pre-action letter of claim, ClientEarth alleges that the Board’s failure to properly manage climate risk to Shell is a breach of the Board’s legal duties under sections 172 and 174 of the UK Companies Act, which require it to exercise reasonable care, skill, and diligence, and to act in a way that promotes the company's success. According to ClientEarth, Shell's Board has failed to adopt and implement a climate strategy that aligns with the Paris Agreement. The lawsuit comes after a May 2021 order by a Dutch Court requiring Shell to cut its global carbon emissions by 45% by 2030. Shell is appealing the court’s decision.
Although this is the first lawsuit of its kind, it is consistent with the trend of increased shareholder activism related to ESG issues. For example, in May 2021, climate-activist hedge fund Engine No. 1 won three seats on Exxon's board of directors (with support from BlackRock). In September 2021, activists pushed European utility company RWE AG to accelerate a transition to clean power. And shareholders at Exxon, Chevron, ConocoPhillips, and Phillips 66 will vote this quarter on proposals from climate activist group Follow This that the companies set emissions goals consistent with the 2015 Paris Accord.
The lawsuit came just before the US Securities and Exchange Commission announced, on March 21, 2022, a proposed rule that would require all publicly traded companies to disclose their greenhouse gas emissions and the risks they face from climate change. Please find more details here.
Endnotes
1 See https://www.clientearth.org/latest/latest-updates/news/we-re-taking-legal-action-against-shell-s-board-for-mismanaging-climate-risk/
