ClientEarth, an environmental law firm with shares in Shell, announced on Tuesday that it had notified the company of its claim against the company's 13 executive and non-executive directors. It claims that the board's failure to implement a climate strategy that truly aligns with the landmark Paris Agreement is a breach of their English-law obligations.
The case is thought to be the first time a company's board of directors has been held personally liable "for failing to properly prepare for the net zero transition."
"Shell is seriously exposed to the physical and transitional risks of climate change, but its climate plan is fundamentally flawed," ClientEarth lawyer Paul Benson said in a statement.
"The longer the Board waits, the more likely it is that the company will have to execute an abrupt 'handbrake turn' to maintain commercial competitiveness and meet the challenges of unavoidable regulatory developments," Benson said.
The non-profit organization, which has a strong track record of winning climate-related cases, says it has notified Shell and will wait for the company's response before filing papers in the High Court of England and Wales for permission to bring the claim.
If the legal case is ultimately successful, the court could order Shell's board to align its climate strategy with the 2015 Paris Agreement goals. It could also declare Shell's board to be in breach of its legal obligations. If the claimants lose, they may be held liable for the entire cost of the case.
Shell responded to the legal action by emailing CNBC that it was carrying out its global strategy, which supported the Paris Agreement. This includes plans to transform its business "in order to provide more low-carbon energy to customers," according to the company.
By reducing greenhouse gas emissions, the Paris Agreement aims to limit global warming to 1.5 degrees Celsius above pre-industrial levels.
To be sure, the primary cause of the climate emergency is the use of fossil fuels such as oil and gas.
"Addressing a problem as large as climate change necessitates action from all sides." "The energy supply challenges we're seeing highlight the need for effective, government-led policies to address critical needs like energy security while decarbonizing our energy system," said a Shell spokesperson. "Litigation cannot resolve these issues."
Shell shares fell 0.8 percent in early afternoon trading in London. The company's stock price is up more than 17% year to date.
Long-term objectives
ClientEarth claims that by pursuing shareholder litigation, it is acting in Shell's best long-term interests. It claims that the Shell board's mismanagement of climate risk violates their duties under the UK Companies Act. This law requires directors to promote the firm's success and to exercise reasonable care, skill, and diligence.
ClientEarth has urged other shareholders to join the legal action, claiming that many of Shell's largest institutional shareholders are concerned about the company's climate strategy.
Last year, at the company's annual general meeting, more than 30% of shareholders voted against the board in support of a resolution calling for Paris-aligned emissions targets.
Shell has previously faced legal action in relation to its climate strategy.
A Dutch court ordered the oil giant to reduce its global carbon emissions by 45 percent by the end of 2030, compared to 2019 levels, in May 2021. It also stated that Shell is responsible for its own carbon emissions as well as those of its suppliers, referred to as Scope 3 emissions.
Shell has filed an appeal against the decision.
The legal action comes at a time when Russia's assault on Ukraine has caused the biggest energy market shock in decades, with oil prices skyrocketing to multi-year highs as international allies imposed a slew of sanctions on Russia's corporate and financial systems.
Shell CEO Ben van Beurden described 2021 as a "momentous year" for the company last month, citing a sharp increase in profit as a result of rebounding commodity prices.