Shell board sues over local weather technique

Shell recently reported its highest annual profit of nearly $40 billion.

Paul Ellis | AFP | Getty Images

Shell directors are being personally sued for allegedly failing to adequately manage the risks associated with the climate emergency in a unique lawsuit that could have far-reaching implications for how other companies plan to reduce emissions.

Environmental law firm ClientEarth, in its capacity as a shareholder, filed the complaint against the British oil major’s board of directors in the High Court of England and Wales on Thursday.

It is alleged that 11 Shell board members are mismanaging climate risk and violating company law by failing to implement an energy transition strategy consistent with the landmark 2015 Paris Agreement.

The lawsuit, which is backed by institutional investors holding more than 12 million shares in the company, is said to be the world’s first case attempting to hold a board liable for failing to prepare for the energy transition.

“Shell may be making record profits now due to the turmoil in the global energy market, but over the long term the fossil fuel writings are on the wall,” Paul Benson, principal counsel at ClientEarth, said in a statement.

“The transition to a low-carbon economy is not only inevitable, it is already happening. Yet the board remains committed to a transition strategy that is fundamentally flawed and seriously exposes the company to the risks that climate change poses to Shell’s future success – despite the board’s statutory duty to manage those risks,” Benson said.

We hope that the entire energy industry is paying attention and paying attention.

Mark Fawcett

Chief Investment Officer at Nest

Investors backing the lawsuit include UK pension funds Nest and London CIV, Swedish national pension fund AP3, French wealth manager Sanso IS and Danske Bank Asset Management, among others. Overall, the institutional investors manage more than half a trillion US dollars in assets under management.

“We do not accept ClientEarth’s claims,” ​​a Shell spokesman said. “Our directors have fulfilled their legal duties and have acted in the best interests of the company at all times.”

“ClientEarth’s attempt to use a derivative action to overturn the board’s policy approved by our shareholders is without merit. We will oppose their motion to obtain permission from the court to pursue this action,” they added.

Shell, which aims to become a net-zero emissions company by 2050, said it believes its climate targets are aligned with Paris.

ClientEarth said leading independent assessments suggest this is not the case, but noted that Shell’s strategy excludes short- to medium-term targets to reduce emissions from the products it sells, known as Scope 3 emissions , although these account for over 90%. of the company’s total emissions.

The ambitious goal of the Paris Agreement is to continue efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels by cutting greenhouse gas emissions. The fight to keep global warming below 1.5 degrees Celsius is widely considered to be of the utmost importance, as beyond this level so-called tipping points become more likely. These are thresholds where small changes can result in dramatic shifts throughout the Earth’s support system.

Certainly the burning of fossil fuels like oil and gas is the main reason for the climate emergency.

Big Oil profit bonanza

The case comes shortly after Shell reported its highest-ever annual profit of nearly $40 billion.

The energy giant’s 2022 earnings surpassed its previous annual earnings record of $28.4 billion set in 2008 and more than doubled the company’s full-year 2021 earnings of $19.3 billion.

Shell CEO Wael Sawan described 2022 as a “big year” for the company and said he feels privileged to step into the role he assumed on January 1.

“As we look ahead, I think we have a unique opportunity to succeed as winners of the energy transition. We have a portfolio that I believe is second to none,” said Sawan.

Shell’s results came last year as part of a major oil earnings bonanza, supported by rising fossil fuel prices and resilient demand since Russia’s all-out invasion of Ukraine.

Greenpeace activists set up a mock petrol station price board outside the company’s headquarters in London on February 2, 2023, showing Shell’s net profit for 2022.

Daniel Leal | AFP | Getty Images

Mark Fawcett, Nest’s chief investment officer, said the case against Shell’s board showed investors were willing to challenge those who are believed not to be doing enough to transform their business.

“We hope that the entire energy industry will take notice,” said Fawcett.

Separately, Jacqueline Amy Jackson, London CIV’s Head of Responsible Investment, said: “In our view, the board of a high-carbon company has a fiduciary duty to manage climate risks, while considering the impact of its decisions on climate change and its contribution.” to reduce it.”

“We believe ClientEarth’s request is in the interests of our client funds as shareholders of Shell and we support it,” added Jackson.

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