Shell has seen off a lawsuit from ClientEarth at the High Court, but the NGO has said it will appeal.
ClientEarth launched a lawsuit targeting Shell’s board. It said the Companies Act legally required directors to implement plans aligned with the Paris Agreement.
A judge ruled against ClientEarth in May. At an oral hearing on July 12, ClientEarth asked the judge to reconsider the dismissal. The judge stuck to his guns, today.
A Shell spokesperson said the ruling was the “right outcome – the court has reaffirmed its decision that this claim is fundamentally flawed and has, once again, dismissed it.” The company’s directors have “always complied with their duties and acted in the company’s best interest. This claim entirely ignores how directors of a business as large and complex as Shell must balance a range of competing considerations.”
The company official went on to say the “claim is utterly misconceived and a clear misuse of the English courts. Should ClientEarth seek permission to appeal, we remain confident that the court will stand by its rulings.”
The ruling disappointed the group, ClientEarth senior lawyer Paul Benson said.
“The Court has accepted that climate change poses significant and foreseeable risks to Shell. We firmly stand behind our claim that the Board is currently neglecting to address those risks adequately, to the detriment of its shareholders,” he said.
The environmental group said that it had support from shareholders with more than 12 million shares in Shell.
The company has refocused its plans recently on oil and gas production.
Future viability
“The Board’s strategy to manage the risks of the energy transition was fundamentally flawed as it was. Now the Board seems to be dropping even any pretence that it will take meaningful action,” Benson said. The board’s decision not to advance the energy transition “puts Shell’s future commercial viability at risk and, we maintain, is in breach of the Board’s duties under English law.”
In June, Shell CEO Wael Sawan said legal orders on production limits would not change oil and gas output.
“We would look at what the least profitable molecule is, and says ‘ask somebody else who sells them, not Shell’, and we will achieve the 45% and it will not make a difference to the world,” he said.
ClientEarth filed its lawsuit against Shell in February. Litigation firm Pallas Partners is working on the claim pro bono. 1
Pallas partner Will Hooker, speaking in February, said the board had failed to set meaningful medium-term targets to reduce overall Scope 3 emissions”. This “makes implausible claims to shareholders that its policies are aligned with the goals of the Paris agreement”.
Joanna Ford, the commercial disputes partner at Cripps, said the ruling found the Shell directors had to balance competing needs.
“These factors are often finely balanced, and prioritising one above the others could lead to directors being accused of breaching their duties towards other stakeholders. This doesn’t mean that climate litigation claims are dead in the water, but there would need to be clear evidence of an serious breach in order for a claim to stick,” Ford said.
“The decision shouldn’t be seen as a licence for company directors to simply ignore ESG issues, however, and as we get closer to the net zero target date of 2050 there is likely to be less and less scope for directors to argue that climate issues shouldn’t weigh heavily into their decision making about the management of the companies they are in charge of.”
Updated July 25 at 12:00 with comments from Joanna Ford.
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