ClientEarth is taking legal action against the board of directors of Shell, seeking to hold it liable for failing to properly prepare for the energy transition.

In the first ever case of its kind, the environment lawyers are arguing that the board’s failure to properly manage climate risk to Shell means that it is breaching its legal duties. The board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement goal and is breaching its duties under the UK Companies Act, which legally requires it to act in a way that promotes the company’s success, exercising reasonable care, skill and diligence.

ClientEarth is pursuing shareholder litigation via derivative action to compel Shell’s board to act in the best long-term interests of the company by strengthening Shell’s climate plans and to take an approach to the energy transition that does not come at the expense of long-term viability for the company’s stakeholders, including shareholders and employees.

A derivative action is a claim brought by a shareholder of the company, ultimately on behalf of the company, in this case to argue alleged breaches of duty by the board. That means the shareholder bringing the claim is effectively seeking to step into the company’s shoes, to pursue the board for wrongs allegedly committed against the company.

In 2021, Shell was ordered by a Dutch Court to reduce its overall emissions – including those from the fossil fuel products it sells – by net 45 per cent by the end of 2030. However, its board has since rebuffed parts of the verdict, indicating that it is unreasonable and essentially incompatible with its business. The company has appealed the Court’s decision.

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