Institutional Investors Back Shell Board Lawsuit Over Climate Risk

A group of European institutional investors is supporting a new lawsuit filed in London against the board of directors of energy giant Shell (LON:RDSa) for alleged climate mismanagement. The case could have far-reaching repercussions for how firms address emissions.

ClientEarth, an environmental legal charity turned activist investor in Shell, stated on Wednesday that it had filed a High Court claim alleging that Shell's 11 directors have failed to handle the "substantial and predictable" risks posed by climate change to the firm, in violation of company law.

It is the first, noteworthy complaint by a shareholder against a board over the alleged inability to properly prepare for a shift away from fossil fuels - and comes one week after Shell declared a record $40 billion profit for 2022, partially spurred by the energy bottleneck after Russia's invasion of Ukraine.

Shell refuted the charges, saying its climate plans were ambitious and on track and that its directors met with their legal duties and operated in the company's best interests.

A spokeswoman stated, "ClientEarth's attempt... to change the board's policy as authorized by our shareholders has no merit."

CARBON CONFLICT

Shell has increased investing in low-carbon and renewable energy technology.

Nonetheless, British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium, and Danish pension funds Danske Bank Asset Management, Danica Pension, and AP Pension have sent letters in support of the claim.

The investor group manages approximately 450 billion pounds ($543 billion) in assets and owns approximately 12 million of Shell's 7 billion shares.

London CIV stated that its Shell position was the "main risk and exposure focal point in our portfolio."

"We hope the entire energy business takes notice," Nest's chief investment officer Mark Fawcett said.

According to experts, if judges permit the so-called derivative case to proceed, it might inspire investors in other companies, including those funding carbon polluters, to sue boards that fail to effectively manage climate-related risks.

Some banks are decreasing fossil fuel company funding.

The case comes two years after Shell was ordered to decrease carbon emissions in a landmark Dutch climate case.

Shell, which is appealing, wants to cut the carbon intensity of its products - which quantifies greenhouse gas emissions per unit of energy produced - by 20% by 2030, 45% by 2035 and by 100% by 2050 from 2016 levels.

According to third-party assessments, the strategy eliminates short to medium-term commitments to lower the absolute emissions from items Shell sells, known as Scope 3 emissions, despite they account for more than 90% of overall emissions, ClientEarth said.

"The board persists with a transition strategy that is fundamentally unsound, leaving the firm gravely vulnerable to the threats that climate change poses to Shell's future performance," said ClientEarth's senior attorney Paul Benson.

Directors are obligated by the Companies Act of the United Kingdom to promote the success of their companies.

ClientEarth refused to disclose the other companies in which it had invested.