On the 9 February 2023, ClientEarth filed what they believe is a world-first derivative action lawsuit against the board of directors at Shell plc for "failing to manage the material and foreseeable risks posed to the company by climate change." A “derivative action” is brought by ClientEarth in its capacity as a shareholder of the company, asking permission from the court to bring a claim against the directors on behalf of the company.
They argue that Shell plc has failed to implemented an energy transition strategy that conforms with the 2015 Paris Agreement. The agreement is a legally binding international treaty on climate change, with the objective of limiting global temperature increases to less than 1.5 degrees by 2050. However, ClientEarth believe that if Shell sticks to its current strategy, there will be a 4% rise in net emissions by 2030. Therefore, they assert that the directors are in breach of section 172 of the Companies Act 2006 which requires a director to "act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…"
Senior Lawyer at ClientEarth, Paul Benson stated: "The board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success — despite the board’s legal duty to manage those risks".
In the past few years we have seen an increased trend in ESG reporting and transparency. The vast majority of UK companies now report on sustainability in some form. ESG investment has also grown rapidly and is predicted to reach US33.9 trillion by 2026. Clearly there a growing social pressure on directors to act meaningly in relation to their ESG responsibilities. This case will help to determine is whether there will be legal pressure to hold directors to account in the future too…