Environmental law firm and Shell shareholder ClientEarth filed a lawsuit Thursday against Shell’s board of directors, a new kind of salvo against "Big Oil" over climate change.
Plaintiffs argued that Shell's eleven-member board of directors has failed to incorporate the company's energy transition strategy in line with the 2015 Paris climate accord, in violation of company law.
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If judges agree to hear the lawsuit, filed at the High Court of England and Wales, it would be the world's first legal case seeking to hold board directors responsible for their company’s failures to deliver on its climate target goals.
The lawsuit also earned the backing of European institutional investors and pension funds, which collectively manage $543 billion in assets and 12 million of its seven billion shares.
Plaintiffs say the board's actions are in violation of the U.K.'s Company Act, which imposes a duty on board members to act in a way most likely to promote the success of the company.
British pension fund London CIV, which backed the lawsuit, said its Shell stake was a "primary hot spot of risk and exposure within our portfolio."
"We hope the whole energy industry sits up and takes notice," added Mark Fawcett, the chief investment officer of British pension fund Nest, told Reuters.
The lawsuit comes just one week after Shell posted a record annual profit of nearly $40 billion for 2022, smashing previous earnings and more than doubling its profits from 2021. Like other major oil companies, Shell saw its profits skyrocket in 2022 due to the energy crisis caused by Russia’s war in Ukraine.
If heard by the court, the case could have far-reaching implications for how companies manage their emissions reductions plans.
Shell has pledged to become a net-zero emissions business by 2050 and has set targets to cut its carbon intensity by 20% in 2030 and 45% by 2035 compared to 2016 levels.
But ClientEarth argued in its lawsuit that Shell’s strategy excludes short- to medium-term targets to cut Scope 3 emissions, which accounts for the lion’s share of their overall emissions.
They also cited independent assessments that have concluded Shell's climate strategy is not in alignment with the Paris climate goals.
"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," ClientEarth attorney Paul Benson said in a statement.
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Shell said it will appeal the challenge and dismissed the allegations Thursday as having “no merit.”
“We do not accept ClientEarth’s allegations,” a spokesperson for the company said. “Our directors have complied with their legal duties and have, at all times, acted in the best interests of the company.”