ClientEarth, an environmental law organization, has filed a shareholder derivative lawsuit in the United Kingdom against Shell's board of directors for an alleged failure to adequately prepare Shell for the impact of climate change. Specifically, according to ClientEarth, the lawsuit "challenge[s] [Shell] on its failure to properly prepare for the net zero transition" and seeks to compel Shell to "put[] in place sufficient targets to reduce its emissions over the next 3, 5 and 10 years in order meet net zero [so as to] secure the company's long-term value, while protecting investors' capital and the climate." (https://www.clientearth.org/latest/latest-updates/news/we-re-taking-legal-action-against-shell-s-board-for-mismanaging-climate-risk/)
Irrespective of whether this lawsuit is ultimately successful, it reflects a new tactic adopted by environmental organizations to use the law to place additional pressure on fossil fuel companies. (And this tactic may soon be emulated in the United States and other key jurisdictions.) Even though many companies are focused on potential regulatory action (and for good reason), it must be emphasized that litigation--whether by shareholders, local governments, or other interested parties--remains a tactic embraced by many environmental organizations and often pursued vigorously. (For example, there are over two dozen lawsuits pending in the U.S. courts against fossil fuel companies claiming that their activities constitute a "public nuisance.") When assessing legal risk, these sort of litigations must be considered.
Still, to date, the overwhelming majority of these litigations have been unsuccessful. However, if one of these cases "breaks through," that could dramatically transform the legal landscape, and not only for fossil fuel companies, but also for those corporations that regularly interact with fossil fuel companies or could be perceived to facilitate their operations (e.g., financial institutions).
The directors of Shell are being sued for failing to properly prepare the multinational oil and gas company for net zero. In what is thought to be a first-of-its-kind action, the lawsuit brought by activist shareholders claims that Shell’s 13 directors are personally liable for failing to devise a strategy in line with the Paris agreement, which aims to limit global heating to below 2C by slashing fossil fuel emissions. The lawsuit claims the failure puts the directors in breach of their duties under the UK’s Companies Act. If successful, Shell’s board could be forced by the courts to change its strategy, taking specific concrete steps to align its plan with the Paris deal. But if the claimants lose, they could be liable for the full costs of the case, including directors’ legal fees.
https://www.theguardian.com/business/2022/mar/15/shell-directors-sued-net-zero-clientearth
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