A group of institutional investors that collectively hold more than 12 million shares in Shell and more than £450bn (€508bn) in total assets under management, is backing a lawsuit against the board of directors of the oil giant for failing to manage the material and foreseeable risks posed to the company by climate change.
The group includes, among others, UK pension funds NEST and London CIV, Swedish national pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium, as well as Danske Bank Asset Management and pension funds Danica Pension and AP Pension in Denmark.
ClientEarth is leading the claim which alleges that 11 Shell directors have breached their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.
Shell’s net emissions are calculated to fall by just 5% by 2030, which is a far cry from the net 45% reduction in group-wide emissions by the end of this decade ordered by a Dutch Court in May 2021.
ClientEarth alleged that the board’s failure to fully comply with the Dutch Court’s judgment is also a breach of its legal duties. Shell has appealed the judgment.
“We believe Shell’s board of directors is mismanaging the climate risks facing the company, posing serious questions for long-term value,” ClientEarth stated.
“We seek to ensure that the board’s strategy of prioritising near-term profit does not come at the expense of enduring commercial viability for all of the company’s stakeholders, including its shareholders and employees,” it added.
ClientEarth senior lawyer Paul Benson said: “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet 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.”
No response from Shell
London CIV wrote its concerns and recommendations to Shell in a letter dated 21 October 2022, asking for a response if the board intended to change course to reduce its impact on the climate.
The scheme strongly believed that its recommendations would benefit Shell in the long-term. Regrettably, no response was received. The key concern now is that London CIV does not believe the Shell board has adopted a reasonable or effective strategy to manage the risks associated with climate change affecting Shell, which includes the board’s approach to compliance with the order of the Hague District Court dated 26 May 2021.
As of 31 December 2022, London CIV mentioned this opportunity in the previous letter to Shell, yet Shell’s investments are far too low and in stark contrast with its continued overinvestments in fossil fuels.
Jacqueline Amy Jackson, head of responsible investment at London CIV, said: ”Our 32 clients funds hold 484,260 common stock shares in Shell plc, with a market value of £11,379,290. As at 31 December 2022 Shell plc contributed 2.31% to the total carbon footprint of London CIV funds, across scope 1, 2 and 3, with an absolute footprint of 102,422 tCO2e and in a high 2030 carbon price scenario, we calculate that the company’s profit margin would be reduced by 2.59%. Thus, it presents a significant portion of our own footprint and is a primary hotspot of risk and exposure within our portfolio.”
Shell continues to invest heavily in fossil fuels, she said, adding that its future oil and gas project pipeline indicates a business-as-usual approach for an oil and gas company in the coming years.
“Neither is such an approach in line with the need to diversify Shell’s portfolio to stay commercially viable in the long-term, nor is it in line with the global consensus that no new oil and gas fields should be approved for development past 2021 to stay within the 1.5°C temperature goal,” Jackson said.
Further support
ClientEarth has also received letters of support from shareholders that stated that their position is aligned with the arguments that ClientEarth makes, including from UK local government pension scheme Brunel Pension Partnership.
Danish pension fund AkademikerPension had divested from Shell amid concern with the board’s transition strategy. The fund also too wrote to ClientEarth, stating that if ClientEarth’s claim was successful and Shell’s strategy was to become Paris-aligned, the company could become an attractive investment again.
Similarly, Dutch asset manager Actiam, which divested from Shell in 2020, wrote that it expected boards of energy companies to adopt credible energy transition strategies and demonstrate their long-term viability and ability to create long-term value for shareholders.
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