Recently the powerful climate NGO ClientEarth took the unprecedented step of filing suit directly against Shell’s Board of Directors on behalf of investors for failing to manage risks posed to the company by climate change and implement an energy transition strategy that aligns with the Paris Agreement. Nevertheless, at their most recent shareholder meeting, Shell announced plans to reduce renewables spending while investing more in fossil gas and LNG. So will legal action be able to force Shell to actually change course? In this edition of the Shell Games series (read part 1 and part 2), lead blogger and podcaster, Michael Buchsbaum reviews the status of even more lawsuits and legal questions now being brought against this oil and gas behemoth.
Personae non gratae
In the first case to sue corporate officers personally over their company’s climate strategy, environmental law organization ClientEarth launched legal proceedings in England’s high court against Shell’s 11 directors for failing to manage the “material and foreseeable” risks climate change poses to the company – thus breaking company law, and for failing to properly prepare the company to achieve its goal of reaching net zero emissions by 2050.
It is seeking a court order requiring the board to adopt a transition strategy aligned with the Paris climate agreement on curbing global warming, and its duties under the UK Companies Act.
The lawsuit has the backing of Nest, the U.K.’s largest workplace pension fund, London CIV, which manages the assets of the London local government pension scheme, as well as the Swedish national pension fund, French asset manager Sanso IS and Danske Bank.
ClientEarth argues Shell’s failure to transition faster away from fossil fuels threatens the company’s success and wastes its investors’ money on such polluting projects.
“Long term, it is in the best interests of the company, its employees and its shareholders – as well as the planet – for Shell to reduce its emissions harder and faster than the board is currently planning. The International Energy Agency said in 2021 that no new oil and gas projects were compatible with net zero emissions by 2050. “Doubling down [by Shell] on new oil and gas projects isn’t a credible plan – it’s a recipe for stranded assets,”” said ClientEarth lawyer Paul Benson.
London CIVs head of responsible investment, Jacqueline Amy Jackson, remarked that “Over the next few decades 1 billion lives and trillions of pounds will be at risk due to a single issue: climate change. We do not believe the board has adopted a reasonable or effective strategy to manage the climate risks affecting Shell. In our view, the board of a high-emitting company has a fiduciary duty to manage climate risk.”
Despite this, on May 12 2023, the UK High Court dismissed the lawsuit, ruling that ClientEarth failed to establish a prima facie case against the Board for its management of climate risks.
Explaining that “[t]he law respects the autonomy of the decision-making of the directors on commercial issues and their judgments as to how best to achieve results which are in the best interests of their members as a whole.” the court found that ClientEarth failed to establish that no reasonable director would have taken the same action as the Board with respect to climate risk.
ClientEarth is appealing the court’s decision.
However, all that accumulated historical evidence of what Shell and other oil majors knew about climate change, as discussed earlier in this series, is taking center stage in various courtrooms as lawyers seek to hold big polluters to account for the accelerating devastation caused by the climate crisis.
In the United States, states and cities have launched at least 20 lawsuits against oil companies including Shell, ExxonMobil, and BP over allegations that the industry waged a decades-long campaign to deceive the public regarding the risks posed by burning fossil fuels.
In Canada, Vancouver’s city council has voted to join a similar class action.
And in late 2022, a group of 16 municipalities in Puerto Rico sued Shell and other fossil fuel giants in the first climate liability case to target the industry with federal racketeering charges.
In the face of all its growing legal entanglements, Shell has said it does not believe the courtroom is the right venue to tackle climate change. This begs the question, then, since climate change affects nearly everything, and they – the oil companies – knowingly lie(d) about this, where is the proper venue?
Whatever Shell’s self-serving position, lawyers are building cases worldwide based on findings in the oil industry’s own documents, as are regulators and increasingly judges.
With lawsuits and other challenges growing, the decision to hold Shell’s most recent investor presentation directly at the New York Stock Exchange certainly wasn’t lost on attendees: they were holding firm.
For many of Shell’s investors, their goal for this now British-headquartered oil major is to have a financial valuation matching its biggest US rivals like Chevron and ExxonMobil.
Five years ago, about the time when Shell announced it was going to attempt a lower-carbon future, that goal seemed in reach as its market capitalization was “just” around $40 billion less than Exxon’s.
But as of mid-June 2023, that difference has grown to more than $200 billion.
Shareholder frustration about this gap has only grown, despite Shell raking in nearly $40 billion dollars in record profits last year.
Under pressure, at the company’s recent Annual General Meeting, Chief Executive Officer Wael Sawan announced cuts to capital expenditure on “under-performing” low carbon projects, meaning renewables, as part of a plan to devote a higher proportion of spending on oil and gas production, the planet be damned.
Why this return to climate damaging products? Because the terrible truth is that the fossil fuels business remains highly lucrative.
And by contrast, renewables remain far less profitable.
Myths and realities
The practice of Public Relations was born out of the need by corporations to spin truth.
In that sense, one of the illusions Shell and other companies often try to create is their sense of corporate responsibility in the face of climate change.
But legally Shell’s CEO and its other directors have only one real responsibility: they are obliged to keep growing shareholder value.
“We’ve now reached the point where the oil and gas majors accept that climate change is happening and society does expect them to deal with it,” says Michael Liebreich, former CEO of BloombergNEF, energy consultant and frequent industry apologist.
But regardless of the planetary harm they are doing by delaying and reducing their clean energy transition, majors like Shell, he says “can’t do it as fast as they say because, fundamentally, oil and gas keeps the lights on. And it’s the only bit that makes money.”
Shell is not the only oil and gas major walking back its climate commitments. Total, BP and others have also followed suit as they work to give more money back to their shareholders. In late October, Shell announced it would cut at least 15% of the workforce at its low-carbon solutions division and scale back its hydrogen business as part of CEO Wael Sawan’s drive to boost profits.
The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views or positions of the Heinrich-Böll-Stiftung.