ClientEarth has expressed its disappointment at the UK High Court's decision on 12 May 2023 not to permit its lawsuit against Shell's board of directors to proceed.
In February 2023 Environmental charity ClientEarth, a shareholder in Shell since 2016, sought to bring a derivative claim against the 11 directors of Shell at London's High Court. ClientEarth alleged that Shell's climate strategy is insufficient to meet climate targets and puts the company at risk as the world switches to clean energy. ClientEarth had said that this is the first case in the world where corporate directors may be held personally liable for failing to properly prepare their company for the transition to net zero in line with the Paris Agreement of 2015 at the UN Climate Change Conference (COP21).
The legal action claimed that the Directors’ duties to promote the success of the company included climate-related duties such as adopting strategies likely to meet the company’s targets to mitigate climate risk. ClientEarth's claim received support from a group of institutional investors collectively holding more than 12 million shares in Shell. These investors contended that Shell's directors had failed to promote the long-term interests of the company through its continuous investment in the development of new fossil fuel projects rather than focusing on more sustainable investments.
However on Friday 12 May 2023 the court refused to grant permission for the action to proceed.
In his judgement, Justice Trower said that ClientEarth had sought to "to impose specific obligations on the Directors as to how the management of Shell’s business and affairs should be conducted, notwithstanding the well-established principle that it is for directors themselves to determine (acting in good faith) how best to promote the success of a company for the benefit of its members as a whole.” He said further that whilst Shell faces material and foreseeable risks as a result of climate change, there is no “universally accepted methodology as to the means by which Shell might be able to achieve the targeted reductions [to emissions]" and ClientEarth had therefore failed to demonstrate how the directors had breached their duty in managing those risks.
ClientEarth's lawyer Paul Benson reacted to this decision by expressing the organisation's disappointment at the court's decision whilst stating that it has the legal right to appeal and is considering its next steps in the proceedings.
Since this article was published, ClientEarth has announced that it has applied for, and been granted, an oral hearing of its High Court application for permission to continue its derivative claim against Shell. We will continue to monitor developments in this case; watch this space.