ClientEarth v Shell: The Next Chapter
In August 2022, we wrote about environmental law charity and Shell shareholder ClientEarth’s claim against Shell’s Board of Directors. [read here]
At that point ClientEarth had taken the first step in commencing legal action against the Board by issuing a letter before action that criticised Shell’s Energy Transition Strategy.
On 9 February 2023, ClientEarth announced that it has now taken the next step in bringing proceedings against the Board by filing its claim in the High Court [We’re taking Shell's Board of Directors to court | ClientEarth].
The timely announcement came just days after Shell posted its highest ever annual profits, and the five Big Oil companies (Shell, BP, Exxon Mobil, Chevron and French oil giant, TotalEnergies) reported combined 2022 profits of $196.3 billion.
The action has now received support from investors who hold together 12 million shares in Shell. Their concern, says ClientEarth, is that the Board’s strategy will not reduce the company’s emissions fast enough.
According to ClientEarth, Shell maintains that its strategy is in line with the goal of the UN Paris Agreement (to keep global temperature rise to 1.5C), and the Board has said that it will defend its position robustly.
It remains to be seen whether the High Court will grant ClientEarth the necessary permission to bring this derivative claim. But if it does, this will, as ClientEarth says, be the first time that a company’s board has been challenged directly on its failure to move away from fossil fuels.
As companies become subject to increasing scrutiny of their climate risk management and ESG strategies in general, directors in particular will be following this case closely, and no doubt asking themselves two questions:
- “Does our own D&O programme adequately cater for my own exposure to similar ESG risks?”; and
- “If it does, what do I need to do to ensure that the D&O policy performs when I need it to?”
Whilst the answer to both may seem straightforward, we anticipate coverage litigation on at least the first point - for example on the (it seems to us) ambitious application of pollution exclusions as has been seen in the US[1] - and disputes arising from the second point are not uncommon. For that reason, boards should ensure that they turn their minds to the interaction between ESG risks and D&O coverage before those risks arise.
[1] See Tonoga v. New Hampshire Insurance, 159 N.Y.S.3d 252 (N.Y. App. Div. 2022) and Grange Ins. Co. v. Cycle-Tex Inc., et al., Order, Civ. A. No. 4:21-cv-00147-AT (N.D. Ga. Dec. 5, 2022)
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