Shell Lawsuit & The Importance Of Good Governance

04 Apr 2023

A paradigm shift in how society views corporate and director responsibility for climate change has arrived.

A legal case brought by ClientEarth, a Shell shareholder, alleges all of Shell’s directors (both executive and non-executive) are personally liable for the board’s failure to adopt a strategy that “truly aligns” with the 2015 Paris climate agreement.

ClientEarth claim that Shell has violated the UK Companies Act, mismanaged climate risk, failed to live up to the Paris climate agreement standards and fallen legally short of mandated targets. Other Shell shareholders have also voiced their support of the lawsuit including Danske Bank Asset Management and London CIV.

Business leaders should be aware of why this lawsuit is important. While it is relatively common for a company to be sued for corporate failings, directors being sued in their personal capacities is not. Further, this lawsuit is proactive rather than reactive – in other words the case is not being brought because of a specific event or action – ClientEarth are claiming that Shell is falling behind in its environmental strategy.

Shareholder activists are often backed by deep-pocketed litigation funders. This allows them both the means and the incentive to use litigation as a way of shaping environmental, social and governance (ESG) agendas. Businesses that ignore the risks posed by such activists, and fail to take steps to mitigate those risks, do so at the peril of their reputation and share value.

Whether or not this lawsuit is successful is still to be seen. However, business leaders need to be aware of increasing litigation being aimed at them in their personal capacity and the risks this carries both for their businesses and their future careers.

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