(Reuters) — A group of European institutional investors is backing a new London trial against energy giant Shell’s board over alleged climate mismanagement in a case that could have far-reaching implications for how companies deal with emissions.
ClientEarth, an environmental law charity turned activist Shell investor, said it had filed a High Court claim on Wednesday, claiming Shell’s 11 directors have failed to deal with the “material and foreseeable” risks posed by climate change to the company – and that they are breaking company law.
It is the first notable lawsuit by a shareholder against a board over the alleged failure to properly prepare for a shift away from fossil fuels ̵1; and comes a week after Shell posted a record $40 billion profit for 2022, fueled in part by the energy crisis following Russia’s invasion of Ukraine.
Shell rejected the allegations, saying its climate targets were ambitious and on track and that its directors were complying with their legal obligations and acting in the company’s best interests.
“ClientEarth’s attempt … to overturn board policy approved by our shareholders has no merit,” a spokesperson said.
Shell has increased spending on renewable energy and low-carbon technologies.
But British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium and Denmark’s Danske Bank Asset Management as well as Danica Pension and AP Pension are among those who have written letters supporting the claim.
The investor group has about 450 billion pounds ($543 billion) in assets under management together and owns about 12 million of Shell’s 7 billion shares.
London CIV said its Shell stake was a “primary risk and exposure hotspot in our portfolio.”
“We hope the entire energy industry will sit up and take notice,” said Mark Fawcett, Nest’s chief investment officer.
If judges allow the so-called derivatives measure to go forward, it could encourage investors in other companies, including those that finance carbon emissions, to bring lawsuits against boards that fail to adequately manage climate-related risks, experts say.
Some banks are reducing their financing of fossil fuel companies.
The case comes two years after Shell was ordered to cut carbon emissions in a landmark Dutch climate target.
Shell, appealing, plans to reduce the carbon intensity of its products – which measures greenhouse gas emissions per unit of energy produced – by 20% by 2030, 45% by 2035 and by 100% by 2050 from 2016 levels.