UK pension schemes Nest and London CIV have backed a legal claim against the Shell board of directors for allegedly failing to manage the foreseeable risks posed to the company by climate change.

ClientEarth filed the lawsuit with the High Court today (9 February), arguing that Shell’s Board is in breach of its legal duties under the UK Companies Act to manage the climate risk facing the company, also failing to ensure compliance with the Dutch Order.

This is the first time that a company board has been challenged on its ability to properly prepare for the energy transition.

In particular, the lawsuit claims that the Shell Board's current plan for the shift away from fossil fuels towards cleaner energy is simply “unreasonable”, arguing that it “fails to deliver the reduction in emissions that is needed to keep global climate goals within reach and continues with fossil fuel production for decades to come.

ClientEarth explained that this will tie the company to projects and investments that are likely to become unprofitable as the world cleans up its energy systems, warning that this could put the company’s long-term commercial viability at risk.

In light of this, it argued that Shell’s Board had failed to ensure compliance with the Dutch Order, and had fallen short of the its duties to promote the success of the company and to act with reasonable care, skill and diligence, pursuant to the UK Companies Act 2006.

The claim has been backed by a number of institutional investors who together hold over 12 million shares in the company, including a number of European pension funds, such as the Swedish national pension fund AP3, and Danica Pension and AP Pension in Denmark.

Commenting on the claim, Nest CIO, Mark Fawcett, stated: “Investors want to see action in line with the risk climate change presents and will challenge those who aren’t doing enough to transition their business.

“We hope the whole energy industry sits up and take notice. 2023 is a crucial year if we are to keep net-zero by 2050 on track and this case can be a springboard for Shell introducing key changes.”

Adding to this, London CIV stated that a board of directors of a high-emitting company has a fiduciary duty to manage climate risk, and in so doing, consider the impacts of its decisions on climate change, arguing that the claim is therefore in its client funds' interests as a shareholder of Shell.

London CIV head of responsible investment, Jacqueline Amy Jackson, stated: “The unequivocal social and financial impacts of climate change, imposed on future generations will no doubt be compounded by underinvestment in renewables, an absence of meaningful targets and overinvestment in fossil fuels.

"Long-term investors should not be dazzled by short term profits today, when the amount reinvested into the solutions of tomorrow is so derisory.

“With an ambitious net-zero target of 2040, London CIV are committed to doing what it can to break the tragedy of the horizon in the interests of our clients' and their beneficiaries. Not only in terms of their prosperity but with regards to the world we want them to live in."

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