A Shell petrol station in London, on Feb. 2.MAY JAMES/Reuters
Environmental law charity ClientEarth’s unsuccessful attempt to sue Shell SHEL-N over its climate strategy shows the difficulties in bringing activist shareholder claims, lawyers said on Monday, after London’s High Court dismissed the case.
ClientEarth, which holds 27 shares in Shell, alleges the company cannot achieve its aim of net zero carbon emissions by 2050 with its current climate transition strategy and its directors are therefore breaching their duties to shareholders.
The group wanted to bring a so-called derivative case on behalf of Shell against its directors, which could have seen other firms face investors’ lawsuits over climate-related risks.
However, Judge William Trower refused permission to bring the case. He ruled that ClientEarth’s case ignored that managing large businesses requires directors to “take into account a range of competing considerations”, in which courts should not interfere.
A Shell spokesperson welcomed the ruling and described ClientEarth’s case as “fundamentally flawed”.
Paul Benson, a senior lawyer at ClientEarth, said the charity was disappointed and intended to pursue an appeal.
Teja Pisk, a lawyer at Stevens & Bolton, said the ruling was unsurprising given the high bar for bringing a derivative claim.
But, Pisk added, the decision “will not sound the death knell” for shareholder activism in the environmental, social and governance (ESG) sphere.
Catherine Gilfedder, a partner at law firm Dentons, said ClientEarth’s defeat “re-emphasises the challenges involved in derivative actions in this area”.
But she also said she thought there would be further cases based on directors’ duties and responsibilities, both in Britain and elsewhere.
Elaina Bailes, a partner at law firm Stewarts, noted that the judge had accepted Shell’s argument that ClientEarth brought the case to further its own policy agenda.
“That is potentially significant for the future use of shareholder claims alleging breach of directors duties,” she said.
The ruling may, however, provide useful guidance to activists considering future claims over directors’ duties and boards’ approaches to climate change, Bailes added.