Shell faces “world-first” climate pressure via a proposed derivative action

16 March 2022

Activist shareholder, ClientEarth, has sent a letter before action to the board of Shell alleging breaches of the directors’ duties to promote the success of the company.

ClientEarth’s complaint is that Shell’s directors are failing to manage climate risk. In particular, ClientEarth alleges the directors are failing to prepare the company for the net zero transition mandated by the Paris climate agreement.

Shell has confirmed previously that it has set a target to become a net zero emissions energy business by 2050 in support of the “more ambitious goal to tackle climate change laid out in the UN Paris Agreement: to limit the rise in average global temperature to 1.5°C”.

Subject to any response to the letter before action from Shell’s directors, the next step would be to seek the Court’s permission to bring a derivative claim on behalf of the company against the directors personally under the Companies Act 2006. The Court will refuse permission if, broadly speaking, the directors can show that a person acting in accordance with the general duty to promote the success of Shell would not seek to continue the claim, or that Shell’s plan for net zero transition has been authorised or ratified by the company. This will likely prove a high hurdle for ClientEarth to clear.

If permission is granted a full trial will proceed which would scrutinise the directors’ duties to manage the company’s material climate risks and question whether they have failed to have regard to a range of factors including the likely consequences of the net zero transition plan in the long term, the interests of Shell’s employees, and Shell’s impact on the environment. The Court would test those duties against the backdrop of the directors’ obligations to exercise reasonable care, skill and diligence. Any trial would require extensive evidence and focus heavily on the board’s decision making processes. A successful result for ClientEarth could lead to remedies including a mandatory injunction forcing the company to alter its plan for net zero transition and declarations against the directors for breach of their duties.

ClientEarth have heralded the case as a milestone in climate litigation as the “world-first” attempt to hold a company’s board of directors personally liable for failing to properly prepare for the net zero transition. Pending a response to the letter before action, ClientEarth is encouraging institutional investors to join or support the claim in advance of Shell’s annual meeting in May.

We wait to hear whether permission will be sought and granted to use the Companies Act 2006 levers to exert pressure on the company. Irrespective of whether the case is allowed to continue through the Courts, the noise created by ClientEarth demonstrates, yet again, that the ESG revolution is here to stay and cannot be ignored.

Further reading

ClientEarth shareholder litigation against Shell’s Board

Climate group prepares legal action against Shell directors | Financial Times (

Achieving net-zero emissions | Shell United Kingdom

Shell’s shareholders need certainty that the company is using their capital effectively in its navigation of the global energy transition and is genuinely pursuing the climate goals that it says it is - Paul Benson, lawyer at ClientEarth.