ESG influencing company strategy, increasing oil market vulnerability: reports

Several European pension plans are backing a lawsuit against Shell Corp. alleging its board is mismanaging climate risk and breaching company law.

The lawsuit, launched by U.K.-based climate advocacy organization ClimateEarth, alleges Shell’s board of directors is failing to manage the material and foreseeable risks posed to the company by climate change. It also accuses the 11-person body of breaching legal duties by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

The claim, which was filed in the High Court of England and Wales, is the first derivative action lawsuit made against a board of directors related to a failure to properly prepare for the energy transition in the U.K.

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According to Shell, the company’s energy transition strategy is consistent with the goals included in the Paris Agreement. It has also announced plans to reduce its scope 1 and 2 emissions by 50 per cent of its 2016 levels by 2030. However, these plans don’t address scope 3 emissions, which ClientEarth said account for 90 per cent of Shell’s overall emissions.

“The shift to a low-carbon economy is not just inevitable, it’s already happening,” said Paul Benson, a senior lawyer at ClientEarth, in a press release. “Yet the board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success — despite the board’s legal duty to manage those risks.

“Long term, it is in the best interests of the company, its employees and its shareholders — as well as the planet — for Shell to reduce its emissions harder and faster than the board is currently planning,” he added.”

ClimateEarth said it has received support from institutional investors holding more than US$500 billion in the energy company’s shares. Several public sector pension plans are listed among the lawsuit’s supporters, including the Swedish and Danish national pension investment organizations and two based in the U.K. — the National Employment Savings Trust and the London Collective Investment Vehicle.

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“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,” said Mark Fawcett, chief investment officer of the NEST, in the release. “We hope the whole energy industry sits up and take notice.”

Jacqueline Amy Jackson, head of responsible investment at London CIV, noted the organization’s key concern is that it doesn’t believe the board has adopted a reasonable or effective strategy to manage the risks associated with climate change affecting Shell. “In our view, 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 and to reduce its contribution to it.

“We consider that ClientEarth’s claim is in our client funds’ interests as a shareholder of Shell and we support it.”

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