‘Deeply disappointed’: Court of Appeal refuses to hear ClientEarth’s claim against Shell’s directors

The Court of Appeal has been accused of giving Shell a ‘free pass’ by dismissing ClientEarth’s lawsuit against the company's directors, but the legal NGO has warned that the oil giant should ‘not breathe a sigh of relief’ given that the High Court confirmed that corporate directors do have a duty to manage climate risk.

The lawsuit alleged that Shell’s 11 directors had breached their legal duties under the Companies Act 2006 because of a failure to adopt and implement an energy transition strategy that aligns with the Paris Agreement. 

Earlier this year, the High Court of England and Wales dismissed the lawsuit. ClientEarth appealed this decision, but the Court of Appeal has now refused to hear the legal challenge. 

READ MORE: Why the dismissal of ClientEarth’s case against Shell will have ramifications for other NGOs seeking to change corporate behaviour

ClientEarth brought the lawsuit in its capacity as a shareholder, but procedural objections raised by the court included the notion that as an environmental legal organisation, ClientEarth could not be acting in the best interests of the company. 

Responding to the decision, Paul Benson, ClientEarth’s senior lawyer, said: “We are deeply disappointed by this decision, which we think is wrong and misguided.

“No doubt Shell will say that this decision vindicates its board’s direction, but the reality is that by failing to grapple with the issues, or even hear our appeal, the court has given Shell a ‘free pass’.” 

However, he added that “directors should not be breathing a sigh of relief”, given that the High Court confirmed that corporate directors do have a duty to manage climate risk, which he said is “significant in itself”. 

“While this claim did not pass procedural hurdles, the legal risk facing boards is still very real. So too is the rapidly escalating threat that climate change and the energy transition presents to all fossil fuel majors. Given the scale of climate risk facing companies, and the Court's acknowledgement of the materiality of climate change to oil companies, it is inevitable that directors will be found liable as that risk is mismanaged. If not today, then in the future,” he added. 

ClientEarth’s lawsuit received the support of institutional investors with more than 12 million shares in the company, and more than half a trillion US dollars (£450 billion) in total assets under management. 

According to ClientEarth all of these investors said the lawsuit was in their best interests as shareholders. 

UK pension fund London CIV was one of the institutional investors supporting the case. Its chief sustainability officer Jacqueline Amy Jackson said: “This isn't just a problem for Shell. While climate risks are rising for oil and gas investments, this issue extends across many more companies across a myriad of sectors. One thing is crystal clear – failing to meet climate goals and increasing emissions has a widespread impact on global biodiversity and GDP. This raises doubts about the long-term viability of companies often considered ‘safe’ (and therefore viable) investments across all sectors.”

ClientEarth said that since it filed the lawsuit, Shell’s board has weakened its transition strategy further by abandoning oil production reduction targets and slashing investment in renewables. 

ENDS has contacted Shell for comment. 

Benson added that ClientEarth is “undeterred by this decision”, and will “keep fighting for accountability from people in the driving seat of companies steering further into climate catastrophe”. 

“One of the oft-touted advantages of our legal system is its agility and flexibility in response to the critical issues of our time. Courts cannot avoid the important questions that climate change poses to traditional legal conventions. It is imperative that judges of all expertise get to grips with climate science and what the realities mean for companies, the economy and society at large. 

“It was always clear that directors have wide discretion, and rightly so. But this discretion has limits, and the law must allow for directors to be held to account when their actions fly in the face of seismic risk.  

“Neither court decision addressed the crucial question of the board’s climate risk management. Shell has therefore evaded legal scrutiny of its strategy.”