European pension funds, including Sweden's AP3 and Danish pension funds Danica Pension and AP Pension, have backed a legal claim against the Shell board of directors.

As reported by our sister title, Pensions Age, ClientEarth filed the lawsuit with the UK High Court yesterday (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 two UK pension schemes, Nest and London CIV.

Commenting on the claim, Danica Pension acting head of active ownership, Mads Steinmüller, stated: "Society must and will move away from fossil energy, and energy companies must prepare for and help drive that transition.

"We want Shell and other energy companies to stop development of new oil projects in line with the recommendations from the International Energy Agency and continuously increase investments in renewable energy so that they have a relevant business in the future.

"If they fail to do so, it can hinder the green transition and affect the returns to our customers."

Adding to this, Nest CIO, Mark Fawcett, said: “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.”

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