Climate activists want to hold directors to account
Found in: Blog
Found in: Blog
In a final decision published on 24 July 2023, the High Court of Justice of England & Wales dealt a blow to shareholder activists who want to hold directors of large oil & gas corporates to account over climate change: ClientEarth v Shell Plc & Ors  EWHC 1897 (Ch).
ClientEarth is a private non-profit environmental law company and a UK registered charity. It holds 27 shares in Shell. It sought to bring a ‘derivative’ claim against Shell’s directors in relation to: (a) Shell’s climate change risk management strategy, and (b) Shell’s response to an order made by the Hague District Court to limit the volume of its CO2 emissions (Dutch Order). Being a proposed ‘derivative’ claim, ClientEarth was seeking relief on behalf of Shell in respect of a cause of action vested in Shell.
ClientEarth sought a declaration that the directors had breached their duties to Shell and a mandatory injunction requiring the directors to: (a) adopt and implement a strategy to manage climate risk in compliance with their statutory duties, and (b) comply immediately with the Dutch Order.
Rather than concentrating on how a director might be criticised for a bad faith refusal to balance those factors properly (as to which there is no evidence), ClientEarth has adopted a single-minded focus on the imposition of its views and those of its supporters as to the right strategy for dealing with climate change risk. This points strongly towards a conclusion that its motivation in bringing the claim is ulterior to the purpose for which a claim could properly be continued. [at 93]
ClientEarth’s proposed derivative claim was optimistic at best. There was a fundamental defect in ClientEarth’s case because it ignored the fact that the management of a business of the size and complexity of Shell will require the directors to consider a range of competing considerations, the proper balancing of which is a classic management decision courts are ill-equipped to interfere with.
It is yet to be seen how Australian courts will deal with similar cases. The case does suggest, though, that courts are not going to easily break down established legal principles because of the magnitude of the climate emergency.
Climate activists will doubtless seek to utilise other ways of holding directors to account (e.g. greenwashing claims), but doing it through a derivative action will be tough, at least in England & Wales.
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