Climate activists want to hold directors to account

Found in: Blog

But doing it through derivative actions will be tough

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 [2023] 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.

Key points
  • Courts are ill-equipped to take over corporate decision-making.
  • It is for the directors themselves, acting in good faith, to determine how to best promote the success of a company for the benefit of its members as a whole. In doing so, directors must have regard to many competing considerations, not just climate change.
  •  Courts will not act as a kind of supervisory board over decisions made by management which are honestly made.
  • ClientEarth failed to lead properly admissible expert evidence to establish a prima facie case that the directors’ approach to climate risk fell outside the range of reasonable responses open to the board of a company such as Shell. The evidence did not show how the directors got the balancing exercise they are required to carry out - of weighing the many risks Shell’s business is exposed to - so wrong as to be actionable.
  • The Court did not find in favour of the existence of specific and incidental climate related directors’ duties, which Client Earth alleged arose upon Shell’s adoption of a climate strategy. Climate change does not have an overriding status in the context of directors’ duties.
  • The formulation of the injunctions sought by ClientEarth (see above) was too imprecise and incapable of the Court’s supervision to be suitable as an order of the Court.
  • ClientEarth’s motivation was driven by something other than a balanced consideration as to how best enforce the multifarious factors which the directors are bound to consider when assessing what is in the best interests of Shell. The Court said:

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]

Take aways

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.


Grondal Bruining is a commercial law and litigation firm. We focus on energy, natural resources, infrastructure and industrials. Our professional team is committed to providing the highest quality service and providing outstanding benefits to clients, delivering proactive legal advice and litigation services.

The material in this article is provided only for general information. It does not constitute legal or other advice. 

Contact Grondal Bruining for advice specific to your circumstances on +61 8 6500 4300. 

Limited Liability by a scheme approved under Professional Standards Legislation.

Disclaimer and Terms of Use