Shell directors sued over flawed climate strategy: What does this mean for NZ directors?

• Law Firm: LegalVision
• Subject Matter: Corporate/Commercial Law, Environment, Directors and Officers, Climate Change
• Author: Ms Nina Vanderlaan
• Published date: 24 April 2023

Recent litigation brought in the UK against Shell directors has highlighted the increasing need for directors to consider the impacts of climate change when exercising director duties and making decisions for their companies.

If you are the director of a company in New Zealand, you are subject to a range of legal duties under companies law, including to:

• act in good faith and in the best interests of the company and its shareholders, and
• exercise due care, diligence and skill that a reasonable director would exercise in the same circumstances.

This article will explain the Shell litigation in detail, the broader global context, and the potential impact on New Zealand company directors. We discuss what you should be turning your mind to when exercising your directors duties.

What is the Shell Case About?

On February 9 2023, ClientEarth, a non-profit environmental law non-government organisation, brought a case against Shell. ClientEarth purchased a small shareholding in Shell which allowed it to bring a claim against company directors on behalf of the company for breach of their legal duties. Other institutional investors also supported this claim - together holding over 12 million shares in Shell - and brought a derivative action against Shell.

Derivative actions are a type of legal claim in New Zealand and can result in personal liability for directors.

ClientEarth claims that Shell's directors have breached their director duties under the UK's companies law by failing to properly prepare the company for an energy transition away from fossil fuels. They say this is a necessity as a result of climate change. Likewise, without this transition, the company's assets and value will be negatively impacted.

Additionally, they claim it is in the best interests of the company, its employees, and its shareholders (as well as the environment) for Shell to reduce its emissions more rapidly than it is currently planning. They are seeking an order from the UK High Court that Shell be required to strengthen its climate strategy.

Is there a Broader Context to This Case?

This is not the first time Shell has had a run-in with the law regarding the impact of its actions on the environment.

In 2021, a Dutch court ruled that Shell had a duty of care to reduce its carbon emissions, ordering that the company take proactive steps to cut its overall emissions by 45% by 2030. The case is under appeal, and Shell has yet to take the action directed by the existing court order...