May 31, 2022

ClientEarth v Shell – The beginning for climate change litigation in the UK?

Posted in Dispute Resolution

Climate change litigation has been on the rise since 2015. A report published by the London School of Economics and Political Science in 2021 found that globally 1,006 climate-related cases had been filed between 2015 and 2021. This is a noticeable increase on the 834 cases filed between 1986 and 2014.

To date, the majority of cases are bought against governments. For example, ClientEarth are suing the UK Government over its net zero strategy and potential breaches of their duties under the Climate Change Act 2008. This hearing is due to take place in early June 2022.

In March 2022, ClientEarth, as a shareholder of Shell Plc, announced that they were taking a derivative action against Shell’s board of directors for mismanaging climate risk and failing to prepare for the transition to net-zero. They have based their claims on breach of duties under sections 172 (the duty to promote the success of the company) and 174 (the duty to exercise reasonable care and skill) of the Companies Act 2006. This will be the first time that a company’s board has been challenged in this way, in an attempt to hold directors personally liable for their actions surrounding climate change.

Whilst the claim remains in its early stages, as ClientEarth has not yet filed papers with the Court and would need permission to do so, this could be the beginning of a shift towards litigation directed at corporate entities from individuals, activists, and non-governmental organisations.

The main considerations that we can take away from ClientEarth’s initial action are:

  1. Climate change litigation will continue to grow, potentially in a strategic manner to force action on climate change
  2. There will likely be an increase in the use of the justice system to push corporate entities to honour and increase their climate change commitments
  3. There is a risk to directors and shareholders that they can be held personally accountable for a company’s strategy and actions.

If this action continues, and is permitted by the Court, it is likely to attract attention and raise awareness of the ongoing challenges that climate change brings as well as a means of holding people accountable to their failure to make change.

Dispute Resolution Partner, Tom Llewellyn, “The Environmental, Social and Governance (ESG) agenda and momentum for climate change to be at the forefront of governmental and corporate activity shows no sign of slowing down. It is vital that corporate entities give due consideration to this potentially growing risk of litigation, with its associated dangers of escalating costs, reputational damage, and diversion of resources”.