"ESG is likely to become a significant source of liability exposure in the future, although particularly around social issues, it’s always difficult to foresee the issues, movements, or trends that may drive claims activity in the future."
- David Ackerman, commercial D&O co-head of global practice group and financial institutions claims at AGCS
Alexandra Nurse, a member of London FOIL and partner at Kennedys, has said the pre-action claim against Shell’s board follows a decision handed down in the Netherlands where the District Court of the Hague found that Shell must reduce its carbon dioxide emissions by 45% by 2030.
“This claim was brought by seven environmental associations and NGOs acting as co-claimants,” she said. “ClientEarth has already brought a successful shareholder action in Poland against energy company Enea, but this is the first such action in the UK.”
Despite ClientEarth’s previous success, Nurse highlighted that McGaughey & Anor v Universities Superannuartion Scheme Ltd & Anor was the derivative action that paved the way for the ClientEarth v Shell case.
Lecturers and members of the Universities Superannuation Scheme filed legal action against the directors of the Universities Superannuation Scheme for director duty breaches and sought the court’s permission to pursue those claims by way of derivative action, according to Nurse.
The directors were accused of multiple failings relating to a controversial 2020 valuation, and the alleged failure to engage purposefully with the divestment of fossil fuel investments.
“At an inter-parties hearing the presiding judge commented that the claimants needed to prove the USS suffered a loss mirroring that suffered by the members of the USS,” said Nurse. “This was because of a deliberate or dishonest breach of duty, or otherwise as a result of USS directors’ improperly benefiting themselves at the scheme’s expense.”
“The judge found no evidence the USS had suffered such a loss. Importantly, the judge agreed that beneficiaries of a pension fund corporation do have the right to sue directors for breach of duty. However, in this case, there was insufficient evidence to support the claimants’ claims.”
These cases demonstrate that the attention given to ESG issues and the necessity for climate change-related claims is increasing.
Commenting on the recent activity on ESG issues, David Ackerman, commercial D&O co-head of global practice group and financial institutions claims at AGCS has said:
“In the US and Europe we see growing environmental and biodiversity regulation, including reporting requirements. This has not led to large losses yet but may well do so in the future.
“We are very focused on analyzing and monitoring ESG risks and better understanding how they may evolve and translate to severity.”
Angela Sivilli, commercial D&O co-head of global practice group and financial institutions claims at AGCS adds:
“Younger generations will not allow companies to continue investing in fossil fuels and carbon-intensive activities and will seek to hold companies and directors to account for their actions related to climate change, including claims for greenwashing.
“While the focus of ESG is currently on climate change and board diversity, there are a host of potential topics for the future, such as biodiversity, sustainability, and the wider impact of an organization on society.”