Multi-Nationals Take Note – ESG-Based Shareholder Derivative Actions Are Going Global

Many corporate stakeholders in the U.S. are weighing how companies are managing climate risks, compared to how they are publicizing their awareness that those risks are real. When the discrepancies are obvious, some have filed ESG-based shareholder derivative actions that implicate directors and officers. So far the UK hasn’t seen that kind of litigation, but on March 14th a “letter before action” was sent by an organization called ClientEarth against the board of directors of Royal Dutch Shell, in what could be the first of its kind shareholder derivative litigation in the UK.

In 2021 the Hague District Court in the Netherlands directed Shell to reduce global emissions. At last year’s annual meeting the company announced a strategy “to become a net-zero emissions energy business by 2050.” It later announced a new target which was to reduce absolute emissions by 50% by 2030. ClientEarth alleges a disparity between these highly-publicized strategies and the board’s accounts and investment plans. It claims that Shell’s directors are guilty of mismanaging the climate risks of the company, and have therefore breached their duty to promote the success of the company under section 172 of the Companies Act 2006. The next step would be for ClientEarth to seek court permission to bring a derivative claim on behalf of the company against the directors personally. The chances of that are iffy, but D&O insurers are closely monitoring litigation trends and will likely require specific information on how companies are managing, disclosing and mitigating their ESG risks.

The suit claims that Shell’s directors are guilty of mismanaging the climate risks of the company and have therefore breached their duty to promote the success of the company under section 172 of the UK’s Companies Act 2006. D&O insurers are closely monitoring litigation trends, and will require specific information on how companies are managing, disclosing and mitigating their ESG risks.