Activists Sue Individual Corporate Directors For Failing To Meet Esg Goals (2023)

In March 2022, ClientEarth – a group of environmental lawyers who are shareholders of energy giant Shell plc – threatened to take legal action against Shell’s directors, alleging they were personally liable for the company’s failure to set meaningful emissions targets.

ClientEarth has now made good on that threat. On February 9, 2023, ClientEarth announced it had filed a lawsuit against Shell’s 11 directors, marking the first time shareholder activists have sought to hold the directors of a company personally liable for an allegedly unrealistic net zero plan. Notably, the group has the support of institutional investors holding more than 12 million shares in Shell.

ClientEarth says Shell’s directors breached their duties under the UK’s Companies Act by failing to create an energy transition strategy that aligns with the Paris Agreement. Specifically, ClientEarth alleges that Shell’s net zero plan lacks short- and medium-term targets to reduce Scope 3 emissions, which account for more than 90% of Shell’s emissions. ClientEarth also claims Shell will cut its emissions by only 5% by the year 2030, despite being ordered to slash emissions by 45% by a Dutch court in 2021.

ClientEarth is asking the High Court of England and Wales to order Shell’s directors to implement a climate strategy that meets the requirements of the Companies Act and satisfies the Dutch court order.

It’s not just directors who run the risk of facing personal liability – corporate officers may also be held personally liable for ESG oversights following a recent landmark ruling in the U.S.

In January, the Delaware Court of Chancery ruled that shareholders of McDonald’s can sue former chief people officer David Fairhurst over allegations that he turned a blind eye to sexual misconduct by the company’s former CEO, thereby allowing sexual harassment to spread through the workplace.

According to Reuters, Fairhurst argued he couldn’t be sued because Delaware judges had always held that oversight obligations resided with directors, not officers. But the Court found it was “illogical” to assume that officers have no duty of oversight.^[1]