ESG Weekly Update – September 6, 2023

6 September 2023

UK: Court Rejects ClientEarth Attempt to Sue Shell Plc Directors

In two recent decisions, the UK High Court dismissed ClientEarth’s attempt to launch a derivative action against the directors of Shell Plc in respect of their alleged failures to properly address the risks of climate change. ClientEarth, a minority shareholder of Shell Plc, argued that the directors breached their legal duties under Section 172 of the Companies Act 2006, which requires directors to act in a way that they consider most likely to promote the company’s success for the benefit of its shareholders as a whole.

The High Court’s decisions indicate that claims of this nature, at least insofar as they are brought by minority shareholders who are not typical investors (e.g., NGOs and other nonprofits such as the claimant in these cases), will face significant challenges.

Notably, the court held that:

  • Courts will place significant weight on the fact that directors (especially those of large multinationals) have to balance a myriad of competing considerations when seeking to promote the success of the company for the benefit of the members as a whole. Courts are reluctant to interfere with the proper balancing of these factors, making it harder for claimants to establish that the directors have breached their statutory duties; and
  • Claimants bear the burden of showing that the primary purpose of the derivative claim is not for an ulterior motive. It may be challenging for claimants, such as NGOs or activist organizations, to prove that they are bringing the claim in good faith. This issue is likely to be even more acute where the claimant only holds a de minimis shareholding in the company.

Following the second High Court judgment, the court ordered ClientEarth to pay the costs of the proceedings, disapplying the exemption from granting costs at this stage of proceedings.

For more information on this, check out our detailed update here.

ClientEarth v Shell Plc [2023] EWHC 1137 (Ch)
ClientEarth v Shell Plc [2023] EWHC 1897 (Ch)

Australia: Government Settles Sovereign Debt Climate Suit

On August 23, 2023, details of a settlement in a class action lawsuit against Australia were made public. The claim alleged that the government misled investors by failing to disclose risks posed by climate change to government bonds due in 2047 and 2050.

The case was brought by Australian university student Katta O’Donnell on behalf of investors. Under the terms of the settlement, which is scheduled to receive final approval by the court on October 11, the Australian Treasury must post a public statement to their website acknowledging the systemic risks of climate change in return for the lawsuit being dropped. However, the proposed statement does not include a commitment to increase any specific environmental disclosures in future bond issuances. Instead, the statement focuses on the Australian government’s existing climate-related disclosures and initiatives including the Climate Change Act 2022 (Cth) and an announced US$24.9 billion in new climate-related spending.

The lawsuit and its subsequent settlement, both first of their kind, mark a symbolic victory for environmental advocates. As O’Donnell, the plaintiff in the case, notes, no other country with a AAA credit rating “has acknowledged climate change is a systemic risk when talking about risks to government bonds.”

Notice of Settlement: Kathleen O’Donnell v Commonwealth of Australia (VID482/2020)

Global: ShareAction Urges ISSB to Prioritize Development of Unified Social Disclosure Standards

On August 29, 2023, ShareAction, an NGO campaigning for responsible investment, sent a letter on behalf of a group of investors collectively managing over US$1 trillion to the International Sustainability Standards Board (“ISSB”). The letter calls on the ISSB to prioritize research into, and development of, a set of standards for human capital and human rights-related disclosures in its upcoming two-year work plan.

In particular, the letter argues that human capital and human rights-related concepts are increasingly important in determining the financial performance and value of businesses including as it relates to reputational risks. The letter further argues that the ISSB should treat human capital and human rights as interrelated rather than conceptually distinct areas of focus. ShareAction identifies a number of intersections between the two concepts including in areas related to unionization and diversity and inclusion initiatives. In addition, ShareAction argues that an integrated approach is necessary to provide stakeholders with a unified social disclosure framework.

For more information on the ISSB standards, check out our detailed update here. ShareAction’s letter was sent on behalf of Achmea, Rathbone Greenbank Investments and Raiffeisen Switzerland, among many others.


Global: Asia-Focused Carbon Offsets Registry Launches in Singapore and Hong Kong

At the end of August 2023, the Asia Carbon Institute (“ACI”), an Asia-focused carbon offsets organization and registry, launched in Singapore and Hong Kong. ACI’s mandate is to check the legitimacy of green projects and, if eligible, certify and register carbon credits for the voluntary carbon market.

ACI targets offsets generated from green technology and scrutinizes sustainability initiatives in Asia. ACI founder John Lo announced that the registry aims to have 50 listed projects in the next six to 12 months, each project ranging from 1,000 tons to more than 1 million tons a year of carbon emissions offsets.

The new registry would be among the first for Asia, competing with global players such as Verra’s Verified Carbon Standard, Winrock International’s American Carbon Registry and the Climate Action Reserve.

Asia Carbon Institute