“Precedent-setting” case highlights risk for corporate directors

Now that corporate directors may face personal liability for ESG failures, boards are likely wondering what they can do to mitigate their risk.

Last week, ClientEarth filed a lawsuit against the 11 directors of Shell plc, alleging they were personally liable for the energy giant’s failure to set meaningful emissions reduction targets to achieve net zero.

“It’s precedent-setting,” Conor Chell, head of the MLT Aikins ESG practice group, said of the lawsuit. “We haven’t seen personal liability before in this context.”

Speaking at the Law Society of Ontario’s In-House Counsel Summit in Toronto on February 16, Conor noted a large number of Shell’s institutional investors support ClientEarth’s lawsuit. Other activist investors – such as Engine No. 1, which waged a successful battle to replace three of Exxon Mobil Corporation’s directors – have also received widespread support from institutional investors.

Following a panel discussion on ESG litigation risks and greenwashing claims, Conor was asked what companies with limited in-house resources can do to manage their risks. While much of the recent ESG litigation and enforcement action has focused on corporate disclosure made in sustainability reports and marketing materials, there are other risks companies must be aware of, Conor said.

“What I typically advise clients to do is look outside the four corners of their ESG or sustainability reports,” he said. “There are so many examples of companies that have gotten into trouble that isn’t related specifically to their disclosure.”

One example is activist investor Elliott Investment Management LP targeting a Canadian energy company that had 12 workplace fatalities since 2014 – a statistic that wouldn’t have been included in a sustainability report. Elliott has now succeeded in replacing three of the company’s directors.

“You need to identify your sources of risk,” Conor said, and align your ESG strategy accordingly.

Conor regularly speaks at ESG conferences across North America and has been quoted by numerous media outlets on ESG risks and opportunities. Last year, he was recognized as a thought leader in environmental law by Mondaq. Learn more about Conor’s practice.