A U.K. climate lawsuit Canadian D&O insurers may be following

A recent U.K.-based, climate lawsuit launched against Shell plc’s board of directors by NGO ClientEarth may lead to “copycat” litigation in Canada, lawyers warn, potentially affecting the D&O line of commercial insurance.

“Corporate climate litigation is still in its infancy in Canada,” as noted by Andrew MacDougall, Jennifer Fairfax, and Ankita Gupta of Osler, Hoskin & Harcourt LLP (Toronto) in a Mondaq blog post Wednesday.

“Although climate lawsuits are not new in Canada, most lawsuits to date have targeted governments and governmental actors. It remains to be seen whether any copycat suits along the lines of ClientEarth’s case will be commenced in Canada.”

Canada’s corporate statutes require company directors to act honestly and in good faith, with a view to the best interests of the corporation. Directors are required to exercise care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.

This same set of principles underpins ClientEarth’s lawsuit, the blog’s authors observe.

ClientEarth, an environmental NGO headquartered in London, England, and a token shareholder of oil company Shell, has as filed a derivative action in the High Court of England and Wales against the board of directors of Shell plc, alleging the company’s climate strategy is unreasonable. Its lawsuit is supported by a number of institutional investors holding 12 million shares in the company.

Per the blog’s authors, ClientEarth’s lawsuit alleges Shell’s directors breached their duty under the U.K. Companies Act to promote the success of Shell for the benefit of its members as a whole and to act with reasonable care, skill and diligence by allegedly failing to adopt and implement a climate strategy consistent with the Paris Agreement.

Shell denies the allegations, noting 80% of its shareholders approved its climate strategy, which includes a net-zero emissions plan. The company’s strategy is based on a 2050 target consistent with the Paris Agreement’s goal of limiting global warming to 1.5 C, the company argues.

“It is too early to tell what impact this case will have on Canadian businesses or businesses operating in Canada,” the lawyers note in their blog. “However, given the potential precedent-setting implications of the claim, the lawsuit should be followed closely as it works its way through the court.”

Also worth watching, the authors note, is the impact of the federal government changing the 1999 Canadian Environmental Protection Act to recognize a right to a healthy environment, following similar actions internationally.

“If passed, query whether the recognition of such a right will play any role in corporate climate litigation going forward,” the authors state.

Feature image courtesy of iStock.com/Petmal