Oil Investors ‘Face Serious Risk’

by | Dec 11, 2012

Oil investors could be at serious financial risk if they fail to hold companies responsible for their environmental practices and impact on communities in fossil fuel-rich nations, according to an academic report conducted by the University of Essex.

The report, which was produced with support from Amnesty International UK and Fair Pensions, focuses on a shifting legal environment in which Royal Dutch Shell can expect to face an increase in lawsuits.

“Corporate Liability in a New Setting: Shell and the Changing Legal Landscape for the Multinational Oil Industry in the Niger Delta” says RDS and its subsidiaries are vulnerable to large-scale lawsuits brought before courts in the EU and US for oil pollution, failure to meet US and EU securities law, corruption, and labor practices in oil-rich regions such as the Niger Delta.

For example, Shell has claimed local sabotage has caused pollution in the Niger Delta. Evidence suggests that while sabotage is sometimes to blame, so is badly maintained equipment, said Sheldon Leader, director of the Essex Business and Human Rights Project, which published the report. This should cause shareholders great concerns because increased litigation must raise questions about the company’s future financial liabilities, Leader said.

While the report focuses on Shell, it aims to act as a blueprint for investors of any multinational oil companies. The report provides investors with samples of detailed questions they should ask oil companies in order to learn more about their environmental standards and potential financial risk they might cause.

Shell appeared in a Dutch court in October to face compensation claims for environmental damage caused by oil spills in Nigeria, the WSJ reported. This is the first time a Dutch multinational has been sued in the Netherlands over the behavior of a subsidiary abroad, and could set an important legal precedent.

The oil company has had legal troubles in other countries as well. In July, a Brazilian court ordered local subsidiaries of Shell and BASF to pay $382 million into a compensation fund to cover costs for about 1,000 workers who allege they were contaminated and sickened at a chemical plant.

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