Shell Wins; the World Loses

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The Supreme Court sided with Royal Dutch Shell (NYSE: RDS-A  ) today in the landmark Kiobel v. Royal Dutch Petroleum case dealing with alleged corporate human rights abuses in the Niger River Delta. This decision constitutes a disgraceful victory for corporate impunity. Shell shareholders would be shortsighted to celebrate, and responsible investors have the power to do what the judiciary won't.

Dismissed, but not innocent
To be clear, the Supreme Court did not find Shell innocent of the accusations against it. Those accusations are for crimes against humanity, including torture and extrajudicial executions. Rather, the court found that the case could not be resolved in U.S. courts under a federal law called the Alien Tort Statute (ATS), because Shell is a foreign company that allegedly committed acts against foreign victims on foreign soil. Never mind that Shell is listed on the New York Stock Exchange and earned almost 20% of its 2012 revenue in the United States.

In the past, activists have used the ATS as an accountability tool for the worst corporate human rights abuses. Indeed, the groundbreaking 1997 Doe v. Unocal case -- which yielded compensation for victims of horrific abuse by security forces while working on a natural gas pipeline in military-ruled Burma -- was brought under the ATS. Today's result seriously curtails the future applicability of the ATS.

If your interest as an investor is purely in the bottom line, you might think this is a very good development. That kind of thinking could get you into trouble, though. I asked Bennett Freeman, senior vice president of sustainability research and policy at Calvert Investments, for his reaction to today's judgment.

"What's crystal clear here," Freeman said, "is that this decision is going to make it very difficult, if not impossible, to use the [Alien Tort] Statute for this purpose in the future. This was a very significant ruling." But Freeman emphasizes that the court's decision should in no way be interpreted as undermining a consensus that the international community long ago established: Business has a responsibility to respect human rights. Indeed, this responsibility is embodied in the United Nations' Guiding Principles on Business and Human Rights (link opens PDF).

A glimmer of good news
For as troubling as today's decision is, it's important to remember that Shell lost on some key points. The company had shamelessly argued that corporations are immune from the ATS, and the court didn't buy that. It's interesting how corporations want to enjoy the same rights as people when it comes to things like free speech, but none of the responsibilities of people when it comes to criminal liability.

Furthermore, the court's finding does not undermine the use of the ATS in cases of human rights abuses. It just requires a stronger connection to the United States. That means that other ATS cases currently working their way through the legal system, such as Earth Rights International's case against Chiquita (UNKNOWN: CQB.DL  ) for allegedly funding and arming Colombian terrorists, are still on track. That also means that the link from human rights violations to corporate liability remains.

A role for investors
Investors have tools available to them that subvert the courts entirely. Increasingly, activist investors are filing shareholder resolutions with corporations to pressure them to manage their human rights risks more effectively.

For example, Chevron (NYSE: CVX  ) is embroiled in a take-no-prisoners battle with its shareholders over a $19 billion lawsuit in Ecuador for its pollution of that country's rainforests. Last year, in connection with the Ecuador debacle, more than a third of Chevron's shareholders voted to strip the CEO of his other role as chairman of the board. Investors also continue to propose resolutions requesting greater transparency from Chevron on its decision-making process with regard to entering countries with poor human rights records. These salvos from shareholders are becoming increasingly difficult for companies to ignore.

Last month, the Institute for Human Rights and Business, in collaboration with Calvert Investments and the Interfaith Center on Corporate Responsibility, published a guide, "Investing the Rights Way," that helps investor to assess human rights risk. Bennett Freeman advises investors to treat human rights as a critical part of their due diligence process.

"The wrong takeaway for investors is that they don't need to worry about human rights risks or potential liability, or that somehow this is a blow against corporate responsibility," Freeman said. "The best takeaway is to realize that companies, and therefore investors, face human rights risks and share human rights responsibilities, and that has not changed one iota."

The Supreme Court gave Shell a pass on this one, thereby denying justice to people who have already suffered so much. Investors can and should demand better for their money.

There are energy plays out there with lower human rights risks. Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past two years. The stakes have never been higher for the company: Is it done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must-know side of this stock. To get started, simply click here now.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 17, 2013, at 11:24 PM, 19leonard wrote:

    Everyone is entitled to his/her opinion, yet I fail to see a good justification of opinionated article in this forum of TMF.

    The Supreme court ruled. They represent the law in the applicable jurisdiction. If you believe the facts regarding Shell (which I'm not disputing), have the legal battle fought in the courts with the right jurisdiction and don't blame the judges for their carefully weighed verdict.

    As for your side-step to the Chevron case in Ecuador: this shows that in your op-ed you let yourself lead by your conclusion. Look up the facts: Chevron did not spill in Ecuador; it acquired Texaco that allegedly did. The Ecuadorian judge was found corrupted in the case, the evidence was found fabricated, etc.

    Please keep TMF a clean place with facts if they ate facts or state that what you write is your opinion not factual.

    Thank you

  • Report this Comment On April 18, 2013, at 8:28 AM, rexchasing wrote:

    I agree with 19leonrad. This article is not much more than the writer's opinion regarding the U.S. courts being an appropriate venue for basically anyone in the world who has a gripe against anyone else (that's not much of an exaggeration). The Supreme Court disagreed by a 9-0 vote. See today's Wall Street Journal editorial for a different opinion on the matter (also, it's labeled as an opinion).

    Meanwhile, I guess you have to look elsewhere to get some analysis on Shell as an investment.

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