Dutch Court of Appeal Overturns Shell Emissions Ruling: Implications for Corporate Climate Responsibility
13 November 2024
On 12 November 2024, the Court of Appeal of the Hague handed down its judgment overturning a landmark District Court decision that had mandated Shell PLC (Shell) to reduce its CO2 emissions by 45% by 2030. This judgment has significant implications for climate litigation and corporate responsibility, particularly in relation to human rights and environmental obligations.
The judgment is set against the backdrop of global legislative amendments, proposals and litigation focusing on ESG in recent years. These changes have been bolstered by a shift in consumer attitudes and investment behaviour, accompanied by increased regulator scrutiny of ESG issues. This, in turn, has been reinforced by mounting pressure to hold businesses accountable for their operations – bringing ESG and sustainability practices into even more focus.
Key takeaways
- Climate Change and Human Rights: The Court of Appeal recognised that protection from dangerous climate change is a human right. This aligns with global judicial trends, including the earlier Urgenda case in the Netherlands and the Verein KlimaSeniorinnen Schweiz v. Switzerland case, where courts have found that states have an obligation to protect citizens from climate change. The Court of Appeal also referenced international resolutions, such as the United Nations Human Rights Council's 2021 resolution 48/13, which recognises the human right to a clean, healthy, and sustainable environment for all people.
- Indirect Horizontal Effect of Human Rights: The Court of Appeal explored whether fundamental human rights could be invoked in relationships between citizens and private companies, as opposed to just relationships involving states. It considered various international guidelines, including the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and the United Nations Global Compact. The Court of Appeal concluded that companies have a responsibility to respect human rights and address adverse impacts, including those related to climate change.
- Corporate Responsibility: The Court of Appeal concluded that international companies like Shell have an obligation to limit CO2 emissions to counter climate change, even if this is not explicitly mandated by public law. This responsibility is reinforced by existing EU climate legislation, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
- Implications for Climate Litigation: Despite the headline that Shell's appeal succeeded, the judgment is not a significant reversal for climate litigation. The Court of Appeal's commentary on the duty of care for private companies in relation to climate change and human rights is likely to support future climate claimants. The risks for companies associated with climate litigation remain substantial, as the decision underscores the ongoing judicial recognition of corporate responsibilities in mitigating climate change.
Background
The Paris Agreement, which was adopted in December 2015 and came into force in November 2016, is a legally binding international treaty on climate change. Its overarching goal is to hold the "increase in the global average temperature to well below 2 degrees celsius" and pursue efforts "to limit the temperature increase to 1.5 degrees celsius above pre-industrial levels".
In April 2019, a group of Dutch NGOs, including Milieudefensie and 17,379 individual claimants filed an action against Shell in the District Court of the Hague. They argued that Shell had an unwritten duty of care under Article 6:162 of the Dutch Civil Code to prevent dangerous climate change, invoking Articles 2 (right to life) and 8 (right to respect for private and family life) of the European Convention on Human Rights (ECHR).
In May 2021, the District Court of the Hague ruled in favour of the claimants, ordering Shell to reduce its CO2 emissions by 45% by 2030, relative to 2019 levels.
The District Court's decision built upon the Dutch Supreme Court judgment in Urgenda which required the Dutch government to strengthen its climate change policy and set higher climate change targets. However, it was the first time that a court had extended the duty of care and requirement to reduce CO2 emissions as required under the Paris Agreement from a government to a company.
Appeal
Shell subsequently appealed the District Court's decision, noting among other matters, that it was already taking action to reduce its emissions and supporting the energy transition.
Shell further drew upon the April 2024 European Court of Human Rights (EctHR) ruling in Verein KlimaSeniorinnen in which it was found that Switzerland had breached the ECHR by not taking sufficient action against climate change. The court found a breach of Article 8 based on Switzerland's failure to mitigate the impact of climate change on the lives, health, well-being and quality of life of its citizens, but declined to order Switzerland to take any specific steps to bring itself into compliance. Shell argued that this case illustrated the principle that courts should exercise restraint with regard to managing climate change.
Court of Appeal Judgment
The Court of Appeal acknowledged Shell's responsibility to cut emissions but concluded that imposing a specific reduction target was not appropriate. The judgment emphasised that whilst companies like Shell have a duty to limit CO2 emissions, this obligation should not be enforced through the imposition of rigid targets.
Whilst the Court of Appeal overturned the District Court's decision, it also provided notable commentary on the scope of human rights obligations on corporates in the context of the climate crisis. The following key takeaways are particularly noteworthy:
Climate change and human rights
In order to determine whether protection against climate change is considered a fundamental right, the Court of Appeal considered recent judgments and resolutions not only in the Netherlands but from across the world. In addition to Urgenda and Verein Klimaseniorinnen, these included cases in Pakistan, Colombia, Brazil and Montana (US).
The Court of Appeal also drew upon, among other matters, the United Nations Human Rights Council's resolution 48/13 which recognised the human right to a clean, healthy and sustainable environment for all people. It concluded from this assessment that protection from dangerous climate change is a human right and there is a global recognition that states have an obligation to protect their citizens from the adverse effects of dangerous climate change. The Court of Appeal considered that companies such as Shell may similarly have a responsibility to take measures to minimise climate change.
Indirect horizontal effect of human rights
Fundamental rights in Dutch law generally do not have a horizontal effect between non-governmental parties (but instead have a vertical effect i.e. in a citizen-government relationship). In determining whether such rights can be invoked, at least to some extent, by citizens in their relationship with a private company, the Court of Appeal considered the following:
- Principle 11 of the UN Guiding Principles on Businesses and Human Rights which sets out that “Business enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved".
- The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, including Chapters IV and VI which set out guidelines in respect of human rights and environmental protection/climate change.
- The United Nations Global Compact which invites companies worldwide to work towards ‘corporate sustainability’ and ‘corporate social responsibility’.
- The International Organisation for Standardisation ‘Net Zero Guidelines’ which contain guiding principles and recommendations to assist organisations to achieve net zero greenhouse gas emissions as soon as possible and by 2050 at the latest.
- The Race to Zero initiative which calls upon on non-state actors, including companies, to take immediate action: "to halve global emissions within this decade and deliver a healthier, fairer, zero carbon world in time to achieve the goals of the Paris Agreement".
The Court of Appeal concluded that companies like Shell have an obligation to limit CO2 emissions in order to counter climate change, even if this obligation is not explicitly laid down in (public law) regulations of the countries in which the company operates. Fossil fuel producers therefore have their own responsibility in achieving the targets of the Paris Agreement. This forms part of a "duty of care based on the social standard of care" under Dutch law.
European Union's climate legislation
One argument considered by the Court of Appeal was that climate law is exhaustively set out in legislation, leaving no room for additional duties to be imposed by the court. The Court of Appeal noted that much legislation enacted in the European Union as part of the European Green Deal and Fit for 55 package postdated the District Court's 2021 judgment.
The Court of Appeal concluded that obligations on companies under existing legislation (including the CSRD and CSDDD) "do not preclude a duty of care based on the social standard of care on the part of individual companies to reduce their CO2 emissions". Obligations contained in legislation were not exhaustive in and of themselves.
Scopes 1, 2 and 3 emissions
The District Court's judgment required Shell to reduce each of its scope 1 (direct emissions from its own installations), 2 (indirect emissions from purchased electricity, steam or heat) and 3 (indirect emissions arising from the use of its products) emissions. As a fossil fuel producer, 95% of Shell's emissions fell within scope 3.
In respect of scopes 1 and 2, the District Court found that Shell had publicly committed to reduce its emissions by 2030 by a greater percentage than had been requested by the claimants in their 2019 claim. In the absence of evidence that Shell would not achieve its plans in this regard (which the Court did not consider was before it), the Court of Appeal concluded that there was no impending violation of a legal obligation which entitled it to order the relief sought.
In respect of scope 3, the Court of Appeal conducted a lengthy analysis of the effect of Shell's activities on its scope 3 emissions. It rejected the argument that Shell bore no responsibility for its scope 3 emissions (on the basis that Shell's scope 3 emissions were its customers' scope 1 and 2 emissions), observing that corporate responsibility for scope 3 emissions is found in a number of instruments including the CSRD, CSDDD and OECD guidelines. However, the Court of Appeal considered itself unable to order that Shell reduce its scope 3 emissions by the 45% as requested by the claimants. The 45% figure was extracted from sources such as the Intergovernmental Panel on Climate Change (IPCC) reports as a global emission reduction in line with the objectives of the Paris Agreement. However, the 45% figure was not specific to Shell, nor to the oil and gas industry in general. The Court of Appeal concluded that "the available figures do not provide the court with sufficient support to oblige Shell to reduce its CO2 emissions by a certain percentage in 2030".
The Court of Appeal was also influenced by the argument that restricting Shell's trading activities in oil and gas may not lead to any reduction in global CO2 emissions, as other companies might be expected to assume its role in the market.
Oil and gas operation consequences
An issue addressed in the Court of Appeal's judgment, albeit not the subject of a specific request for relief, was the extent to which Shell, and other fossil fuel producers, may make new investments in oil and gas.
The Court of Appeal concluded that oil and gas companies are expected to take into account the negative consequences for the energy transition when investing in new oil and gas fields as these investments will expand the supply of fossil fuels. This leaves open the possibility of future, more targeted, claims relating to whether specific oil and gas investments are consistent with a duty to counter climate change.
A further appeal?
In advance of the Court of Appeal judgment, the claimants had indicated that they would appeal an adverse ruling further – to the Dutch Supreme Court. It remains to be seen whether the decision is taken to do this.
Conclusion
The Court of Appeal's decision to overturn the District Court's ruling on Shell's emissions reduction targets has nuanced implications for corporate climate responsibility. Whilst the specific order on Shell was lifted, the judgment reinforces the broader principle that companies have a duty to address climate change and respect human rights. This decision, in line with recent global judicial trends, underscores the continuing obligations of corporations to contribute to the fight against climate change. The risks of climate litigation for companies remain significant, as courts increasingly recognise the intersection of human rights and environmental protection.
What wider application does the Court of Appeal's judgment have to fossil fuel producers in other jurisdictions?
The Court of Appeal's decision was specific to Dutch law, and at the time of the 2021 District Court judgment, there was scepticism that the approach taken in relation to Shell's duty of care would be adopted by a common law court, like that of England. However, the discussion of climate litigation judgments from a variety of jurisdictions in the Court of Appeal's judgment illustrates the extent to which there is a cross-pollination of legal reasoning between jurisdictions, as courts over the world navigate evolving legal duties in the light of the global challenge of climate change. Since the District Court judgment, the common law Supreme Court of New Zealand has declined to strike out a claim against corporate emitters, remitting the case for a full trial. One of the claims advanced in that litigation is on the basis of a common law duty to cease contributing to the damage to the climate system. It is likely that the Dutch Court of Appeal's finding of a duty to counter climate change will form part of the arguments in that New Zealand litigation, as it proceeds.
2024 is likely to be seen as a landmark year for climate litigation judgments, with the Dutch Court of Appeal's decision following the EctHR's judgment in Verein KlimaSeniorinnen in April of this year. In each case, the court was prepared to find that a novel duty in relation to climate change existed; in the Dutch case, on the part of a company, in the EctHR case, on the part of a state. But each Court declined to make an order specifying what the defendant should do to mitigate the effects of climate change.
A theme that emerges is that courts are receptive to finding that a duty of care exists, but warier about determining what specifically that duty entails and how it may be discharged. This dynamic may play out in future climate litigation in the form of more focused claims, targeting specific projects or activities, rather than more ambitious challenges to the business models of companies.
Authors: Miran Bahra, and Tom Cummins
