Milieudefensie et al v Royal Dutch Shell: Where does corporate climate litigation go from here?
*By Joe Fox
On 12 November 2024, the Hague Court of Appeal handed down its long-awaited ruling in the appeal of Milieudefensie et al. vs. Royal Dutch Shell (Milieudefensie). The judgment – which overturned a District Court order that required Royal Dutch Shell (Shell) to reduce its net CO2 emissions by 45% by 2030 (compared with 2019 levels) - has been described as a ‘setback…for the climate movement’ and ‘a blow to communities all over the world who are bearing the brunt of climate inaction’ (Kirtana Chandrasekaran, Friends of the Earth International). But what are its legal implications for climate litigation moving forward? This blog post takes stock of where we are now, and what lessons we might take forward from this significant case. It concludes that while the Court of Appeal’s finding that corporate actors’ do not have an ‘absolute [emissions] reduction obligation’ is instinctively disappointing, there are some bright spots to be found in the Court’s reasoning.
Background
On 26 May 2021, the District Court of the Hague handed down its judgement in Milieudefensie. The lawsuit was brought by several non-governmental organisations and individuals against Shell on the basis that its inadequate actions to reduce its emissions – coupled with its long knowledge of climate change and misleading statements regarding the issue – constituted an unlawful endangerment of Dutch citizens and hazardous negligence.
In a world-first, the District Court recognised the existence of a corporate duty of care to mitigate climate change through emissions reduction. Specifically, the Court concluded that Shell’s mitigation duty ‘ensues from’ Article 6: 162 of the Dutch Civil Code, which defines tortious acts as including acts and omissions ‘in violation of […] what according to unwritten law has to be regarded as proper social conduct’ (para 4.4.1). What constitutes ‘proper social conduct’ must be interpreted in light of ‘circumstances of the case’ (para 4.4.1). According to the Court, relevant circumstances in this context included the scientific consensus regarding the causes and impacts of climate change (paras 4.1.3, 4.4.27), as well as ‘widely accepted soft law instruments’ such as the UN Guiding Principles on Business and Human Rights (UNDP) and the OECD Guidelines for Multinational Enterprises (para 4.4.11). This enabled the Court to ‘deduce’ that companies like Shell are required to respect human rights enshrined in international instruments like the International Covenant on Civil and Political Rights (ICCPR) and the European Convention on Human Rights (ECHR), because these soft law instruments set out businesses’ responsibility to respect human rights (para 4.4.14). Instruments like these indicate ‘that it is universally endorsed that companies must respect human rights’ (para 4.4.11). The UNGP, for instance, is unanimously endorsed by the Human Rights Council. It has also been reflected in the standards set by the European Commission since 2011 (para 4.4.11). Thus, it did not matter whether or not Royal Dutch Shell had specifically committed to the UNGP (although it had claimed to support the UNGP on its website). This is not a ‘passive’ or ‘optional’ responsibility when it comes to climate change (para 4.4.15). Rather, businesses must take positive action to ensure their activities (which include both acts and omissions) respect human rights, including where threats arise from environmental damage caused by these activities. This line of reasoning that compliance with the duty of care involves an obligation to respect human rights is significant in extending the application of human rights treaties ‘horizontally’ to corporations in addition to States. ‘[T]his responsibility of businesses exists independently of states’ abilities and/or willingness to fulfil their own human rights obligations, and does not diminish those obligations’ (para 4.4.13). Considering that Shell’s emissions account for over 2% of global emissions in 2023 (more than many countries), ensuring corporate accountability is critical to effective climate action.
Weighing up these circumstances, the District Court ordered Shell to reduce the net CO2 emissions caused by the Shell Group’s entire global activities by 45% by 2030 (compared with 2019 levels). This covered not only direct emissions from Shell’s activities (Scope 1 and 2) but also indirect emissions from the use of Shell’s products (Scope 3) (for example, emissions associated with using products after they are sold). The 45% percentage was calculated on the basis of the Paris Agreement’s goal to limit global warming to 1.5 or 2°C above pre-industrial levels. Such temperature targets, the Court reasoned, ‘are derived from’ the reports of the Intergovernmental Panel on Climate Change (‘IPCC’) (para 4.4.27).
In several ways the decision was complementary to the District Court’s 2019 decision in Urgenda v The Netherlands, which found that the State had an obligation to reduce its greenhouse gas (‘GHG’) emissions by 25% by 2020 compared with 1990. At a time when few decisions managed to overcome procedural challenges around standing, cases like Milieudefensie were considered highpoints in the history of climate litigation – a reminder that people-powered movements could prompt change in the perceived absence of effective government action.
Findings on Appeal
Shell advanced ten grounds of appeal to the District Court’s judgment. These grounds primarily challenged the imposition of a legal duty to reduce its net CO2 emissions by 45% by 2030. Shell claimed that such a target ‘is neither legally nor analytically substantiated’ (para 10.2.6 of the Appeal) and, in any event, such ‘large societal, technical, and political issues’ are beyond the competence of the Court and best left to the legislature to determine (Ground of Appeal VIII).
Although the Court maintained its ruling that ‘protection from dangerous climate change is a human right’ and corporations like Shell have a duty of care to mitigate climate change by reducing their emissions, it declined to set a specific reduction obligation (para 7.17). Beyond complying with mandatory EU regulations to reduce emissions – primarily through the EU Emissions Trading Scheme and in light of the Corporate Sustainability Due Diligence Directive – Shell was not under an obligation to meet a specific emissions reduction percentage (paras 7.28 - 7.54). Such instruments are relevant in determining whether a company has complied with the ‘social standard of care in relation to climate’ set out in the Dutch Civil Code. However, they are not proscriptive, and could not be relied on to stipulate an absolute reduction target in the sense held by the District Court. Equally though, the existence of relevant legislation or regulations is not exhaustive in delineating the extent of a corporation’s social duty to reduce CO2 emissions: ‘[i]n addition to complying with these measures, companies have a social duty of care to reduce their emissions’ (para 7.57).
Considering whether scientific consensus required Shell to reduce its emissions by 45% by 2030, the Court of Appeal concluded that it could not make this determination because there were competing views and there was no standard applicable for every country or business sector, nor the oil-and-gas industry specifically. Faced with multiple expert reports with varying different percentages by which emissions should be reduced across fossil fuel sectors, the Court concluded that:
…no sufficiently unequivocal conclusion can be drawn from all these sources regarding the required reduction in emissions from the combustion of oil and gas on which to base an order by the civil courts against a specific company (para 7.91).
Rather, companies ‘are free to choose their own approach to reducing their emissions in their climate transition plan as long as it is consistent with the Paris Agreement’s climate targets’ (para 7.56). Historically large emitters like Shell have a ‘special responsibility’ in this respect (para 7.79), ‘even if this obligation is not explicitly laid down in (public law) regulations of the countries in which the company operates’ (para 7.27). The Court also did not consider that the precautionary principle justified imposing a specific reduction obligation on Shell. The precautionary principle provides that, where there is scientific uncertainty regarding the occurrence of certain consequence caused by a particular action or measure, that uncertainty should not be taken to preclude a Court intervening to stop that measure. In the Court of Appeals view, the precautionary principle did not assist Milieudefensie’s argument because it is concerned with uncertainty regarding ‘the consequences of a given action’ not ‘uncertainty about a standard to be applied’ (para 7.95). The Court’s hesitancy in trying to apply a global temperature goal and derive a specific reduction target for an individual company is perhaps understandable - although it does reveal a gap in its reasoning, which I return to later.
Milieudefensie argued that Shell’s current climate policy – and in particular, its planned investments in new oil and gas fields – are inconsistent with the Paris target of limiting global warming to well below 2°C. Shell currently has over 800 new oil and gas projects in the pipeline. Milieudefensie pointed to various scientific reports outlining the potential for new fossil fuel investments to lead to a carbon lock-in effect by which the earth’s remaining carbon budget would become exhausted and further temperature increase unavoidable. The Court of Appeal acknowledged that:
‘It is reasonable to expect oil and gas companies to take into account the negative consequences of a further expansion of the supply of fossil fuels for the energy transition also when investing in the production of fossil fuels. Shell’s planned investments in new oil and gas fields may be at odds with this.’ (para 7.61) (emphasis added)
However, the Court of Appeal ultimately concluded that it ‘does not have to answer’ to whether this constituted a ‘violation of [Shell’s] social standard of care’ (para 7.61). Rather, the relevant issue for determination in these proceedings was whether a specific emissions reduction obligation could be imposed upon Shell – which the Court ultimately answered in the negative.
Regarding Shell’s obligations to reduce its Scope 3 emissions – that is, the indirect emissions occurring in the upstream and downstream activities of an organisation – Shell advanced two variations of the ‘market substitution’ argument. Namely that reducing its own fossil fuel production or purchasing of oil and gas from third party producers, would be replaced by other producers/providers and would, thus, not lead to a reduction in overall emissions. The Court of Appeal appears to accept that there is a causal relationship between reducing the production of fossil fuels and their demand. However, the Court did not accept Milieudefensie’s evidence that downscaling Shell’s purchasing and reselling of oil and gas would lead to a depreciation in the value and thus supply of these resources. Importantly, however, the lack of a specific reduction percentage being imposed by the Court did not preclude Shell from being obligated to reduce its Scope 3 emissions. In other words, companies like Shell still need to reduce the supply of fossil fuels – their liability does not stop at their direct emissions.
In summary, the Court of Appeal concluded that while ‘[i]t is primarily up to legislators and governments to take measures to minimise dangerous climate change,’ companies like Shell also have a responsibility to act (para 7.17). The precise contours of this responsibility are not yet clear – and absent an emission reduction percentage being codified into EU or Dutch law - the Court was hesitant to intervene to the extent of setting a requisite level of action. Notwithstanding, corporate actors do have a duty of care when it comes to the climate impacts of their activities, and ‘the doctrine of the indirect horizontal effect of human rights’ is a relevant factor in assessing their compliance with this duty (para 7.17).
Finally, it bears noting that the Court of Appeal ordered the claimants to bear the costs of both initial proceedings before the District Court and the appeal.
Implications for Climate Justice
The Court’s finding that a specific emissions reduction obligation could not be imposed upon Shell may be regarded as a backwards step from its 2021 ruling, and a setback to the pursuit of climate justice and corporate accountability more broadly. After all, while this case was concerned with the Dutch Civil Code, the District Court’s earlier reasoning in Milieudefensie has been relied on in several climate cases against various oil-and-gas and public utility corporations throughout the world – including most recently in Japan (see our blog post here).
It is understandable to feel disappointed or disillusioned by outcomes like this. However, it is important to take stock of what this judgment does not mean for climate litigation. Firstly, this is one case, decided in a specific context. Where other courts have been inspired by the deductive reasoning of the District Court, they are not now beholden to the Court of Appeal’s ruling. It may be that courts determining extracontractual liability in other contexts take a different approach. Secondly, many of Shell’s arguments were rejected and by no means should this be regarded as a victory for corporate polluters.
Importantly, the ruling does not disturb the existence of a corporate duty of care to mitigate climate change. Nor does it absolve directors of their fiduciary duties in this respect. It also affirms that protection from climate change is a human right and that large companies like Shell have a special responsibility to prevent dangerous climate change. Although as noted above, the precise contours of this duty of care remain unclear.
Within this uncertainty may be the seeds for future climate cases. Indeed, while the judgment did not find Shell’s new fossil fuel projects to violate its duty of care, it did note that such investments may be at odds with the Paris Agreement. It is important to acknowledge here that the claimants in this case did not seek a remedy from the Court in respect of Shell’s opening of new oil and gas fields. Accordingly, it may be that future climate cases can build on such issues moving forward.
Ultimately, the Court of Appeal did not consider it could formulate a specific percentage by which Shell was required to reduce its emissions. It might seem a bit circular to accept that a corporation is obligated to undertake actions towards a temperature target but then stop short of quantifying how those efforts might be evaluated and potentially violated. However, it is important to recognise that this hesitancy was based on the Court’s view that, while there was a level of scientific consensus as to the need for at least 45% reductions by 2030, there was insufficient consensus as to how this should be distributed across sectors or specific companies. The Court did not conclude that the judiciary does not have a role to play here. Indeed, following Richard Heede’s groundbreaking Carbon Majors research in 2013, attribution science is continually improving. We may yet see a scientific consensus emerge as to what would constitute a ‘fair share’ of emissions reduction for specific companies - which a future court could follow. It may even be that a 45% reduction is too low a ‘fair share’ for heavy polluters. Notwithstanding, the Court of Appeal’s arguably confined reading of the precautionary principle in this case is somewhat disappointing. The Court’ concluded that the principle does not extend to influence how a specific reduction obligation might be calculated and imposed on a specific entity or sector. Where the principle aims at ensuring scientific uncertainty is not used as a reason to postpone measures to prevent environmental degradation, surely its application should extend to enable a court to decide what mitigation measures should be adopted, even if there may be some uncertainty or differences of opinion over these measures. The principle is ultimately concerned with reducing the risks of environmental degradation, and the risks of continued fossil fuel production and investment are clear.
All of this is to say that where we go from here is up to us. There are specific points to build on from the Court of Appeal’s Judgment. The ICJ’s forthcoming advisory opinion will also be critical in understanding the extent of States’ obligations in respect of climate change, as well as those of the private companies which operate under their jurisdiction. The claimants have until next month to appeal the Court of Appeal’s decision, so this will certainly be a space to watch.
*Joe Fox is a member of WYCJ’s Legal Advocacy Taskforce. He has completed a Masters of Law at the London School of Economics & Political Science, specialising in Human Rights Law. His interest lies in the integration of international environmental law principles in human rights approaches to climate change.