Dutch court orders Shell to reduce its carbon emissions - a ground-breaking decision

On 26 May 2021, the Hague District Court ruled that Royal Dutch Shell (RDS) has an obligation to reduce the CO2 emissions of the Shell group’s activities by net 45% by the end of 2030, relative to 2019 levels.

This is a ground-breaking decision – for the first time, a court has imposed a legal obligation on a private company to reduce its CO2 emissions. As such the case is at the front edge of a new wave of strategic climate change litigation, which seeks to influence corporate behaviour and hold organisations to account.

That said, the decision should be treated with a certain degree of caution: it needs to be seen in the context of the specific Dutch civil law principle on which it is based, under which an “unwritten duty of care” can be informed by “soft law” principles.  The decision is also likely to be appealed.

Background

In April 2019, the environmental group Milieudefensie / Friends of the Earth Netherlands and co-plaintiffs, including several NGOs (ActionAid Nederland, Both ENDS, Fossielvrij NL, Greenpeace Nederland, Young Friends of the Earth NL, Waddenvereniging) and 17,000 Dutch citizens, issued a claim against RDS in the Hague District Court.

This case builds on the landmark Urgenda decision in December 2019. The Dutch Supreme Court considered that human rights offer protection against the consequences of climate change caused by CO₂-emissions and found that the Dutch government’s policies to reduce greenhouse gas emissions were insufficiently stringent and the Dutch State violated a similar duty of care to its citizens.

In the claim against RDS, the plaintiffs sought to extend this argument to private companies, arguing that given the Paris Agreement’s goals and the scientific evidence regarding the dangers of climate change, RDS has a duty of care to take action to reduce its greenhouse gas emissions. The plaintiffs based this duty of care argument on the Dutch Civil Code as further informed by:

• Articles 2 and 8 of the European Convention on Human Rights which guarantee the right to life (Article 2) and rights to a private life, family life, home, and correspondence (Article 8);
• the equivalent rights in the International Covenant on Civil and Political Rights (Articles 6 and 17);
• the climate goals of the Paris Agreement;
• Scientific evidence on the dangers of climate change of the United Nations panel on Climate Change;
• the UN Guiding Principles on Business and Human Rights (the UNGPs), and
• the OECD Guidelines for Multinational Enterprises.

The judgment

On 26 May 2021, the Hague District Court handed down its judgment in which it found:

• While acknowledging that human rights and other soft law instruments cannot be directly invoked by plaintiffs, because they only apply in relationships between states and citizens, the Court does factor these in its interpretation of the relevant unwritten duty of care in the Dutch Civil Code.
• Applying the unwritten duty of care, RDS has an obligation to reduce the CO2 emissions of the Shell group’s activities by net 45% by the end of 2030 compared to 2019 levels through the Shell group’s corporate policy.
• This so-called ‘reduction obligation’ applies to the Shell group’s entire energy portfolio and to the aggregate volume of all emissions (Scope 1 through to Scope 3).
• It is up to RDS to design the reduction, taking account of its current obligations and other relevant circumstances.
• In respect of the business relations of the Shell group, including end-users, the obligation is a significant best efforts obligation, in which RDS may be expected to take steps to remove or prevent the serious risks arising from the CO2 emissions generated by them, and to use its influence to limit any lasting consequences as much as possible.

The Court also reached important conclusions on the following:

Admissibility

: The Court limited its consideration to impacts in the Netherlands and the interests of current and future generations of Dutch residents rather than the whole world– the Court found that the interests of the world’s population did not meet the ‘similar interest’ test. However, RDS’ reduction obligation is not limited in scope; it relates to the worldwide CO2 emissions of the entire Shell group activities.

Applicable law

: The Court applied Dutch law, partly on the basis that one of the events giving rise to the damage was the corporate decision-making of RDS. Importantly, the Court found that the reduction obligation falls on RDS, as the parent company establishing the Shell group’s climate change policies and strategies.

The appropriate forum

: The Court rejected RDS’ argument that the courts were not the appropriate forum for questions about the energy transition. The Court found that assessing whether RDS has the alleged legal obligation and deciding on the claims based on that obligation is pre-eminently a task of the court.

The role of the State

: The Court acknowledged the important role of the State in setting policy but concluded that businesses have parallel obligations.

The effectiveness, onerousness, and proportionality of the obligation:

• Substitution – the Court rejected RDS’ argument that a reduction in its emissions would be replaced by emissions from another company.
• Unlevel playing field – the Court concluded that the climate change risk outweighs any competitive disadvantage caused to RDS.
• The size of the Shell group and its contribution to the problem / solution – the Court considered that the CO2 emissions for which RDS can be held responsible pose a very serious threat, and that while RDS cannot solve this global problem on its own, “this does not absolve RDS of its individual partial responsibility to do its part regarding the emissions of the Shell group, which it can control and influence”.
• The effect of RDS participating in the European Emissions Trading Scheme and having permits for its activities – the Court considered that these factors did not affect the overriding reduction obligation.

Comment

While ground-breaking, this is a first instance decision and is likely to follow a long appeal process over a number of years.

Three important points to note:

• The decision is based on a provision of Dutch civil law involving the legal principle of an “unwritten duty of care” that does not exist in the same way in other legal systems. This principle allowed the Court to develop the duty of care owed by RDS by reference to “soft law” concepts (such as the UNGPs , and the OECD Guidelines ) – effectively elevating them into hard law principles which can be deployed against private actors and building on the foundations laid by the Urgenda case in relation to the duty of care owed by the State. Indeed, the Court has gone so far as to incorporate policy conclusions from academic institutions in its interpretation of the unwritten duty of care.
• In setting out the reduction obligation, the Court distinguished between scope 1, 2 and 3 emissions. On the one hand, the Court requires RDS and the Shell group to limit the volume of CO2 emissions from their operations and sold products so that they will have reduced by at least net 45% by 2030, relative to 2019 levels. However, the Court expresses this reduction obligation as an “obligation of result” for the activities of the Shell group (Scope 1 emissions) and a “significant best-efforts obligation” with respect to the activities of parties outside of the Shell group, including suppliers of electricity, steam or heat to the Shell group (Scope 2 emissions) and end-users (Scope 3 emissions).
• The Court did not seek to prescribe how RDS should meet the 45% reduction obligation, instead leaving it up to RDS to design the reduction. Nor did the Court indicate how the order will be enforced or monitored; the decision is, however, expressed to be provisionally enforceable meaning it will not be automatically suspended pending an appeal. Indeed, the decision does not render RDS’ current activities unlawful: instead, it sets a target to be achieved by 2030 and allows RDS to decide on the pathway to be adopted to achieve this.

An English translation of the judgment is available here.