Milieudefensie v. Shell: Key takeaways on the landmark climate case ahead of the Appeal Verdict

On November 12^th 2024, the Court of Appeal of The Hague will hand down its judgment on the appeal of the decision of the District Court of The Hague of May 26^th 2021 in the landmark case between the Dutch branch of Friends of the Earth, Milieudefensie, and Shell. In its first instance decision, the District Court of The Hague (the Court) ordered Shell to reduce its carbon emissions by net 45% by the end of 2030 relative to 2019 through its corporate group policy. As a reminder, the case was the first time a court required a company to align its climate strategy (and Scope 3 emissions) with the Paris Agreement, thereby focusing on curtailing future emissions. In this blog we recap on some of the material aspects of the decision in light of the upcoming appeal.

What’s at stake?

The first instance judgment was a groundbreaking decision in global climate litigation. Since the landmark ruling, there has been a surge in climate litigation against companies worldwide. For example, the State of California is suing five major oil companies for damages related to climate change, and a Belgian farmer has filed a lawsuit against Total. The first instance judgment was also taken as a blueprint in several climate related lawsuits against car manufacturers in Germany.

We have also seen new European legislation that will focus on businesses’ future emissions strategies. For example, the recently enacted Corporate Sustainability Due Diligence Directive obliges in scope-companies  to “adopt and put into effect” a climate transition plan that is aligned with the Paris Agreement goal to limit average global temperature rise to 1.5°C above pre-industrial levels, and to review and update it annually against progress (see our previous blog on this requirement).

A verdict in favour of Milieudefensie in the Court of Appeal would be seen by climate change activists as a significant victory and could result in a ripple effect in international climate litigation. 

Material aspects of the decision of the Court

In the first instance judgment, the Court established a duty of care on Shell to reduce its carbon emissions based on an approach that considered human rights, scientific insights on climate change, and soft law standards. 

The scope of Shell’s actual reduction obligation as established by the Court applies to the Shell group’s entire energy portfolio and encompasses three distinct categories of emissions: 

• direct emissions from owned or utilised resources by Shell and its subsidiaries (Scope 1);
• indirect emissions from third-party sources from which Shell and its subsidiaries procured energy, including electricity, steam, heating, and cooling (Scope 2);
• all other indirect emissions occurring within Shell's value chain, including emissions of end-users of Shell’s sold products (Scope 3); for Scope 3 emissions the obligation is a significant best efforts obligation. The decision regarding Scope 3 emissions seems to be of greatest importance to Shell since these entail roughly 95% of Shell’s net carbon emissions.

The Court also reached important conclusions on the following:

• The role of the state: the Court acknowledged the important role of the state in setting policy but concludes that businesses have parallel obligations.
• The appropriate forum: the Court rejected Shell’s argument that the courts were not the appropriate forum for questions about the energy transition. The Court found that assessing whether Shell has the alleged legal obligation and deciding on the claims based on that obligation is pre-eminently a task of the court.
• Choice of law: the Court applied Dutch law on the basis that one of the events giving rise to the damage was the corporate decision-making of Shell. Importantly, the Court found that the reduction obligation falls on Royal Dutch Shell, as the parent company establishing the Shell group’s climate change policies and strategies.

Unwritten duty of care

Shell’s reduction obligation was established under the general tort provision of Article 6:162 Dutch Civil Code (DCC), which contains a duty of care for natural persons and legal entities. Breaching this duty of care results in a liability for damages suffered as a result of the breach. Milieudefensie claimed a declaratory judgement that such a duty of care for Shell exists and that under this duty of care Shell is legally obliged to contribute to the prevention of dangerous climate change by reducing its carbon emissions through its corporate group policy. Milieudefensie’s claim was solely about Shell’s future carbon emissions. No monetary damages were claimed. 

The Court used several sources to interpret and determine Shell’s duty of care. Although at least three of them are not directly applicable under Dutch law, they were, nevertheless applied by the Court:

• Articles 2 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) which guarantee the right to life and the right to respect for private and family life and 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 reports from the Intergovernmental Panel on Climate Change (IPCC) asserting the importance of (global) carbon emissions reduction in line with the application of the Paris Agreement;
• the United Nations Guiding Principles on Businesses and Human Rights (UNGPs), a soft law instrument that aims to provide guidance in the relation between businesses and their responsibility to protect human rights;
• the OECD Guidelines for Multinational Enterprises. 

Issues to watch in the appeal of Stichting Milieudefensie vs. Shell

The decision by the Court has sparked significant debate, both in the media and among legal scholars. Several concerns have been raised, including:

• Application of state goals to corporations: critics question the appropriateness of applying national carbon emissions reduction goals as set out in the Paris Agreements and in IPCC reports.
• Fairness and competition: some argue that the decision may create an uneven playing field, potentially disadvantaging Shell in relation to competitors who aren’t subject to similar rulings.
• Direct applicability of soft law: the Court’s reliance on non-binding, "soft law" standards has also been a point of contention.
• Political and moral overreach: there are concerns that the ruling touches on areas traditionally reserved for lawmakers, with critics arguing that the Court has ventured into politically charged territory.

According to the statements of appeal, these issues will be central to the appellate District Court of The Hague’s review. How the Court of Appeal of The Hague will address these complex legal and policy matters remains to be seen.