Court of Appeal of The Hague Overturns Emissions Reduction Ruling, finding in Shell’s favour in landmark climate case
14 Nov 2024
6 min read
On 12 November 2024, the Court of Appeal of The Hague handed down the long-anticipated judgment on the Dutch climate case between various environmental associations, NGOs and individuals (collectively, “Milieudefensie”) and Shell Plc (“Shell”).
The Court of Appeal confirmed that Shell has a duty of care to reduce its greenhouse gas emissions to combat dangerous climate change. However, significantly, the Court of Appeal allowed Shell's appeal on the issue of whether it had a specific emissions reduction obligation, namely, to reduce its global greenhouse gas emissions by 45% by 2030, which had been ordered in 2021.
Background
By way of background, group litigation was commenced against Shell by Milieudefensie alleging that a duty of care was owed by Shell under Dutch law and human rights law to mitigate its contributions to climate change. The Hague District Court concluded in 2021 that, as a matter of Dutch law, Shell owed a duty of care in relation to climate change, and as such was obligated to reduce its global CO2 emissions by 45% by 2030 (relative to 2019 levels).
This conclusion was reached on a number of factual and legal bases, including the global emissions impact, the human rights of Dutch citizens (such as the rights to life and family), Shell’s control over its subsidiaries within the Shell-group and supply chains, provisions of the Dutch Civil Code, scientific evidence regarding climate change, the European Convention on Human Rights, and soft law instruments such as the UN Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines.
Shell appealed the initial decision by the District Court on ten grounds as well as seeking recovery of its costs for both proceedings. One of the key grounds of appeal was that obligations on corporate bodies to reduce CO2 emissions were a matter for lawmakers to decide and not the court.
Hague Court of Appeal decision
The Court of Appeal allowed the appeal in relation to the emissions reduction target which had been order by the District Court, overturning the earlier judgment in that respect. Nevertheless, in doing so, the Court of Appeal reached several significant findings.
Key findings
- Duty of Care and human rights – the Court of Appeal’s judgment confirms that protection from dangerous climate change is a human right, and states have an obligation to protect their citizens from the adverse effects of climate change. As for companies, the Court of Appeal held that human rights (and correspondingly, protection from climate change) can have effect through the Dutch social standard of care (the duty of care obligation), which can be further defined through soft law such as the OECD Guidelines and UNGP. Consequently, the duty of care implies that companies also have an obligation to contribute to the mitigation of dangerous climate change.
- Emissions reduction obligation – Drawing on European Union law measures aimed at reducing CO2 emissions (such as the EU ETS system, CSRD and CSDDD), the Court of Appeal found that none of those measures imposed an absolute reduction obligation on individual companies or industries. It followed that Shell did not have an “absolute [emissions] reduction” obligation of 45%, or any other percentage, under EU law and would not have such an obligation for the foreseeable future. In addition, the Court answered in the negative the question whether a sectoral standard for oil and gas can be established on the basis of scientific consensus, concluding that:
“…however much Shell may be required to do its part in combating dangerous climate change, 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, as claimed by Milieudefensie et al.”
- Special responsibility – the Court of Appeal recognised that, as a major oil company, Shell has a special responsibility, stating that “[m]ore can be expected of Shell than of most other companies, as Shell has been a major player in the fossil fuel market for over 100 years and as it continues to occupy a prominent position in that market today”. The Court held therefore that Shell must make an appropriate contribution to preventing dangerous climate change. This did not, for the reasons explained above, amount to justification for imposing a 45% emissions reduction by 2030.
- New oil and gas investments - Milieudefensie argued that Shell’s current policy is not contributing to the Paris Agreement goals in part because of Shell’s planned investments in new oil and gas fields. In response, the Court of Appeal recognised 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 and when investing in the production of fossil fuels, noting that Shell’s planned investments in new oil and gas fields may be at odds with responsibilities under the social standard of care. However, the Court of Appeal did not have to answer the question of whether Shell’s planned investments in new oil and gas fields are in violation of its social standard of care in order to dispose of the proceedings.
- Scope 3 emissions – Shell further argued that a scope 3 reduction obligation would not make an effective contribution to reducing global emissions. Although not determinative of whether a specific emission reduction obligation existed, the Court went on to address this defence. In support of this effectiveness defence, Shell argued that, on the supply side, a reduction in Shell’s fossil fuel sales would result merely in those fossil fuels being sold by another supplier; the only difference being that Shell would no longer be part of the value chain, but customers would continue to use those products. The Court of Appeal agreed, finding that it was uncertain that a scope 3 emissions reduction obligation imposed on a specific company would have a positive effect on combating climate change, especially if the reduction obligation could be realised by selling less fossil fuel. The specific company would only disappear from the value chain and the (already produced) fossil fuels would still reach the end consumer via another intermediary. The claim by Milieudefensie failed to put forward sufficient grounds that a causal relationship exists between a sales limitation and emission reduction.
Comment
The Court of Appeal’s decision is significant, not only for the energy sector but future ESG litigation in the Netherlands and globally. It reaffirms, consistent with other climate change litigation cases of recent times, that protection from dangerous climate change is a human right and that companies (as a matter of Dutch law) have an obligation to contribute to the mitigation of climate change. The Court of Appeal could not, however, identify (and therefore dictate) what that specific contribution should be. Accordingly, as a matter of Dutch law, corporates are able currently to chart their own course to reducing emissions as part of their transition plans, provided that these plans are consistent with the Paris Agreement’s climate goals, which could be anticipated to be more balanced with their other interests and duties than an imposed reduction target.
It remains to be seen what the broader implications will be for this recent decision. It has received a mixed response across industry, the legal world and the NGO sector. In the Netherlands, colleagues from Pels Rijcken & Droogleever Fortuijn N.V. have been digesting the judgment.
Edward Brans from Pels Rijcken has commented that “The judgment is generally seen as an important decision, confirming that companies/multinationals such as Shell are bound by human rights, despite the fact that such companies are not party to the European Convention of Human Rights or other human rights conventions.”
Whether this is the end of the road for these proceedings also remains uncertain; Milieudefensie is yet to announce whether it will appeal to the Supreme Court.
Climate litigation remains an increasing presence in both UK Courts and globally. Our firm is closely monitoring ESG litigation and legislation and potential liability and litigation risks in this respect.
For the court, there is no doubt that the climate problem is the greatest issue of our time. Court of Appeal The Hague