Milieudefensie et al. v Royal Dutch Shell plc: Dutch Appeal Court puts the onus back on climate policymakers

The 2021 ruling: A landmark standard of care under Dutch law

In 2021, the Hague District Court ordered Shell to reduce its emissions by 45% by 2030 (against 2019 levels). The Court made the decision provisionally enforceable, with the effect that Shell was required to reduce its emissions even while its appeal of the decision was ongoing.

The Court founded its judgment on an "unwritten" standard of care under Dutch law, which meant that acting in conflict with what is generally accepted according to unwritten law is unlawful. The Claimants had argued that, due to this standard of care, Shell had an obligation to prevent dangerous climate change through its policies. The Court's conclusion was that Shell did have a duty to take responsibility for, and therefore reduce, its emissions in circumstances where those emissions form the majority of the business's CO2 emissions (for a quick guide to Scope 3 emissions, see you our article on the Finch v Surrey CC ruling, here).

In 2021, the Court concluded that it had the remit to order Shell to reduce its emissions across its Scope 1, Scope 2 and Scope 3 emissions, such that, in aggregate, total emissions were reduced by 45%.

The Appeal Court's overturn: A limit on the Court's power to enforce emissions reduction

Crucially, the Appeal Court agreed with the District Court that Shell had an obligation to reduce its CO2 emissions. However, it disagreed with the lower court's imposition of a specific percentage by which those emissions should be reduced.

The Court of Appeal highlighted that existing legislation to reduce CO2 emissions was not exhaustive. In essence, even if every business in a country complied with existing legislative schemes to combat climate change, this would not necessarily have the effect of reducing that country's emissions in line with e.g. the Paris Agreement. Therefore, compliance with environmental legislation does not absolve companies of an obligation to further reduce CO2 emissions.

This allowed the Court to zoom out, and instead of focusing on how the unwritten social standard of care applied to Shell, it could instead consider how reduction pathways must align globally such that there is a net reduction of emissions by 45%. It follows that some sectors and companies will need to reduce their emissions more than others. By way of illustration, for Shell, if it were to reduce its Scope 3 emissions by reducing its resale of fossil fuels, this would not necessarily have the impact of reducing global emissions because its customers may purchase more carbon intensive fuels instead which are more harmful to the environment and which emit more CO2. The lower court's order would not therefore have the desired effect of protecting Dutch (or indeed global) citizens.

Implications for businesses and policymakers

Our key takeaways:

1. Corporate responsibility for climate change is real. While the headlines highlight the fact that Shell "won" its appeal, the Court's message is that businesses are under an obligation to reduce their carbon emissions and hold themselves accountable for their impact on the climate.
2. Existing climate legislation is not exhaustive. The Dutch Courts have recognised and restated that businesses have a social duty of care which goes beyond complying with existing laws and regulations. While we wait for policymakers to catch up, compliance with legislation should be seen as the minimum rather than the ceiling of climate action.
3. Scope 3 emissions pose challenges. There is a real difficulty in basing climate targets on Scope 3 emissions, which could have the effect of "passing the buck" rather than actively tackling corporate responsibility for emissions reduction. With increasing regulation on the horizon and already in force, much of which is based on Scope 3 emissions reporting, the Dutch Courts appear to have handed the baton back to policymakers to assess whether current legislation will be effective in meeting climate targets, including the Paris Agreement.

All this means that businesses should remain diligent in actively reviewing and revising their internal climate policies. Boards must consider climate change and environmental protection within business strategy, paying attention to legislative developments, emerging regulations and customer expectations. Pro-active engagement with these responsibilities will be essential to fending off the threat of climate litigation, as companies that fail to take adequate action may face legal challenges in the future from a range of stakeholders.