Grazia Eleonora Vita, PhD Candidate in International Law at the University of Bologna.

Andrea Cerofolini, PhD Candidate in International Law at the University of Bologna and former Visiting Researcher at Nova BHRE (June to November 2024).

 

On the 12^th of November 2024, the Hague Court of Appeal issued its decision on Shell’s appeal against the first instance judgment requiring the company to reduce its greenhouse gas emissions by 45% by 2030 compared to 2019 levels (the text of the decision is available here). While the Court of Appeal did not uphold the above-mentioned specific reduction obligation, it reaffirmed the fundamental legal principles established in the previous judgment. It confirmed the existence of a duty of care on Shell under Section 6:162 of the Dutch Civil Code (“DCC”). This duty, interpreted in the light of international instruments such as the UN Guiding Principles on Business and Human Rights (“UNGPs”) and Articles 2 and 8 of the European Convention on Human Rights (“ECHR”), requires companies to contribute to the objectives of the Paris Agreement.

 

SHELL’S DUTY OF CARE

The Court first upheld the plaintiffs’ standing under Section 3:305 of the DCC. This provision allowed the plaintiffs to act not only on behalf of current generations residing in the Netherlands but also on behalf of future generations (residing in the Netherlands), thus confirming the intergenerational dimension of climate litigation.

The judges then assessed whether Shell’s failure to reduce its emissions, as requested by the plaintiffs, constituted a breach of its duty of care under Section 6:162 DCC. This assessment was made through a well-structured line of reasoning.

First, the Court acknowledged the link between climate change and human rights, referring to the applicable case law (§§7.6-7.12) and relevant international instruments, in particular UN General Assembly Resolution No. 76/300, which recognises the human right to a healthy and sustainable environment (§ 7.15). The Court stated that “protection from dangerous climate change is a human right” (§ 7.17).

Having clarified these points, the Court observed that while Dutch law primarily recognises the direct vertical scope of human rights, the latter can also be invoked to some extent by citizens in their relations with private companies. Referring to soft law instruments such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, both of which were endorsed by Shell, the Court concluded that while treaty provisions and other human rights instruments are primarily addressed to States, they can influence relations between private parties. These norms assist in defining general standards, such as the “duty of care” (§ 7.24).

In its reasoning, the Court identified certain criteria for the assessment of a potential breach of this standard: (i) the seriousness of the threat; (ii) the extent to which the individual company is responsible for creating the threat; and (iii) its capacity to address the threat. In light of their significant contributions to greenhouse gas emissions and capacity to address climate change, companies such as Shell bear a clear obligation to mitigate their emissions, “even if this obligation is not explicitly laid down in the (public law) regulations of the countries in which the company operates, companies such as Shell thus have their responsibility to achieve the goals of the Paris Agreement” (§ 7.27).

In this context, it is important to note the Court’s reference to one of the core principles of international environmental law, particularly in the climate change regime: the principle of common but differentiated responsibilities (“CBDR”). The Court stated: “In accordance with the principle of common but differentiated responsibilities (CBDR principle), Shell could even be required to make a higher contribution to the global reduction target” (§ 7.72).

Furthermore, the duty of care was also interpreted in light of current European climate legislation. The Court emphasised that, despite the fact that certain regulatory instruments were not yet in force at the time of the initial decision, this did not preclude the existence of an additional obligation on companies to reduce their emissions (§§ 7.28 ff.). Indeed, no legislative provision exists that would automatically exempt undertakings that comply with existing legislation from further obligations to reduce emissions (§ 7.53). However, the Court clarified that this obligation does not automatically imply that Shell must reduce its emissions by 45% by 2030.

Based on these premises, the Court proceeded to assess the existence of a reduction obligation for Shell, as requested by the claimants, in relation to its Scope 1, 2 and 3 emissions.

 

SCOPE 1 AND 2 EMISSIONS 

With regard to the obligation to reduce Scope 1 and 2 emissions, the Court of Appeal in The Hague noted that the issuance of an injunction to prevent a breach of the company’s duty of care, as described above, necessitates the existence of a threat of such a breach. As asserted by Milieudefensie, this threat originated from the discrepancy between Shell’s emissions reduction plan and the stipulated target of a 45% reduction by 2030. While acknowledging that Shell had already taken steps to reduce its emissions, the claimant NGO argued that the company’s policy was already subject to change in the past and therefore could not guarantee compliance with the reduction target (§ 7.64).

However, the Court of Appeal provided clarification on the necessity of establishing the existence of an imminent breach of the company’s duty of care in order to impose a reduction obligation on Shell. Given that Shell had already reduced its Scope 1 and 2 emissions by 31% compared to 2016 levels by the end of 2023 and planned to reduce them by 50% from the same baseline by 2030, the Court concluded that there was no evidence of an imminent threat of a breach of Shell’s duty of care (§ 7.65).

 

SCOPE 3 EMISSIONS

With regards to Scope 3 emissions, the Court of Appeal in The Hague evaluated the potential effectiveness of the requested remedy, thereby assessing the interest of the applicant NGO as a criterion for the admissibility of the application.

The plaintiffs asked the Court to confirm the order requiring Shell to reduce its Scope 3 emissions by 45% by 2030, compared to 2019 levels. As an alternative, the proposal was made that the reduction target be set at 35% or 25% (§ 7.68). While current climate legislation does not set specific reduction targets for companies, climate science provides clear guidance on the emission reduction pathways that are necessary to limit global temperature increases. In this context, the plaintiffs identified the 45% reduction target for Scope 3 emissions by 2030 based on the IPCC reports, which consider this reduction to be essential to limit global temperature increase to 1.5°C (§ 7.69).

The Hague Court of Appeal found that this target was too broad and general, as it did not consider the differences between the sectors involved and their specific characteristics. In particular, the judges highlighted that the 45% emission reduction standard did not adequately take into account the different carbon footprints of coal, oil and gas (§ 7.74). In this regard, the Court observed that should Shell increase its Scope 3 emissions by supplying more natural gas as an alternative to coal, the company could still contribute to a long-term overall reduction in global emissions, given the different carbon footprints of the two products (§ 7.79). The judges therefore concluded that it was not feasible to impose a reduction obligation on Shell based on a global standard. Nevertheless, the judges emphasised that this conclusion did not exonerate Shell from any type of accountability. The Court once again acknowledged the responsibility of companies such as Shell in actively contributing to the fight against climate change, including through the reduction of their Scope 3 emissions (§ 7.79).

The Court of Appeal also considered the possible applicability of a sector-specific reduction standard, as requested by the plaintiffs. In particular, Milieudefensie pointed out that the UNEP 2021 Production Gap Report suggested a reduction of 36% for oil and 28% for gas by 2030 in order to keep the global temperature increase within 1.5°C. In addition to this report, the Court assessed other studies, such as the updated 2023 IEA Net Zero by 2050 Report, which suggests a 28% reduction for oil, 23% for gas and 60% for coal by 2030 to meet the Paris Agreement targets. Similarly, estimates in the latest IPCC AR6 report suggest a reduction pathway for oil and gas production of 30% by 2030 and 65% by 2050, equivalent to an average annual reduction of 3% for both oil and gas between 2020 and 2030 (§ 7.83).

The Hague Court of Appeal found that the scientific reports submitted by the parties offered divergent estimates, making it impossible to set a binding reduction threshold due to the alleged lack of “scientific consensus” (§ 7.91). In this regard, it is worth noting that a more comprehensive dialogue between the Court and the available scientific evidence, as well as the appointment of a Court-appointed expert to facilitate the interpretation and understanding of the various emission reduction pathways presented, would have been beneficial in addressing this complex issue.

In reaching this conclusion, the judges also assessed the applicability of the above-mentioned CBDR principle and the precautionary principle. With regard to the former, the Court found that it did not provide a legal basis for establishing a specific legal standard for Shell in this case (§ 7.93). Similarly, the judges concluded that the precautionary principle did not justify the imposition of a specific obligation to reduce Scope 3 emissions, as the issue was not uncertainty about the effects of CO2 emissions, but rather the standard to be applied in the specific case (§ 7.95).

Finally, the Hague Court of Appeal considered the effectiveness of an order to reduce Scope 3 emissions. Shell argued that it could not influence users’ choices of energy sources. Furthermore, the company asserted that holding it accountable for Scope 3 emissions would be tantamount to holding Shell liable for actions undertaken by third parties in accordance with the law (§ 7.89).

The judges found these arguments to be without merit. Although the Court of Appeal acknowledged that Shell’s capacity to reduce Scope 3 emissions was constrained, it nevertheless observed that the company could exert influence over the conduct of its end users (§ 7.99). However, the Court found that an order to reduce Scope 3 emissions would not have a substantial impact given that the demand for fossil fuels was likely to be met by other market participants (§ 7.106). Indeed, the Court found that Milieudefensie had not provided sufficient evidence to demonstrate a causal link between the limitation of sales and the reduction of emissions. As a result, the Court held that the plaintiff NGO lacked standing to bring the action due to a lack of interest in the claim, as an order to reduce Scope 3 emissions would not have provided an effective remedy (§ 7.110).

 

CONCLUSIONS 

The judgment sets an important precedent for the future of climate litigation against corporations. By acknowledging the obligation of corporations such as Shell to contribute to the objectives of the Paris Agreement, the Court has conveyed a definitive message: corporations are no longer permitted to rely exclusively on compliance with national legislation or government policies. They must take independent action to reduce their greenhouse gas emissions.

However, it is important to take into account the peculiarities of the Dutch legal system. The obligation imposed on Shell is based on the provisions of the DCC, which contains an unwritten duty of care, a feature that is not common to all legal systems. Nevertheless, it is worth noting that many jurisdictions have rules on tort liability that could be applied to similar claims. A case against ENI is currently being heard in Italy. In this instance, the plaintiffs’ legal arguments are based on those employed in the Shell case; however, ENI’s obligation is not founded upon an unwritten duty of care. Instead, it is based on tort liability provisions that have been interpreted in the light of soft law instruments, including the UN Guiding Principles, the OECD Guidelines and Articles 2 and 8 of the ECHR. This is similar to the approach taken in the Shell case.

The Shell judgment also provides valuable lessons for the future. In particular, in what may be regarded as obiter dictum, the Court emphasised that Shell’s new investments in oil and gas fields could potentially give rise to a conflict with its duty of care. However, the appeal did not address this issue, as it was not part of the plaintiffs’ claims. Nevertheless, future claimants are likely to rely heavily on this part of the judgment to challenge new investments in fossil fuels.

In conclusion, the Shell judgment represents a significant milestone in the evolution of climate litigation against corporations. By reaffirming the responsibility of corporations to combat climate change, the judgement has established an important legal precedent. Although the Court of Appeal did not uphold the District Court’s ruling in its entirety, it did affirm the legal principles that underpin the original decision, which will undoubtedly inform future litigation. However, it is clear, as the judges themselves observed, that it is the responsibility of the legislature to set specific reduction targets and impose more precise obligations on companies.

 

Suggested citation: A. Cerofolini, G. E. Vita, ‘The Shell Case: Beyond the Ruling, the Key Principles from the Court of Appeal ’, Nova Centre on Business, Human Rights and the Environment Blog, 10 January 2024