Corporate Climate Responsibility 2.0 - The Shell Appeal
In a significant ruling that reshapes corporate climate obligations, the Hague Court of Appeal (CoA) has partially reversed a landmark climate change decision against Shell (Milieudefensie and others v Royal Dutch Shell). Whilst the CoA rejected the specific requirements for Shell to reduce CO2 emissions by 45% by 2030, it crucially affirmed that companies have a legal duty to mitigate climate change. The Court’s position – accepting the principle of corporate climate responsibility whilst questioning precise reduction targets – creates an important precedent for future climate change litigation. This article briefly examines the ruling’s implications for corporate environmental obligations and climate change law.
Background
The case began in April 2019 when Milieudefensie (Friends of the Earth Netherlands), alongside six other environmental associations and over 17,000 thousand individual claimants, filed a claim against Shell. Their core argument was groundbreaking: Shell’s contributions to climate change violated Dutch law and international human rights law obligations.
In May 2021, the Court issued a landmark judgment finding that as a matter of Dutch law, Shell had a legally binding duty to reduce its carbon emissions, mandating a 45% reduction by 2030 compared to 2019 levels, in line with the Paris Agreement. Notably, this applied to Shell’s entire carbon footprint – including not just direct emissions but also indirect emissions from energy use and end user consumption (known as Scope 1, 2 and 3 emissions). See our previous Perspectives here.
Shell’s appeal focused on a fundamental question: whether courts, rather than legislators, could impose specific emissions reduction targets on private companies.
Key points overturned on appeal
Regarding emissions from Shell’s own operations and energy use (Scope 1 and 2 emissions, respectively), the CoA found that Shell had already committed to – and is largely on track to achieve – a 50% reduction target by 2030 from 2016 levels, effectively meeting the disputed requirements.
In relation to emissions from Shell’s products (Scope 3 emissions), which occur when customers use Shell’s fuels and other products (and which represent 95% of Shell’s reported emissions), the CoA refused to apply the average global reduction standard as a general and binding standard for Shell. The CoA reasoned that Shell’s unique business profile and absence from certain sectors, such as coal, made a universal standard inappropriate.
Most controversially, the CoA questioned whether mandating a reduction of Scope 3 emissions would effectively reduce emissions, questioning whether other businesses might simply fill the market gap. This ‘substitution’ argument echoes a position expressly rejected by the UK courts (in the Whitehaven coal mine case). However, the CoA did acknowledge potential causal links between production limitations and emission reductions. This finding could strengthen future challenges to fossil fuel developments.
Other Findings
The CoA’s ruling confirms four principles with far reaching implications for climate litigation:
- Drawing on precedents like the Urgenda decision by the Dutch Supreme Court in 2019 and the recent ECtHR judgment in KlimaSeniorinnen, the CoA affirmed climate protection as a fundamental human right.
- Whilst primary climate obligations rest with states, companies – especially large emitters – share responsibility to mitigate climate risks. The CoA cited the UNGP and OECD guidelines as defining the corporate standard of care in this respect, regardless of whether specific (public law) obligations are laid down for companies in domestic law.
- Existing and upcoming EU climate legislation (including emissions trading systems and corporate sustainability directives) do not prevent courts from imposing further obligations on companies, though courts may not impose absolute emissions reductions on companies.
- The CoA indicated that oil and gas companies must consider climate impact when investing in new fossil fuel production. It observed that Shell’s planned investments in new oil and gas fields may conflict with this principle.
Conclusion
Despite rejecting specific emissions targets, this ruling strengthens the legal foundation for corporate climate accountability:
- It confirms that major corporate emitters have a “special responsibility” to reduce emissions.
- It anticipates expanded corporate obligations through forthcoming EU climate legislation.
- It contributes to the evolving international law on the balance of responsibility between states and private actors, such as the upcoming ICJ Advisory Opinion on the obligations of states in respect of climate change.
Together, these developments signal an emerging framework in which corporate climate obligations exist independently of specific regulatory targets – a shift that will likely accelerate climate litigation globally.
With thanks to Paralegal Macha Phelan for her assistance with this piece.