The environmental group Friends of the Earth Netherlands (Milieudefensie) has gained a historic victory in court in the Climate Case against Royal Dutch Shell (RDS). The District Court of The Hague has ordered RDS to reduce the CO2-emissions of the Shell group by net 45% in 2030, compared to 2019 levels, through the Shell group's corporate policy. A precedent-setting judgment?
Milieudefensie brought the case to court in 2019 with a 235-page summons alongside six other bodies, including the National Association for the Preservation of the Waddenzee, and more than 17,000 Dutch citizens. The class action was also brought on behalf of current and future generations, both worldwide and in the Netherlands. The claim on behalf of the entire world population was found inadmissible by the court, but that on behalf of the Dutch residents (and specifically the inhabitants of the Wadden area) was found admissible.
The case rests on almost the same basis as the Urgenda case1: the right to life and the right to an undisturbed family life. The claimants believe that as the policy-setting head of the Shell group, RDS takes insufficient action, acts unlawfully, and should do more to reduce CO2-emissions. In their claims they demanded that by 2030 CO2-emissions will have been reduced by 45%, or alternatively, 35% or 25%, compared to 2019 levels. The claims concern the CO2-emissions of the Shell group itself as well as those of its suppliers and customers.
RDS endorses the need to tackle climate change by achieving the goals of the Paris Agreement and reducing global CO2-emissions. However, RDS opposes the allowance of the claims: RDS asserts that there is no legal basis for doing so. RDS also argues that the solution should not be provided by a court, but by the legislator and politics. The court does not follow RDS’ argument that the claims of Milieudefensie require decisions which go beyond the lawmaking function of the court. The court must decide on the claims of Milieudefensie. The court rules that assessing whether or not RDS has the alleged legal obligation and deciding on the claims based thereon is pre-eminently a task of the court.
Milieudefensie principally makes a choice of law within the meaning of Article 7 of Rome II 2, which according to Milieudefensie leads to the applicability of Dutch law. Article 7 of Rome II determines that the law applicable to a non-contractual obligation arising out of environmental damage or damage sustained by persons or property as a result of such damage shall be the law determined pursuant to the general rule of Article 4 paragraph 1 of Rome II, unless the person seeking compensation for damage chooses to base his or her claim on the law of the country in which the event giving rise to the damage occurred. Milieudefensie and RDS are divided on the question what should be seen as an ‘event giving rise to the damage’ in the sense of this provision. Milieudefensie alleges that this is the corporate policy as determined for the Shell group by RDS in the Netherlands, whereby her choice of law leads to the applicability of Dutch law.
RDS asserts that the event giving rise to the damage are the actual CO2-emissions, whereby the choice of law of Milieudefensie leads to the applicability of a myriad of legal systems. RDS does not contest that its corporate policy for the Shell group is or may be of influence on the Shell group’s CO2-emissions. However, RDS pleads for a restricted interpretation of the concept ‘event giving rise to the damage’ in the application of Article 7 of Rome II. In its view, its corporate policy is a preparatory act that falls outside the scope of this article because in the opinion of RDS, the mere adoption of a policy does not cause damage.
The court holds that RDS’ approach is too narrow, not in line with the characteristics of responsibility for environmental damage and imminent environmental damage nor with the concept of protection underlying the choice of law in Article 7 of Rome II. Although Article 7 of Rome II refers to an ‘event giving rise to the damage’, i.e. singular, it leaves room for situations in which multiple events giving rise to the damage in multiple countries can be identified, as is characteristic of environmental damage and imminent environmental damage. When applying Article 7 of Rome II, RDS’ adoption of the corporate policy of the Shell group therefore constitutes an independent cause of the damage, which may contribute to environmental damage and imminent environmental damage with respect to Dutch residents and the inhabitants of the Wadden region.
With regard to the facts, the court emphasizes that the Shell group is responsible for very large CO2-emissions: "The total CO2-emissions of the Shell group (Scope 1 through to 3) exceeds the CO2-emissions of many states, including the Netherlands." These emissions could lead to dangerous climate change, as established in the Paris Climate Agreement and the accompanying IPCC scientific reports. The court mentions health risks, illnesses, deaths and the rise in the water level as possible risks.
The court concludes that RDS is obliged to reduce the CO2-emissions of the Shell group’s activities by net 45% at the end of 2030 relative to 2019 through the Shell group’s corporate policy. This reduction obligation ensues from the unwritten standard of care laid down in Book 6 Section 162 Dutch Civil Code, which means that acting in conflict with what is generally accepted according to unwritten law is unlawful.
What can be expected from RDS according to this standard of care towards the Dutch residents and the inhabitants of the Wadden area? The court interprets the unwritten standard of care from the applicable Book 6 Section 162 Dutch Civil Code on the basis of all relevant facts and circumstances, the best available science on dangerous climate change and how to manage it, soft law instruments such as the UN Guiding Principles and the OECD guidelines, and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights. According to the court, these instruments reflect what is now generally accepted when it comes to corporate responsibility. The court concludes that from this standard of care ensues that when determining the Shell group’s corporate policy, RDS must observe the due care exercised in society.
The reduction obligation relates to the Shell group’s entire energy portfolio and to the aggregate volume of all emissions (Scope 1 through to 3). It is up to RDS to design the reduction obligation, taking account of its current obligations and other relevant circumstances. The reduction obligation is an obligation of result for the activities of the Shell group, with respect to which RDS may be expected to ensure that the CO2-emissions of the Shell group are reduced to this level. This is a significant best-efforts obligation with respect to the business relations of the Shell group, including the end-users, in which context RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2-emissions generated by the business relations, and to use its influence to limit any lasting consequences as much as possible.
In their statements, RDS emphasized that states determine the playing field and the rules for private parties and that the energy transition must be achieved by society as a whole, not by just one private party. However, the court found that Shell's reduction obligation is an individual responsibility of which much may be expected. The public-private partnership, the not-disputed responsibility of other parties and the uncertainty whether states and society as a whole will manage to achieve the goals of the Paris Agreement, do not absolve RDS of its individual responsibility regarding the significant emissions over which it has control and influence. Due to the compelling interests which are served with the reduction obligation, RDS must do its part with respect to the emissions over which it has control and influence. Therefore, RDS must do more than monitoring developments in society and complying with the regulations in the countries where the Shell group operates.
Furthermore, RDS argued that the reduction obligation will have no effect, or can even be counterproductive, because the place of the Shell group will be taken by competitors. The court does not agree with that either: the court acknowledges that RDS cannot solve this global problem on its own. However, this does not absolve RDS of its individual partial responsibility to do its part regarding the emissions of the Shell group, which it can control and influence.
RDS argues that the Shell group has already taken concrete steps with respect to its role in the energy transition. However, business plans in the Shell group still have to be updated in accordance with these climate ambitions, and a further explanation of its future portfolio and plans is forthcoming. In the court’s view, RDS’ policy, policy intentions and ambitions for the Shell group largely amount to rather intangible, undefined and non-binding plans for the long-term (2050). These plans (‘ambitions’ and ‘intentions’) are furthermore not unconditional but – as can be read in the disclaimer and cautionary notes to the Shell documents – dependent on the pace at which global society moves towards the climate goals of the Paris Agreement (‘in step with society and its customers’). Emissions reduction targets for 2030 are lacking completely; their ambition identifies the year 2035 as an intermediate step. From this the court deduces that RDS retains the right to let the Shell group undergo a less rapid energy transition if society were to move slower. Moreover, RDS has insufficiently contested the standpoint of Milieudefensie that RDS’ planned investments in new explorations are not compatible with the reduction target to be met.
The court concludes that this policy, policy intentions and ambitions of RDS for the Shell group are incompatible with RDS’ reduction obligation. This implies an imminent violation of RDS’ reduction obligation. It means that the court must allow the claimed order for compliance with this legal obligation.
Future and impact
This judgment is a massive win for environmental campaigners and may have a significant impact on the businesses of large industrial companies. It is the first time that an obligation to reduce CO2-emissions has been imposed on a private party by a court. Suddenly it's not good enough anymore for companies to comply with the law on their emissions. In an extraordinary case like this, they have to adjust their operations to comply with global climate policy too. It is therefore expected that this case could have major consequences both nationally and internationally.
Shell expects to appeal the verdict, but the order has been declared provisionally enforceable, which means that RDS must comply with the order immediately and it will continue to apply if the parties continue to litigate on appeal.