In its landmark judgment of 12 November 2024, the Court of Appeal of The Hague overturned the also landmark decision of the District Court of The Hague of 26 May 2021 between Milieudefensie and Shell. In the 2021 judgment, the District Court obligated Shell (in brief) to reduce the CO2 emissions of its group’s activities by 45% net at the end of 2030, in comparison to 2019. The Court of Appeal found that although Shell was under a duty of care to reduce, it could not oblige Shell to ensure reduction for a specific percentage.
This recent judgment brings a pivotal shift in Dutch ESG ligation, potentially influencing pending or future cases in relation to corporate responsibility in climate change, especially regarding the obligations to reduce CO2 emissions. The judgment not only highlights the complex relationship between corporate activities and their environmental impact, but also demonstrates that the enforcement of climate-related responsibilities, such as reducing CO2 emissions, on companies is far from certain.
Background and legal framework
Milieudefensie based its case on the (unwritten) social standard of care, as laid down in Article 6:162 of the Dutch Civil Code. As considered by the District Court, the question of whether on the social standard of care imposes an obligation on Shell to reduce its CO2 emissions by a certain percentage must be determined on the basis of the circumstances of this case and, as far as possible, interpreted on the basis of objective starting points such as legislation law, general legal principles, fundamental rights, case law and/or expert reports. In short, Milieudefensie argued that Shell acts tortuously if it does not reduce its CO₂ emissions by 45%, or at least 35% or 25%, by 2030 compared to 2019. Milieudefensie based its arguments among other) on the objectives of the Paris Agreement, international human rights norms, such as those laid down in Articles 2 and 8 of the ECHR, and various experts’ reports.
The Court of Appeal first recognizes protection from dangerous climate change as a fundamental human right, drawing on (for example) the Urgenda-judgment of the Dutch Supreme Court and the Verein Klimaseniorinnen Schweiz v. Switzerland-judgment of the European Court of Human Rights. Although the protection of human rights is primarily the responsibility of governments, this does not alter the fact that they can have an impact on private relationships, by giving substance to open standards, such as the social standard of care. The content and scope of such an obligation varies from one company to another, depending on the company’s contribution to climate change and its capacity to mitigate it. On the basis of this premise, the Court concluded that Shell, as a significant contributor to climate change and having held a prominent position in the fossil fuel market for over a century, is obliged to reduce its CO₂ emissions in order to prevent dangerous climate change. This implies also that citizens have a right to protection from climate change in relation to Shell.
The Court’s considerations
The fact that Shell is obliged to reduce its CO₂ emissions does not automatically mean that Milieudefensie's claim for a 45% reduction is admissible. On the contrary, the Court rejects Milieudefensie's claims because it cannot establish that the social standard of care imposes an obligation on Shell to reduce its CO₂ emissions by 45% or any other specific percentage. To reach this conclusion, the Court distinguishes between direct emissions (scope 1), which are directly related to Shell’s operations, and indirect emissions (scope 2 and 3), such as those of its suppliers or customers.
With regard to Shell's policy on planned new investments in oil and gas (scope 3 emissions), the Court considered that achieving the climate goals in the Paris Agreement requires not only reducing the demand for fossil fuels, but also limiting the supply of fossil fuels. This means that Shell is expected to consider the negative effects of expanding its fossil fuel supply when planning new investments. In light of Milieudefensie’s claims, these proceedings only address the question of whether Shell is obliged to reduce its scope 1, 2 and 3 emissions by 45%, 35% or 25%. For this reason, the Court does not have to answer the question of whether Shell’s investments violates the social standard of care.
As to Shell’s obligation in relation to scope 1 and 2 emissions, the Court concludes that no (future) impending violation of a legal obligation can be established. This conclusion was based on the fact that (i.) Shell committed in its business plan to reduce its scope 1 and 2 emissions by 50% by the end of 2023 compared to 2016, and (ii.) Shell already largely achieved this target (by the end of 2023, Shell reduced its scope 1 and 2 emissions by 31%).
Shell’s obligations with regard to its scope 3 emissions depend on whether a reduction obligation would effectively contribute to reducing global emissions. However, the Court was unable to establish that the social standard of care obliges Shell to reduce its CO₂ emissions by 45% reduction standard agreed by climate science. This 45% reduction standard is an average for all business sectors for all places in the world. The Court recognized, in this regard, that there are sectors and companies in countries that need to reduce more and there are sectors and companies in countries that are required to reduce less. Therefore, the Court considered that a sectoral standard for oil and gas cannot be established on the basis of scientific consensus (the 45% reduction standard), with the result that a 45% reduction obligation (or any other percentage) cannot apply to Shell. Furthermore, the Court also concluded that an obligation on Shell to reduce by a certain percentage its scope 3 emissions caused by purchasers of Shell’s products would be ineffective. The mere fact that if Shell fulfills this obligation by ceasing to trade in fossil fuels that it purchases from third parties does not prevent other companies from engaging in a similar trade.
What happens next?
What is clear from the judgment is that Shell (and presumably similar companies) has an obligation to reduce its CO2 emissions on the basis of the standard of care. At the same time, however, the judgment leaves open the question of the percentage by which Shell must reduce its emissions: the Court was unable to establish this. It is therefore unclear what the practical implications of this judgment will be for companies such as Shell in relation to their reduction obligations.
It seems that it is now up to Milieudefensie: will they bring the case to the Dutch Supreme Court? If they do, the Supreme Court will no longer look at the substance of the facts and evidence, but will focus specifically on the application of the law, the reasoning of the judgment and whether the procedural law was properly followed. In addition, based on the Court of Appeal's finding in relation to Shell's planned new investments (scope 3 emissions), it seems that it keeps the door open for Milieudefensie to start new proceedings on this specific point.
The District Court of The Hague 26-05-2021
The Court of Appeal of The Hague 12-11-2024
Press release of the Court of Appeal of The Hague: Hague court denies claim for reduction in Shell’s CO2 emissions
