Co-author: Luna Marie Lindemann

On Tuesday, November 12, 2024, the Court of Appeal in The Hague issued a landmark ruling that is likely to have brought relief, especially in the oil industry, but also for industrial companies in general.

At the center of the case was a lawsuit filed by the Dutch environmental organization Milieudefensie against the oil and gas company Shell. The organization contested a 2021 lower court ruling that required Shell to reduce its CO₂ emissions by 45% by 2030 compared to 2019 levels. This mandate applied to all emissions of the company, including Scope 1, Scope 2, and Scope 3 emissions.

Background of the Case

The 2021 ruling was based on the duty of care under Article 6:162 of the Dutch Civil Code. This provision obligates companies to exercise the due care and diligence that align with general societal standards when shaping their business strategies and energy portfolios. To interpret this duty, the court referred to international agreements such as the Paris Climate Agreement, the European Convention on Human Rights (ECHR), and the UN Covenant on Civil and Political Rights. Additionally, the non-binding UN Guiding Principles on Business and Human Rights were considered.

The lower court derived from these frameworks a general obligation for companies to actively contribute to climate protection. Shell was thus required to safeguard the human rights of Dutch citizens by taking appropriate measures to reduce its emissions.

The Current Ruling by the Court of Appeal

The Court of Appeal diverged in key respects from the lower court's decision. It emphasized that the judiciary does not have the authority to set fixed emission targets for companies, as this falls within the remit of the legislature. A court can only provide an abstract evaluation, not impose specific mandates. Nevertheless, the Court of Appeal affirmed the general obligation of companies to contribute to climate protection as an integral part of protecting human rights under Articles 2 and 8 of the ECHR. This obligation applies not only to states but also to private entities such as companies.

Challenges in Implementation

The Court of Appeal noted, however, that neither international treaties nor national or EU climate laws establish specific emission limits for companies. Companies are only required to promote the goals of the Paris Agreement, which they can achieve through autonomous corporate policies.

Shell was deemed to have taken adequate measures concerning its Scope 1 and Scope 2 emissions. With a goal of reducing these emissions by 50% by 2030 compared to 2016, Shell's target even exceeded the original demand in the lower court ruling. Regarding Scope 3 emissions, which account for approximately 95% of the company's total emissions, the court acknowledged a general responsibility but did not impose an obligation to adhere to rigid reduction targets. Such an obligation could lead to competitive distortions and ultimately prove counterproductive.

Open Questions and Outlook

Unresolved is the issue of whether Shell’s planned new investments in oil and gas fields are consistent with its climate goals. This question was not part of the current lawsuit, but the court hinted that such investments might conflict with the Paris Agreement. It remains to be seen whether Milieudefensie will appeal and expand its claims.

Analogy to Germany: The Federal Constitutional Court’s Doctrine of Essentiality

In Germany, similar lawsuits are framed within a different legal context. While the Federal Constitutional Court, in its 2021 climate protection ruling (decision of 24 March 2021, 1 BvR 2656/18), emphasized that climate protection is a core constitutional concern, it also clarified that the legislature must make essential decisions itself. This "doctrine of essentiality" establishes that fundamental issues, such as setting climate goals, must remain within the purview of democratically elected lawmakers.

In practice, this has led to German courts dismissing lawsuits against companies like VW, BMW, and Mercedes-Benz. The courts argued that these companies are not currently in violation of existing laws such as the Climate Protection Act. However, it remains uncertain whether this jurisprudence will change if companies fail to align their climate protection efforts with future requirements.

The Court of Appeal ruling in The Hague similarly highlights the limits of judicial oversight when it comes to imposing specific directives on businesses. As in Germany, the legislature must take the lead in establishing clear regulations and objectives to advance global climate protection effectively.