Shell Milieudefensie court ruling extends beyond Netherlands

The Dutch chapter of campaign group Friends of the Earth (Milieudefensie) emerged with a "surprising" victory over Shell that may spark legal challenges against other integrated oil companies.

The Hague District Court on 26 May ruled Shell Group's Netherlands-based parent company, Royal Dutch Shell, owed the Dutch people an unwritten standard of care based on international human rights law through their obligations in Book 6, Section 162 of the Dutch Civil Code.

It made a similar point in relation to the United Nations Guiding Principles on Business and Human Rights.

In line with these norms, the court approved Friends of the Earth and fellow petitioners' emissions reduction order, which it called provisionally enforceable, and ordered Shell to pay the petitioners' legal costs. It threw out certain other Friends of the Earth and NGO petitioners' claims and legal cost requests.

This will mean Shell must up the ante to cut emissions created by its customers (Scope 3) and suppliers, a move likely to impact the kinds of products it sells.

The court ordered Shell's parent company to deepen the group's CO2 emissions cuts in 2030 to a net 45% below 2019 levels across the group's "entire energy portfolio," including scopes 1, 2 and 3.

Shell plans to appeal the decision. "We agree urgent action is needed and we will accelerate our transition to net zero," said Shell Chief Executive Ben van Beurden. "But we will appeal because a court judgment, against a single company, is not effective."

In announcing the appeal, Shell said its Powering Progress strategy was published in April 2021, but "the court did not consider this because the hearings that led to the ruling took place several months earlier." And the company noted that in May 2021, it became the first energy company to put its energy transition strategy to a vote of shareholders at its Annual General Meeting, where it received 89% support.

Carbon intensity

While the petitioners wanted the court to order Shell's commitment to be on an absolute rather than an intensity basis, the court said this exceeded a "broad consensus" on emissions cuts required to prevent catastrophic climate change.

The court settled on the 45% emissions cuts target because "only reduction pathways aiming for a net 45% reduction of CO2 emissions in 2030, relative to 2010 levels, yield a 50% chance of limiting global warming to 1.5°C and an 85% chance of limiting global warming to 2°," according to Intergovernmental Panel on Climate Change analysis. The court noted the EU and the Dutch state had pursued similar reduction levels.

The court's 45% by 2030 order goes beyond Shell's existing goals. In February, Shell said it planned to reduce the net carbon footprint of energy products it sells to its customers, on an intensity basis, by 30% by 2035 and 65% by 2050.

This aligned with its plan to reach net-zero emissions by 2050 and a Scope 3 promise focused on "the energy products it sells." It also set an ambition to reach net zero on all the emissions in manufacturing products for scopes 1 and 2 by 2050.

In its interpretation of the unwritten standard of care, the court found companies need to take responsibility for Scope 3 emissions, especially when they make up the majority of a company's CO2 emissions, as is the case for companies that produce and sell fossil fuels. Shell had reported that 85% of the Shell Group emissions were Scope 3 emissions.

The widening net of international norms

In December 2020, the first hearing began in the Dutch court. Friends of the Earth and more than 17,000 individual co-claimants launched the case against Shell in 2019.

They sought a declaratory decision stating that the company was acting unlawfully if it did not reduce the combined volume of all CO2 emissions tied to its business activities and fossil products by 45% by 2030, 72% by 2040, and 100% by 2050, compared with 2010 levels.

The petitioners invoked the right to life and to respect for private and family life on behalf of Dutch residents and the inhabitants of the Wadden region, enshrined in Articles 2 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and Articles 6 and 17 of the International Covenant on Civil and Political Rights (ICCPR).

While the petitioners could not directly invoke human rights claims, the importance of human rights to society as a whole meant their rights claim was linked to Shell, and the petitioners' rights were also protected under the ICCPR, the court found.

The court argued that in spite of coping devices for Dutch residents like air conditioning, climate change due to CO2 emissions would lead to "serious and irreversible" consequences for the region, causing not only heat-related but also water-related health risks, including flooding along the coast and rivers, and increased mortality from infectious diseases.

The decision stated "it is not in dispute that these global CO2 emissions of the Shell group (Scope 1 through to 3) contribute to global warming and climate change in the Netherlands and the Wadden region."

Legal experts are already poring over the ruling to uncover the implications. "The court makes a big point about how the Netherlands is a low-lying country, and therefore, the human rights of the residents of the Netherlands are directly impacted by carbon emissions. It is interesting, because Shell tried to argue that if they don't do the oil exploitation and market the fossil fuels, someone else will do it," EU and international sustainable development lawyer Markus Gehring told IHS Markit.

"The court didn't accept this sort of displacement argument because, they said, 'Every company has an obligation not to violate someone else's human rights.' That is a huge victory for the environmental groups involved in this case. I thought the whole case was slightly improbable because they had to overcome so many hurdles," Gehring said.

International norms can be applied through national civil codes, Gehring said. "The Civil Code just says you're not allowed to violate someone else's rights, but what those rights are can be anything. You're not allowed to injure someone else. When we're determining whether someone is injured by climate change or not, we need to look at the fundamental rights," he said.

The energy sector should take note of how courts are bringing international norms to their respective countries, Gehring added. "And that is interesting, because it's not a value necessarily ascribed to the Paris Agreement internationally, but it can become a value either through domestic legislation, or in this case through the rulings of domestic courts that can become a fundamental societal law," he said.

Legal battle in early days

The district court's decision borrows a concept from a December 2019 decision by a Dutch court in State of the Netherlands v Urgenda, which found a government's failure to address climate change has a negative impact on citizens' rights.

The contribution of the Milieudefensie et al. v. Royal Dutch Shell case is it forces businesses to address these rights. "Where the court is innovative is to say that businesses are also bound by fundamental rights. There is a bit of a debate about whether businesses are bound by human rights. That's the whole point of the Ruggie Principles, and there is an international convention that's currently being negotiated," Gehring said.

Gehring said that whether Shell will be bound to an emissions target in its global activities is far from clear. "I agree this is a big victory. I don't think it directly follows that Shell is no longer allowed to sell fossil fuels around the world," he said. "So, it will depend on subsequent cases and subsequent litigation, but that litigation is made easier by today's decision."

The case could possibly wind up in the Dutch supreme court, he said.

Accordingly, Shell released a statement saying it would appeal the "disappointing" decision. "We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels. We want to grow demand for these products and scale up our new energy businesses even more quickly," said Shell.

Friends of the Earth noted the potential for copycat cases in courts outside of Europe. "Our hope is that this verdict will trigger a wave of climate litigation against big polluters, to force them to stop extracting and burning fossil fuels. This result is a win for communities in the global south who face devastating climate impacts now," said Friends of the Earth International Program Coordinator for Climate Justice and Energy Sara Shaw.

Posted 21 July 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.