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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.