In a landmark 2021 ruling, The Hague District Court ordered Royal Dutch Shell plc (now Shell plc) to reduce CO₂ emissions of its group by 45 per cent by 2030, relative to 2019 levels. This ruling imposed an ‘obligation of result’ on the group’s Scope 1 emissions and a ‘significant best-efforts’ obligation for the group’s Scope 2 and 3 emissions. The decision was considered ground-breaking as it marked the first time a fossil fuel company group was mandated by a court to meet a climate target, with obligations extending across its entire value chain.
Overturning the District Court’s Decision
On 12 November 2024, the Hague Court of Appeal reversed the District Court’s decision. In its judgment, the court distinguished between Shell’s obligations concerning its Scope 1 and 2 emissions, and its Scope 3 emissions. The court emphasised that for a decision to prevent a future violation of standards, there must be a threat of such violation. However, the court did not establish such an impending violation of legal obligations regarding Shell’s Scope 1 and 2 emissions. As Shell had committed to reducing its Scope 1 and 2 emissions by 50 per cent by the end of 2030, and had already made significant progress toward this target, the court found it unlikely that Shell would fail to meet this commitment. For Milieudefensie, it was difficult to convincingly argue that Shell would not reduce its emissions despite these concrete plans and actions. However, one major concern is that the court did not thoroughly address Shell’s recent policy revisions, in which the company lowered its emissions targets. These revisions were overlooked despite Milieudefensie’s argument about Shell’s tendency to water down its own targets.
Even though the court recognized that Shell may have obligations to reduce Scope 3 emissions, it failed to find legal basis for a specific 45 per cent reduction obligation. The claimant, the Dutch environmental organisation Milieudefensie, based the 45 per cent reduction’s claim on the IPCC reports, which consider a global emission cut of 45 per cent by 2030 necessary to ensure a 50 per cent probability of keeping global warming below 1.5°C. However, this is an average global standard that, according to the court, cannot be turned into a general, binding standard for Shell. Within the global target, some sectors, such as coal, need to reduce emissions more significantly, while others may face lower targets. The court further contended that a sector-specific reduction standard for oil and gas cannot be established, as there is no scientific consensus on such a target.
The court also discussed whether ordering Scope 3 reduction targets would be effective and, consequently, whether Milieudefensie had a sufficient interest in pursuing legal action. Controversially, the court answered this in the negative. Since Shell also resells oil produced by third parties, the court considered it possible that its reduction obligation may not necessarily lead to a decrease in emissions, as the already-produced oil could still be sold by other parties (this is similar to the disputed ‘market substitution argument’). As a result, no causal relationship between sales limitation and emission reduction was established and no sufficient interest of Milieudefensie was found.
Although the decision may be disappointing for Milieudefensie and the broader community concerned with environmental protection, it also contains notable positives that give hope for the success of similar cases in the future.
Companies Have a Social Duty of Care to Reduce Their Emissions
Milieudefensie’s claim was based on Dutch law, which defines a tort as ‘a violation of someone else’s right and an act or omission in violation of a duty imposed by law or of what according to unwritten law has to be regarded as proper social conduct’. In order to determine whether Shell violates what is generally accepted as proper social conduct under unwritten law, the court interpreted this social standard of care in light of legislation, fundamental rights, case law, and expert reports.
First, drawing on Articles 2 (right to life) and 8 (right to respect for private and family life) of the European Convention on Human Rights, as well as the Urgenda judgment, the Verein Klimaseniorinnen Schweiz judgment, other foreign cases, and UN resolutions, the court expressed ‘no doubt that protection from dangerous climate change is a human right’.
Second, the court affirmed that open standards, such as the social standard of care, can be interpreted with reference to provisions of the ECHR, as well as by international frameworks such as the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and other initiatives such as The Race to Zero, calling on companies to achieve the goals of the Paris Agreement. Although many of these frameworks are primarily directed at states, courts interpreting the social standard of care can give them effect in private relationships (the ‘indirect horizontal effect’). Based on these frameworks, recognizing corporate responsibility for addressing climate change, the court concluded that companies like Shell must limit their CO₂ emissions, even if this obligation is not explicitly stated in (public) law.
Third, the court discussed relevant EU legislation, including the EU Emission Trading System Directive, the Corporate Sustainability Reporting Directive, and the Corporate Sustainability Due Diligence Directive. While stressing the importance of these regulations, the court emphasised that the obligations stemming from them do not preclude companies’ social duty of care to reduce emissions. In other words, complying with the EU laws does not automatically mean complying with the social standard of care.
Building the Case Against New Oil and Gas Investments
Interestingly, the court dedicated part of the judgment to new oil and gas investments. As the UN Expert Group report warns that achieving net-zero emissions leaves no room for new fossil fuel investments, the court asserted that under the social standard of care (interpreted with reference to Articles 2 and 8 of the ECHR, as well as the UNGPs and OECD Guidelines), fossil fuel producers must limit their supply. According to the court, ‘Shell’s planned investments in new oil and gas fields may be at odds with this’. Since Milieudefensie’s claim focused exclusively on the reduction obligation, the court did not decide whether Shell breaches its social duty of care by continuing with these investments. However, it may have opened the door for new climate litigation.
Hence, the ruling should be seen as a source of encouragement rather than disappointment. The positives range from recognizing that protection from climate change is a human right, to clearly establishing that companies have reduction obligations based on the social standard of care, to the potential unlawfulness of new fossil fuel investments.
