No reduction order for Shell on appeal: what does this mean?

1. Brief summary of the ruling

The crux of the ruling is that the Court of Appeal finds that Shell is obliged by an unwritten standard of care and human rights to reduce its CO₂ emissions, but rejects the injunction sought by Milieudefensie. Such an injunction would require that Shell is obliged to specifically reduce its CO₂ emissions by 45% by 2030 (compared to 2019) and that Shell is in danger of breaching that obligation. In the Court of Appeal’s view, this is not the case:

• For its scope 1 and scope 2 emissions (direct emissions from Shell itself and indirect emissions from the purchase of electricity and heat), Shell itself has set a specific reduction target (50% reduction in 2030 compared to 2016), which it has to a large extent already achieved. In the Court of Appeal’s opinion, Milieudefensie has insufficiently argued that Shell will not meet that target. Shell is therefore already doing what Milieudefensie wants. 

• On Shell's scope 3 emissions (emissions from purchasers of Shell's products), the Court of Appeal has ruled that there is insufficient ground to impose on Shell a specific reduction obligation of 45% by 2030 (compared to 2019). This is a percentage per country. It is too general and therefore too approximate to be used as a legally required percentage of CO₂  reduction by a specific company or sector. The Court of Appeal also sees insufficient grounds to impose a different reduction percentage, because percentages stated for this purpose in reports relied on by Milieudefensie and Shell vary too much.

• The Court of Appeal takes into account, in relation to Shell's scope 3 emissions, that the injunction requested would be ineffective. It finds that on appeal it must be assumed that Shell may decide for itself how it will comply with the injunction. For scope 3, it could do so by no longer reselling oil and gas, but other traders would then take over. On balance, that would therefore not result in any CO₂ reduction. Incidentally, the Court of Appeal suggests that a ban on Shell's proposed investments in new oil and gas fields might be allowable, because of the lock-in effect. However, that is not at issue in these proceedings.

2. Importance of the ruling

This ruling is (obviously) of great importance, especially since the Court of Appeal has arrived at a different decision than the District Court of The Hague and has rejected the injunction sought by Milieudefensie. The District Court’s decision in the case against Shell (26 May 2021, ECLI:NL:RBDHA:2021:5337); see this earlier article) was a global first. It was the first ruling in which a company was required to reduce CO₂. The ruling thereby gave rise to numerous other climate cases worldwide. However, the Court of Appeal’s rejection of the reduction order may put these cases in a different light. The UK High Court of Justice last year also already rejected a requested order to adopt stricter climate policies against Shell's directors (High Court of Justice 24 July 2023, case no. BL-2023-00215, ClientEarth v. Shell). It will be interesting to see what this will mean for future actions by Milieudefensie.

3. Appeal to the Dutch Supreme Court by Milieudefensie?

Milieudefensie may appeal to the Supreme Court. In such appeal proceedings (cassatie), the Supreme Court can only review whether the Court of Appeal applied the statutory rules correctly and whether it gave sufficient reasons for its judgment. No new facts may be brought forward, nor may Milieudefensie change its claim, for instance by requesting a ban on investments in new oil fields. At first glance, such an appeal to the Supreme Court seems likely to be quite a challenge for Milieudefensie: the Court of Appeal’s decision that Shell itself has already set a sufficient reduction target for 2030 regarding scope 1 and 2 emissions, and that there is no reason to assume that Shell will not meet this target, seems to be largely a factual judgment that may not lend itself so well to a review by the Supreme Court. Furthermore, for the scope 3 emissions, the Court of Appeal notes that it is not possible to set a specific reduction percentage for Shell. That too seems at least in part a factual judgment, in light of the arguments exchanged between the parties (which may not be supplemented in an appeal to the Supreme Court). 

4. Initial observations on the Court of Appeal’s judgment

Ample room for human rights

In its judgment, the Court of Appeal first of all finds that Milieudefensie bases the requested injunction on an unwritten standard of care (Article 6:162 of the Dutch Civil Code). The Court of Appeal also finds that it will take all the circumstances of the case into account in assessing Milieudefensie’s claim. The Court of Appeal, like the District Court before it, thereby gives ample room for human rights to ‘fill in’ the unwritten standard of care in tort law. The Court of Appeal – unsurprisingly – finds that there can be no doubt that protection against dangerous climate change is a human right that is protected in, among other places, Articles 2 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). The Court of Appeal bases this finding on the Urgenda judgment of the Supreme Court (ECLI:NL:HR:2019:2006), the recent Verein Klimaseniorinnen Schweiz v Switzerland judgment of the European Court of Human Rights (see also this article on that subject), other foreign case law on human rights and climate change, and resolutions and reports of bodies of the United Nations.

The Court of Appeal furthermore finds that human rights may also impact private law relationships between Milieudefensie and Shell. It cites the UN Guiding Principles on Business and Human Rights, the OECD guidelines for multinational enterprises on corporate social responsibility, and a number of other soft law instruments. In the Court of Appeal’s opinion, this means that companies whose products have helped trigger the climate problem, and that have it in their power to contribute to combating it, are obliged to limit CO2 emissions in order to counter dangerous climate change. On the basis of an unwritten standard of care, such companies may have more far-reaching CO2 reduction obligations than those that follow from (European) legislation, in which specific reduction obligations are absent.

No specific CO₂ reduction obligation

As far as we are aware, this is the first time that a court has so explicitly confirmed that the law provides no basis for formulating a specific reduction obligation for individual companies. Legislation at EU level provides no basis for this. The Court of Appeal cites, among other things, two recently adopted directives: the CSDDD, which requires large companies to draw up and implement a climate transition plan in line with the Paris Agreement, and the CSRD, which has already entered into force, requiring large companies to report on their CO₂ emissions. But even based on an unwritten standard of care, the Court of Appeal thus sees no room for setting a specific CO₂ reduction percentage for Shell, in any event on the grounds of the submissions made by Shell and Milieudefensie and the current state of climate science. 

In the Court of Appeal’s opinion, the widely supported 45% reduction target for 2030, set out in IPCC reports, among other places, cannot be translated into a specific reduction obligation for Shell as an individual company, or for a certain economic sector. The Court of Appeal's opinion essentially means that it is up to the legislature to state, on the basis of political choices, which sector must achieve a certain reduction of CO₂ emissions and by what time.

Many companies voluntarily formulate reduction targets. For them, this judgment brings both relief and uncertainty. On the one hand, they have less reason to fear that environmental organisations may complain that their voluntarily set target is not ambitious enough, as there is no specific reduction percentage that can serve as a benchmark. On the other hand, the Court of Appeal's finding that no expert has a decisive vote gives rise to uncertainty as to whether the company is on the right track to achieve the stated target. 

Investment in new oil and gas fields 

Although the Court of Appeal has set aside the District Court's judgment and rejected Milieudefensie's request to issue an injunction, it suggests that an injunction against Shell's proposed investments in new oil and gas fields might be allowable. It therefore seems particularly important to the Court of Appeal that such investments will lead to a further expansion of the supply of fossil fuels with a ‘lock-in’ effect. Once such investments are made, they cannot be reversed and can only be recouped. Companies then have an incentive, in the Court of Appeal’s opinion, to continue doing so for as long as possible. As stated above, however, that consideration is of no consequence in this case, as it cannot lead to the award of the injunction that Milieudefensie is seeking that Shell generally reduce its CO₂ emissions by 45%.

For us, the question is whether a claim to ban such investments would not also fail on the grounds of lack of effectiveness. States grant concessions to explore new oil and gas fields. If Shell does not compete for the concession, it will go to another oil company.

Effectiveness of the advanced reduction order

The Court of Appeal has ruled that the reduction obligation for scope 3 emissions (caused by the end users of Shell's products) is ineffective, because Shell could meet it by ceasing to trade in third-party fossil fuels, while the customers would continue to use the products. Milieudefensie therefore has no legal interest in a reduction order. 

This gives rise to the question whether this reasoning would also apply to scope 1 and 2 emissions. That does not seem to be ruled out; in its judgment on scope 1 and 2, the Court of Appeal does not address the effectiveness of the reduction order claimed. It rejected the reduction order on the ground alone that Shell itself has set a sufficient reduction target for 2030 and has already largely achieved that target (a 31% reduction by 2023 compared to 2016). Milieudefensie has insufficiently countered this argument for it to be assumed that Shell will not meet its target after all, the Court of Appeal holds. It has thereby rejected Milieudefensie's argument that Shell had previously watered down its reduction targets.

Law-making role of the courts

One of the criticisms in the District Court's judgment was that the climate issue should primarily be solved in politics: in its opinion, the complexity of reducing CO₂ emissions calls for uniform regulation by the legislature, so that rules applicable to all companies would be drawn up on a democratic basis. Shell also argued this on appeal. The Court of Appeal found otherwise: the (Dutch and European) legislature has not determined that its climate change legislation is exhaustive, or that it excludes more far-reaching civil-law and other obligations to reduce specific CO₂ emissions. The Court of Appeal therefore sees room to rule on this question as a civil court, but then gets 'stuck' on the lack of solid ground in climate reports and science to arrive at a specific reduction percentage for an oil and gas company like Shell. If there had been such a basis, then, in the court's reasoning, confirmation of the District Court's injunction regarding the scope 3 emissions would have been possible.

Shell's influence on emissions from its end-users

Another point of criticism in the District Court's judgment concerned the significant best-efforts obligation imposed on Shell by the District Court to reduce scope 3 emissions. As Shell also argued on appeal, its end users decide which energy sources they use, in what quantities and from which suppliers. The Court of Appeal finds that argument too simplistic. Moreover, many European laws and soft law also assume that companies have a responsibility regarding scope 3 emissions. 

What does this mean for other companies? 

The District Court's ruling was furthermore criticised because it had not made it clear what distinguishes Shell from other – random – companies that also emit CO₂. The Court of Appeal devotes some more words to this: "Especially companies whose products have contributed to the creation of the climate problem and have it in their power to contribute to combating it are obliged to do so vis-à-vis other inhabitants of the earth, even when (public law) rules do not necessarily compel them to do so". And: "More can be expected of Shell than of most other companies, as Shell has been a major player in the fossil fuel market for over 100 years and as it continues to occupy a prominent position in that market today.". This at least leaves room for other companies to argue that they do not have a similar responsibility. Albeit with perhaps a little less urgency, as the Court of Appeal has ultimately been unable with regard to scope 3 emissions to establish a specific reduction percentage, absent a solid ground for such a percentage in legislation and climate science. 

 Thanks to Caspar Vermande for his help in preparing this article.