Corporate climate (un)accountability? Landmark Shell ruling overturned on appeal
by Harro van Asselt* and Annalisa Savaresi**
First published in Centre for Climate Engagement (November 13, 2024).
Shell’s ongoing legal battle over climate accountability reached a pivotal moment on 12 November 2024, as the Hague Court of Appeal delivered its verdict on the company’s appeal. This case has drawn global attention since the initial 2021 ruling, which ordered Shell to cut its emissions drastically by 2030. In this blog, Professor Harro van Asselt and Professor Annalisa Savaresi discuss how this affects the ongoing debate over corporate responsibility in addressing the climate crisis.
On 12 November 2024, the Hague Court of Appeal issued its long-awaited verdict on Shell plc’s appeal against the groundbreaking court victory secured by the NGO Milieudefensie. In 2021, the District Court in The Hague had ordered Shell to reduce emissions across its value chain by 45% by 2030 compared to 2019 levels. To some, the case marked a ‘turning point’ in corporate climate accountability. At last, one of the world’s largest oil companies—a major producer and seller of fossil fuels, fully aware of the dangers posed by its products and known for misleading consumers about its green credentials—was held responsible for its (in)actions. The 2021 ruling’s innovative combination of climate science, international climate change, human rights and soft law, inspired hope that further litigation could pave the way for holding other polluters accountable for their greenhouse gas emissions. Indeed, Milieudefensie subsequently put other companies on notice, and threatened to bring a lawsuit against Dutch banking giant ING. Similarly, companies in other countries, including France, Italy and New Zealand, have been brought to court for their inadequate response to climate change.
Fast-forward three years. The climate crisis shows no signs of abating, with 2024 on track to be the warmest year in recorded history. Governments’ collective responses to the problem remain insufficient to keep global warming below 1.5°C relative to pre-industrial levels. And the world’s second-largest emitter has just elected a leader that plans to withdraw from the Paris Agreement and go all-in on fossil fuels. Against this backdrop, the ruling by the Court of Appeal may appear to be a significant setback for those advocating for stronger climate action. However, to fully appreciate the impacts of this ruling, it is important to look at what the Court of Appeal said and what it left unsaid.
General climate change obligations for companies
In 2021, the District Court had ruled that, under Dutch tort law, Shell bore a responsibility to avert the significant risks arising from the greenhouse gas emissions it generated. The Court defined the contours of Shell’s duty of care, drawing on human rights law. Notably, it made explicit reference to the UN Guiding Principles on Business and Human Rights (UNGPs), affirming that the responsibility of business enterprises to respect human rights, as articulated in the UNGPs, constitutes a ‘a global standard of expected conduct for all business enterprises wherever they operate’ (para. 4.4.13). These groundbreaking findings were particularly noteworthy given that Shell lacked formal obligations under human rights law, and that at the time the Netherlands did not even have any specific mandatory due diligence legislation in place.
These major findings are corroborated by the Court of Appeal. Referencing high-profile judgements both at home and abroad (including Urgenda Foundation v the State of the Netherlands and Verein Klimaseniorinnen v Switzerland), the Court unequivocally asserts that ‘protection from dangerous climate change is a human right’ and that ‘states have an obligation to protect their citizens from the adverse effects of dangerous climate change’. The Court also notes, however, that private companies, including Shell, ‘may also have a responsibility to take measures to counter dangerous climate change’ (para. 7.17). In this context, the Court explicitly mentions the doctrine of the ‘indirect horizontal effect of human rights’. This doctrine, as described by the Court, refers to the practice of incorporating fundamental rights—or the values they represent—when applying general private law principles to relationships, such as those between citizens and private companies (para. 7.18).
The Court remarks that Shell has endorsed the UNGPs and the 2011 edition of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (para. 7.22) as well as other initiatives, including the UN Global Compact. While recognising the voluntary nature of these instruments and initiatives, the Court reasons that (treaty) provisions regarding human rights ‘can have an impact on private law relationships by giving substance to open standards, such as the social standard of care’ (para. 7.24). The Court specifically singles out Articles 2 and 8 of the European Convention on Human Rights as decisive for the interpretation of the social standard of care and for ascertaining what can be required of Shell, as a large and international company, under that standard (para. 7.25).
According to the Court of Appeal, whether the social standard of care is breached depends on several factors, including the severity of the threat of a particular danger, the contribution to the creation of the danger, and the capacity to contribute to combating the danger. The Court notes that fossil fuel consumption is a major contributor to the climate crisis and stresses that the responsibility to combat climate change extends beyond states. It highlights that companies, especially those whose products have significantly contributed to the problem and who have the power to help mitigate it, are also obliged to act, ‘even when (public law) rules do not necessarily compel them to do so’. This obligation arises from the OECD Guidelines and the UNGPs, which assign responsibility to (large) companies to protect against dangerous climate change and urge them to take appropriate measures to address it (para 7.26).
The Court concludes that companies like Shell, which have contributed significantly to the climate problem and clearly have it within their power to contribute to combating it, have an obligation to limit carbon dioxide emissions in order to counter dangerous climate change, even if this obligation is not explicitly laid down in public law regulations of the countries in which the company operates. In short, the Court unequivocally reasserts that companies like Shell have ‘have their own responsibility in achieving the targets of the Paris Agreement’ (para. 7.27).
What are Shell’s concrete mitigation obligations?
Having established the existence of a general mitigation obligation applicable to companies such as Shell, the Court moves on to the question of whether there is a more specific obligation that can be imposed on the company.
To do so, the Court first helpfully considers existing legal obligations relevant to Shell’s emissions under EU law. These include: (1) obligations to reduce emissions from installations covered by the EU emissions trading system (ETS); (2) obligations to reduce end-use emissions through the ‘EU ETS2’ (due to become operational in 2027), which will be implemented through fuel suppliers such as Shell; (3) obligations under the Corporate Sustainability Reporting Directive (CSRD), under which Shell is required to report on its Scope 1-3 emissions; and (4) the Corporate Sustainability Due Diligence Directive (CSDDD), under which Shell needs to develop a climate transition plan aligned with the Paris Agreement and its 1.5°C goal.
The Court here highlights the major legislative developments that have taken place since the District Court ruling. Although the coverage of Shell’s emissions by the EU ETS and EU ETS2 is by no means complete, it has expanded, with obligations becoming more stringent over time. The CSRD and CSDDD, agreed upon in 2022 and 2024 respectively, significantly strengthened corporate climate accountability, particularly through the CSDDD’s requirement of developing a Paris-aligned transition plan. Yet the Court states that Shell complying with these EU law obligations may not suffice, as under Dutch law the company has a separate ‘social duty of care to reduce their emissions’ (para 7.57). Indeed, the scope of this duty of care was central to the District Court’s ruling, and it is precisely this aspect that the Court of Appeal concentrated on.
The District Court’s ruling introduced a concrete emission reduction obligation not only for Shell’s Scope 1 and 2 emissions (which it framed as an obligation of result), but also for its Scope 3 emissions, i.e. including emissions from end-users that ultimately burn the fossil fuels extracted and sold by Shell (which it framed as a significant best-efforts obligation). The Court of Appeal’s ruling not only overturned the District Court’s interpretation of the obligations regarding Scope 3 emissions, but also related to Scope 1 and 2.
On Scope 1-2 emissions, the Court of Appeal does not explicitly state that Shell is not bound by the reduction target imposed by the District Court (something that it, by contrast, does make clear for Scope 3 emissions). Instead, the ruling simply asserts that Shell is likely to meet this target anyway given its internal, voluntary emission reductions target (set at 50% by 2030 compared to 2016), and progress made towards this target thus far. In short, the Court of Appeal seems to imply that Shell might have a legal obligation to reduce Scope 1-2 emissions, but it simply finds that it is unlikely that any such obligation would be breached.
With regard to Scope 3 emissions, the Court first explores whether there is ‘consensus in climate science on specific reduction standards that should apply to a company such as Shell’ (para. 7.67). The Court asserts that it cannot determine what specific reduction obligation applies to Shell (para 7.73). It uses an example of Shell supplying gas to a company that previously used coal to show that, in some cases, an increase in supply of products may lead to a reduction of emissions. The Court also finds that Shell’s obligation cannot be based on sectoral standards for oil and gas supply, as it finds that ‘no unequivocal conclusion can be drawn’ from the various studies on Paris-compatible fossil fuel production pathways (para 7.91). Unfortunately, the Court does not engage with the science underlying these studies, and the assumptions made therein (for instance, regarding the feasibility of carbon dioxide removal). Better engagement with these sources would have revealed commonalities and even convergence on the range of emission reductions required from the sector. Ultimately, the Court does not reject the idea of Scope 3 emission reduction obligation altogether. However, it finds that ‘Shell cannot be bound by a 45% reduction standard (or any other percentage) agreed by climate science because this percentage does not apply to every country and every business sector individually’ (para. 7.111).
After having rejected the claim that a concrete absolute emission reduction obligation can be imposed on Shell, the Court of Appeal introduces its own version of the market substitution argument, i.e. ‘if we don’t produce it, someone else will’. The Court does not directly disagree with the District Court on the point that there ‘may be a causal relationship between a production limitation and emission reduction’ (para. 7.106, emphasis in original). However, the Court of Appeal agrees with Shell’s argument that the company could simply comply with the original order by ceasing to resell fossil fuel products produced by others, and that other companies would take its place in the market. The Court here seems to take Shell’s claims at face value. While it may be conceivable that already extracted fossil fuels will indeed be sold by a third party if Shell steps out of the market, Shell provided no evidence that, for example, closing down its petrol stations would not lead to lower sales overall and ultimately reduce emissions. Rather crucially, the Court says nothing at all about Shell’s responsibility for its own fossil fuel production, which constitutes one-third of its Scope 3 emissions (para. 3.46).
No new fossil fuels
While the Court cannot find a scientific basis to impose on Shell a concrete obligation to reduce Scope 1-3 emissions (para. 7.96), it does point to the concrete mitigation obligations Shell does have. Indeed, the following excerpt from the ruling reads as an implicit invitation for subsequent litigation (emphases added):
‘To keep the climate goals of the Paris Agreement within reach, emissions will have to be drastically reduced by 2030. The court of appeal deems it plausible that this will require not only taking measures to reduce demand for fossil fuels, but also limiting the supply of fossil fuels. The social standard of care, interpreted on the basis of Articles 2 and 8 ECHR and soft law such as the UNGP and OECD guidelines, requires producers of fossil fuels to take their responsibility in this respect. It is reasonable to expect oil and gas companies to take into account the negative consequences of a further expansion of the supply of fossil fuels for the energy transition also when investing in the production of fossil fuels. Shell’s planned investments in new oil and gas fields may be at odds with this. In these proceedings, however, the court of appeal does not have to answer the question of whether Shell’s planned investments in new oil and gas fields are in violation of its social standard of care. At issue in these proceedings is whether an obligation can be imposed on Shell to reduce its scope 1, 2 and 3 emissions by 45%, 35% or 25%.’ (para. 7.61)
Given that Milieudefensie did not make a claim about the legality of oil and gas investments, it is particularly intriguing that the Court makes these obiter remarks. First, the Court confirms the importance of ‘supply-side climate policy’, i.e. policies adopted to curtail the production of fossil fuels, as a complement to demand-side policy, suggesting that governments should more seriously consider how they can constrain fossil fuel production (e.g., by imposing a moratorium on new fossil fuel licenses). Second, the Court indicates that the social standard of care may require Shell to refrain from investing in and/or halting the production of new fossil fuels. This approach would be consistent with scientific consensus indicating that no new fossil fuel projects are needed in order to keep warming below 1.5°C. Accordingly, future litigation could focus specifically on companies that continue to expand fossil fuel production and infrastructure.
What comes next?
The Court of Appeal’s ruling raises significant questions about the future of corporate climate accountability. One immediate question is whether Milieudefensie will pursue a cassation process before the Dutch Supreme Court. These proceedings would focus on whether the Court of Appeal has correctly applied the law to the facts. Whether Milieudefensie will choose this option will depend on the perceived likelihood of success, the potential legal costs, as well as possible advocacy benefits (e.g. continuing to draw attention to Shell’s inaction). One reason why Milieudefensie may want to pursue this option is that, by the time the Dutch Supreme Court issues its ruling, there will likely be additional guidance clarifying states’ mitigation obligations under international law. This guidance is expected to come by way of the forthcoming advisory opinion by the International Court of Justice, due in 2025. Although this advisory opinion concerns states’ mitigation obligations, it is possible that it will touch upon companies’ obligations as well, for instance by clarifying that states ought to regulate the conduct of private actors to achieve global climate goals.
Another key question is whether the ruling will have spillover effects on corporate climate litigation elsewhere. The Court ruling may indeed stymie litigation, as it points to the difficulties of identifying a clear basis for imposing concrete climate change mitigation targets on companies. At the same time, the Court also confirms that companies have a general obligation to reduce its emissions, and that this obligation goes beyond what EU law requires. Future litigation can test how prescriptive courts are willing to be in interpreting this general obligation. Moreover, not all corporate climate litigation is alike. Many recent corporate climate lawsuits—like those against Total and BNP Paribas—are based on dedicated due diligence legislation, and are therefore less reliant on the open-ended legal grounds considered by the Dutch courts in the Milieudefensie lawsuit. While the outcomes of these lawsuits are yet to be seen, the growing adoption of due diligence legislation is opening up new avenues for litigation that have yet to be fully explored.
*Professor Harro van Asselt holds the Hatton Professorship in Climate Law at the University of Cambridge and is a Fellow at Hughes Hall.
**Professor Annalisa Savaresi is a Professor of International Environmental Law at the University of Eastern Finland and Stirling University.