Shell v Milieudefensie: What are the implications for corporates?

In allowing the appeal, the COA concluded the following points:

1. Protection against dangerous climate change is a human right.

The CoA referred to the European Court of Human Rights' landmark judgment in KlimaSeniorinnen v Switzerland (see our legal briefing here) where it was held that the Swiss government's inadequate efforts and inaction in combatting climate change had breached the human rights of the claimants. The CoA stated: "It is recognised worldwide that states have an obligation to protect their citizens from the adverse effects of dangerous climate change…. It is primarily up to legislators and governments to take measures to minimise dangerous climate change. That being said, companies, including Shell, may also have a responsibility to take measures to counter dangerous climate change".  In private law relationships, human rights – including protection from dangerous climate change – can have an effect through open standards, such as the social standard of care. The social standard of care in relation to climate can be further defined through soft law such as the UNGP and the OECD guidelines. The content and scope may vary from one company to another, depending on a company's contribution to climate change and its capacity to counter climate change.  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 continues to occupy a prominent position in that market today.

2. Whether the social standard of care is breached depends on a variety of factors.

The severity of the threat of a particular danger, the contribution to the creation of the danger and the capacity to contribute to the combatting of the danger are factors to be considered.  Companies like Shell, which contribute significantly to the climate problem and have it within their power to contribute to combatting it, have an obligation to limit CO2 emissions in order to counter dangerous climate change, even if this obligation is not explicitly laid down in regulations of the countries in which the company operates.  Companies like Shell thus have their own responsibility in achieving the targets of the Paris Agreement.

3. Since the District Court's judgment, many new regulations have been created in the European Union to combat dangerous climate change and achieve a 55% reduction in greenhouse gases by 2030.

Under EU directives CSRD and CS3D, Shell has obligations pertaining to its (European) greenhouse gas emissions.  The latter of these directives also stipulates that Shell must prepare a climate transition plan that is consistent with the European Union's climate objectives and includes absolute reduction targets for scopes 1, 2 and 3 emissions "where appropriate".  Under CSRD and CS3D, these measures do not impose any specific, binding or absolute reduction target on individual companies or particular industries.  Shell therefore does not have an absolute reduction obligation of 45% (or any other percentage) under EU law and will not have such an obligation for the foreseeable future.  The European Union incentivises large companies such as Shell to reduce emissions through price incentives.  Beyond that, the companies are free to choose their own approach to reducing their emissions in the – mandatory – climate transition plan as long as it is consistent with the Paris Agreement's climate targets. 

However, the Court also rejected Shell's argument that EU regulation in respect of emissions reduction was exhaustive and avoided any further need for companies to take action beyond that required by those regulations. Regulations did not preclude the duty of care existing on individual companies to reduce their emissions, nor was it always sufficient to discharge that duty of care to simply comply with the regulations.

4. In relation to Shell’s Scope 1 and 2 emissions, the Court decided that there was no cause of action because Shell already had credible plans to reduce those emissions by more than 45% by 2030. 

Shell put forward that it has set specific reduction targets of 50% for scope 1 and 2 in 2030 relative to 2016. According to Milieudefensie there is an impending violation of a legal obligation because Shell has adjusted its policy before, and this target offers no guarantee of further or permanent emission reductions. The CoA disagreed.  Shell has committed to this target in its business plan, in documents filed with the Securities and Exchange Commission and on Capital Markets Day in June 2023. Shell has outlined in its Energy Transition Progress Report 2024, among other publications, how it will achieve this target.  Moreover, Shell has already largely achieved this target: by the end of 2023, Shell reduced its scope 1 and 2 emissions by 31% compared to 2016. With regard to scope 1 and 2, the CoA considered that an impending violation of a legal obligation had not been established.

5. In relation to Scope 3 emissions, the Court found that there was insufficient expert consensus on how the global reduction goals should be translated into targets for individual companies such as Shell.

The CoA held that the District Court had been wrong to apply the global target of 45% to Shell without adjustment. The CoA agreed with Shell’s argument that obliging the company to reduce its Scope 3 emissions by restricting its sales of oil and gas would be ineffective: the Court found that customers could nonetheless continue to use those products and their demand could simply be met by a different supplier. This is in contrast to a restriction on further production of oil and gas, which could lead to an emission reduction.

It was not in dispute between the parties that a 45% reduction by the end of 2030 is an average for all sectors and for all places in the world.  However, the COA considered that there are sectors and companies in countries that need to reduce more and there are sectors and companies in countries that are required to reduce less.  Shell's scope 3 emissions are spread across several sectors.  The transport and buildings sectors, where alternatives to fossil fuels are more difficult to realise and where that process takes longer, account for a significant proportion of Shell's scope 3 emissions.  Applying a general percentage for the reduction of Shell's scope 3 emissions therefore ignores the different reduction pathways for the individual sectors that belong to Shell's customer base.

The CoA considered that no "sufficiently unequivocal conclusion can be drawn from all these sources regarding the required reduction in emissions from the combustion of oil and gas on which to base an order by the civil courts against a specific company". Shell may have obligations to reduce its scope 3 emissions, but it cannot be bound by a 45% reduction standard agreed by climate science because this percentage does not apply to every country and every business sector individually.  The CoA answered in the negative to the question of whether a sectoral standard for oil and gas could be established on the basis of scientific consensus. 

The CoA's decision is a setback for corporate climate litigation, albeit the CoA did confirm the District Court’s groundbreaking finding of law: that the duty to prevent dangerous climate change applies not only to states, but to corporate actors as well, at least under Dutch law. The CoA also made important remarks on the application and enforceability of human rights more generally between private parties and citizens; although human rights which are typically laid down in international conventions and frameworks are primarily directed at the state, initiatives such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct play a role if defining standards of care applicable between private actors and individuals.

At first blush, therefore, the CoA's reluctance to grant any remedy may appear surprising.  As noted above, the CoA cited a lack of expert consensus on quantifying Shell’s emission pathway as a key reason for this reluctance. However, courts and tribunals routinely make decisions based on contested expert reports and have the power to order experts to deliberate in order to bridge their differences.

The CoA also considered that ordering Shell to sell less oil and gas risked being ineffective because Shell's competitors could simply make up the difference. The District Court rejected this argument both factually (based on economic evidence to the contrary) and as a matter of public policy, holding that “[due] to the compelling interests which are served with the reduction obligation, this argument cannot justify assuming beforehand there is no need for [Shell] to not meet this obligation”.   

The more principled approach of the District Court (though, considered too "activist" by some commentators) is closer to the position of other common law jurisdictions. The New Zealand Supreme Court addressed similar arguments in a strike-out application in Smith v Fonterra & Ors, which allowed Mr Smith's claims in negligence, public nuisance, and a novel "climate system damage" tort to proceed to trial – see our briefing here). The New Zealand Supreme Court concluded that a defendant must take responsibility for its contribution to a common interference with public rights; its responsibility should not be contingent on the absence of co-contribution or be in effect discharged by the equivalent acts of others.

Despite the finding in favour of Shell, it is likely that the Court provided enough comments in the judgment to give hope to NGOs and claimants intent on bringing further litigation in protection of the climate, for example in confirming a causal link between oil and gas production limitation and emissions reduction, and in recognising protection from climate change as a human right.

Milieudefensie has not yet announced its intention to appeal the judgment before the Supreme Court of the Netherlands, but it has until 12 February 2025 to do so.  We will continue to adopt a watching brief on developments in this area.   

The decision from the CoA is significant and reinforces a growing trend of holding companies accountable for their climate impact, potentially encouraging new claims against businesses and governments worldwide.  Businesses should continue to actively review and revise their internal climate policies and consider climate change within their business strategy, paying particular attention to legislative and regulatory developments.

Indeed, pro-active engagement by businesses will be essential in order to resist the threat of climate litigation, as companies that fail to take adequate steps may face legal challenges in the future from a range of stakeholders.

The reaffirmation that companies must limit emissions may prompt more claims against businesses, not only in the energy and the oil and gas sectors but also in the financial sector.  Milieudefensie continues to pursue its previously announced case against a Dutch bank (as to which, see further below), seeking an injunction to reduce its emissions and demanding that the bank ceases working with companies lacking proper climate plans or expanding fossil fuel projects.

Milieudefensie v ING Bank – increased scrutiny on financial institutions

On 19 January 2024, Milieudefensie issued a warning to ING (the largest Dutch bank in terms of assets, equity and emissions), via a 40-page letter, stating that they would be commencing legal action if ING did not agree to a number of requested carbon reduction steps in relation to its climate policy, emissions, and financing of clients that are linked to activities with adverse climate impacts.

Milieudefensie's threat of litigation is based on the allegation that ING has breached its duty of care under Dutch law, based on the legal general societal standard of care not to create dangers that can cause avoidable damage to people or property, by providing support to high-carbon emitting companies in their financing of them.

In February 2024, ING responded to Milieudefensie in a letter of their own, acknowledging Milieudefensie's concerns and agreeing urgent climate action is needed, but that as a bank, they take a different view as to how to get there.

In September 2024, ING announced in their Climate Progress Update that there would be an immediate end to new general financing of companies that continue to operate new fossil fuel activities, such as opening new oil and gas fields. They also announced that they would start assessing their clients' progress in transitioning to greener strategies using a self-developed tool to analyse publicly available client data. The CEO of ING has been quoted saying that ING intends to take the lead on energy transition.

Milieudefensie has not yet responded to ING or commented on their recently announced change in strategy.  Large financial institutions should take note that if a claim is in fact issued, it will mark the first climate case brought against a bank in the Netherlands.