Dutch court orders Shell to reduce CO2 emissions

Introduction

On May 26 2021, the district court of The Hague rendered a ground-breaking judgment in collective action proceedings initiated by several non-governmental organizations (including Friends of the Earth (Milieudefensie)) (the NGOs) against Royal Dutch Shell plc (Shell). The NGOs claimed, in short, that Shell had to reduce its overall CO2 emissions by at least 45% from 2019 levels, by the end of 2030 (the Target Reduction). The court ruled in favour of the NGOs and ordered Shell to reach the Target Reduction (the Shell Case). This is stated to be the first time that a court ordered a company to reduce its CO2 emissions in line with the climate goals included in the Paris Agreement.

Summary of the Shell Case

The court decision is based on the Dutch general tort provision (section 6:162 of the Dutch Civil Code). In its assessment as to whether Shell acted contrary to the unwritten duty of care within the meaning of this provision, the court referred to international soft law frameworks such as the UN Guiding Principles and took into account all circumstances of the case and more specifically:

(a) Consequences of CO2 emissions;

The court noted that Shell’s emissions could lead to serious consequences with irreversible risks for Dutch residents (such as deterioration of air quality and an increase of water-related and foodborne diseases).

(b) Shell’s influence over CO2 emissions; and

The court stated that Shell’s influence over CO2 emissions extends to its own group companies (scope 1 emissions), its customers and suppliers (scope 2 emissions) as well as end users (scope 3 emissions).

(c) Human rights law;

Whilst human rights treaties (such as the ECHR) do not directly apply to non-State actors like Shell, the fact that these rights (such as the right to life) would be affected because of global warming was relevant for the court’s assessment as to whether Shell would breach its unwritten duty of care.

In view of the above, the court noted that Shell will act contrary to its unwritten duty of care if it would not reach the Target Reduction and therefore ordered Shell to reach this target. In this regard, the court ruled that Shell has a(n):

(i) “Obligation of result” for the activities of the Shell group – this entails that Shell must ensure that its group companies reach the Target Reduction; and

(ii) “Significant best-efforts obligation” with respect to its business relation of the Shell group, including end users – this entails taking necessary steps to remove or prevent the serious risk ensuing from CO2 emissions generated by Shell’s business relations, and using its influence to limit any lasting consequences of such emissions as much as possible.

The court stated that Shell has complete freedom to determine how it will comply with these obligations. In this respect, the court emphasized that the Target Reduction is a global reduction obligation and that Shell thus does not have to limit its action to a particular territory or a business unit.

The court expressly rejected Shell’s argument that imposing the reduction obligation would disrupt the level playing field on the oil and gas market, by stating that Shell seems to ignore that the reduction is necessary to prevent dangerous climate change and that other companies will also have to make a contribution to prevent this. In addition, the court acknowledged that Shell cannot solve the global problem of climate change on its own, yet it emphasized that this does not preclude Shell of its individual partial responsibility to reduce CO2 emission. According to the court, the interests served with preventing these consequences outweigh Shell’s commercial interests.

The judgment is provisionally enforceable, which means that Shell must comply with the aforementioned reduction obligations even while (potential) appeal proceedings are pending.

Commentary

It seems that the court’s reasoning in the Shell Case is sufficiently broad to potentially not only be applied to Shell, but also to other companies that have influence over global CO2 emission – particularly those that are seated in the Netherlands (which in principle would mean that Dutch courts would have jurisdiction).

Moreover, the Shell Case may further inspire activist groups to initiate collective action proceedings in order to compel others to amend their environmental policies. In this regard, it should be noted that the Shell Case was inspired by the recent Urgenda Case before the Dutch Supreme Court in December 2019, which is another high-profile Dutch collective action proceeding regarding climate change. In the Urgenda Case, environmental groups initiated collective action proceedings and successfully claimed (also on the basis of the Dutch general tort provision) a court order against the Dutch State to reduce its CO2 emission by 25% by the end of 2020 compared to 1990 levels. The trend of Dutch collective action proceedings regarding climate change matters is thus likely to continue in light of these cases.

Furthermore, this trend will be facilitated by the fact that the Netherlands recently adopted new legislation which arguably improves the efficiency of collective action proceedings and also allows Dutch courts to award damages in such proceedings.

In view of the above, it seems prudent for companies to take into account the risk of collective action proceedings in the Netherlands when determining their environmental policies.