Court of Appeal in The Hague Delivers Ruling on Shell Emissions Reduction Obligation

Involved parties

Shell Plc. vs. Stichting Milieu en Mens, Stichting Greenpeace Nederland, Landelijke Vereniging tot Behoud van de Waddenzee, Stichting Fossielvrij, Stichting Both ENDS, Vereniging Jongeren Milieu Actief.

Legal Arguments

Milieudefensie c.s.: The plaintiffs argued that Shell's current and planned activities significantly contribute to dangerous climate change, thus violating the societal duty of care. They based their arguments on the scientific consensus that a 45% reduction in CO₂ emissions by 2030 is necessary to limit global warming to 1.5°C, as outlined in reports by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA). They also referenced the UN Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises, which emphasize corporate responsibility in mitigating impacts on human rights, including those related to climate change.

Shell: Shell contended that it has already committed to significant emission reductions and that a court should not impose specific reduction targets. The company argued that its activities are regulated by EU and national laws, which should suffice. Shell highlighted its ambitious targets and substantial progress in reducing its emissions. Additionally, Shell pointed out that the EU Emissions Trading System (EU-ETS) and other regulatory frameworks provide sufficient mechanisms to achieve emission reductions, and that imposing a specific reduction target could lead to unintended consequences, such as merely shifting emissions to other companies without achieving a reduction of global emissions.

Reasoning

The Court reasoned following a 6-step progression.

1. Human Rights and Climate Change: The court acknowledged that protection against dangerous climate change is a human right, referencing various international and national legal frameworks including the European Convention on Human Rights (ECHR) and the United Nations Guiding Principles on Business and Human Rights (UNGP). The court recognized that climate change poses significant risks to human rights, such as the right to life and the right to respect for private and family life.
2. Indirect Horizontal Effect of Human Rights: The court discussed the indirect horizontal effect of human rights, meaning that private entities like Shell have responsibilities to respect human rights, including those related to climate change.
   
   Although provisions regarding human rights are primarily directed at governments (vertical effect), when read in combination with private law imposing open standards such as the duty of care, this could result in concrete obligations for private entities. The responsibility towards climate change cannot lie exclusively on states, according to the court. Companies like Shell, as they significantly contribute to the climate problem, have an obligation to limit their CO₂ emissions in order to counter dangerous climate change.
3. EU Climate Legislation: The court noted that existing EU climate legislation such as the Emissions Trading System (EU-ETS), already imposes obligations on companies such as Shell. These regulations aim to reduce emissions through market mechanisms rather than specific reduction mandates. The court emphasized that Shell's European scope 1 and 2 emissions are largely covered by the EU-ETS, which provides a framework for their reduction. The court also referenced the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), which require companies to report on their emissions and develop climate transition plans, but do not impose specific reduction percentages. However, obligations arising from existing regulations do not preclude private companies’ responsibility to reduce their emissions based on the social standard of care.
4. Shell’s obligations regarding scope 1 and 2 emissions: The Court of Appeal recognized Shell’s direct responsibility for scope 1 and 2 emissions, as these are emissions directly under the company’s operational control. Scope 1 includes direct emissions from Shell-owned facilities, while scope 2 covers emissions generated by third-party suppliers, stemming from electricity consumed by Shell, for instance.
   
   Shell has committed to reducing its scope 1 and 2 emissions by 50% by 2030 compared to 2016 levels, surpassing the 45% reduction sought by Milieudefensie c.s. for 2030 based on 2019 levels. The court acknowledged Shell's significant progress in achieving a 31% reduction by the end of 2023 compared to 2016 levels. Given this progress and Shell's detailed plans to meet its 2030 target, the Court found no imminent threat of non-compliance with the 45% reduction target. Consequently, the court concluded that no risk of or actual violation of a legal obligation was established.
5. Shell’s obligations regarding scope 3 emissions: The Court of Appeal took a more complex approach regarding scope 3 emissions, which include indirect emissions from the use of Shell’s products — primarily emissions generated when end-users burn oil and gas products purchased from Shell.
   
   Addressing scope 3 emissions present a complex challenge influenced by factors that are beyond the company's control, such as consumer behaviour and varying regulatory frameworks across countries. The court noted the lack of a clear, enforceable standard for specific reduction percentages applicable to individual companies within the oil & gas industry, despite the general consensus on the need for significant reductions. The court also raised concerns about the effectiveness of imposing specific reduction targets for scope 3 emissions on Shell, as such measures might merely shift emissions to other competing companies without achieving a net reduction in overall emissions.
6. Conclusion: The Court of Appeal's decision underscores the complexity of addressing corporate responsibility in climate change mitigation. While recognizing the critical role of businesses in combatting climate change, the court ultimately decided that it could not enforce a specific emissions reduction target on Shell. The ruling emphasizes the need for comprehensive and coordinated policy measures at governmental and international levels to effectively tackle climate change.