16.12.2024

Shell Appeal Judgement: What it Means for Climate Lawsuits

In an appeal judgment of November 12, 2024 (file no. 200.302.332/01), the Hague Court of Appeal (Gerechtshof Den Haag) overturned the much-noticed decision of the District Court of The Hague in the proceedings brought by the NGO Milieudefensie and other plaintiffs against Shell on May 26, 2021. The first-instance decision had obliged Shell to reduce its group-wide CO₂ emissions by 45% by 2030 compared to 2019. The Court of Appeal has now confirmed in principle that protection against dangerous climate change is a human right and that companies such as Shell have their own responsibility to reduce emissions. However, unlike the court of first instance, it has rejected the possibility of obliging Shell to follow a specific, absolute reduction path and emphasizes the entrepreneurial freedom to pursue its own approach to reducing CO₂ emissions within the framework of EU legal requirements.

As the decision is an important landmark decision for climate lawsuits and corporate responsibility, the ruling requires careful analysis and classification:

The Asserted Claim

The plaintiffs are demanding that Shell reduce group-wide CO₂ emissions by 45% by 2030 compared to 2019 levels. Alternatively, they are demanding a reduction of at least 35% or at least 25%. The claim includes:

• Shell’s direct emissions (Scope 1)
• Indirect emissions from purchased energy (Scope 2)
• Emissions from the use of Shell products by end consumers (Scope 3) [Section 4.1. of the ruling].

The plaintiffs base their claim on the tort law general clause of the Dutch Civil Code (Art. 6:162 of the Burgerlijk Wetboek (“BW”)). Paragraph 2 of this provision contains an addition that is not found in German law. A tort is defined as a violation of a right and an act or omission that violates a legal duty or what is considered “proper social conduct” under unwritten law if there is no justification for such conduct. The plaintiffs argue that the failure to reduce CO₂ violates unwritten duties of conduct and is therefore unlawful.

Key Points of the Court’s Appeal Decision

1. The social standard of care that determines whether Shell is in breach of “proper social conduct” is determined on the basis of objective criteria – including legislation, general principles of law, fundamental rights, case law and expert opinion [paragraph 7.2 of the judgment].
2. Protection from dangerous climate change is a human right. While the primary responsibility for combating climate change lies with states, this does not mean that private companies such as Shell have no legal responsibility [paragraph 7.17 of the judgment].
3. Companies that do not reduce their CO₂ emissions and continue to contribute to climate change are violating human rights and therefore also the social standard of care.
4. The standard of social due diligence is likely to vary from company to company, depending on the company’s contribution to climate change and its ability to mitigate it. “More can be expected from Shell than from most other companies, as Shell has been a major player in the fossil fuel market for over 100 years and still occupies a prominent position in that market today” [paragraph 7.55 of the judgment].
5. Compliance with public law regulations, in particular EU climate legislation (EU Emissions Trading Scheme (EU ETS 1 and 2), Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) etc.) does not exclude obligations under private law [section 7.53 of the judgment].
6. For Scope 1 and 2 emissions, which account for only 5% of Shell’s emissions [paragraph 3.24 of the judgment], there is no imminent infringement, as Shell itself is already aiming for a 50% reduction by 2030 [paragraph 7.65 of the judgment].
7. For Scope 3 emissions, existing climate law does not prescribe specific CO₂ reduction targets for individual companies or sectors, but it is conceivable that there is a consensus in climate science on specific reduction standards that should apply to a company like Shell so that it makes an appropriate contribution to the climate goals of the Paris Agreement [paragraph 7.67 of the judgment]. Two lines of argument are examined:

• The claimants’ demand for a 45% reduction by 2030 is mainly based on the reports of the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA), the Science Based Targets Initiative and the Race to Zero Initiative [paragraph 7.69 of the judgment]. They deduced from the reports that the percentage of 45% by 2030 should also apply to the energy sector and subsequently also to individual companies such as Shell [paragraph 7.72 of the judgment]. The court decidedly did not follow this. Rather, it stated that it was problematic to derive a specific reduction target for Shell from global averages [para. 73 of the judgment].
• Various expert reports were submitted on the question of whether a more precise target could be derived for the oil and gas sector, to which Shell belongs. In its assessment of the evidence, the Court concluded that the scientific consensus on the appropriate CO₂ reduction target was not sufficient to issue an injunction against an individual company [paragraph 7.91 of the judgment]. For this reason, the court overturned the much-noticed ruling of the first instance decision on a 45% CO₂

Significance and Outlook

The daily press often prematurely interpreted the appeal ruling as a turning point in climate lawsuits. However, this misjudges the actual scope of this important landmark decision:

The Court of Appeal reaffirmed the principle that companies are obliged to contribute to the mitigation of climate change in accordance with the emission reduction targets of the Paris Agreement. Due to the divergent expert opinions submitted, it was not (yet) in a position to impose a specific CO₂ emissions reduction target on Shell. It is explicitly stated here that the EU measures to reduce CO₂ emissions under the EU ETS, CSRD and CSDDD also oblige companies, but that this does not result in any absolute reduction obligations for specific companies or industrial sectors and that companies are free to pursue their own strategy for reducing emissions within the framework provided by these measures. However, it is probably only a matter of time before more precise data on the sectoral CO₂ reduction pathways will be available, so that in future it is quite conceivable that large CO₂ emitting companies in the Netherlands could be obliged to achieve specific CO₂ reduction targets.

It also did not follow Shell’s argument that only public law, in particular EU climate protection law, forms the relevant binding legal framework for companies [paragraph 7.53 of the judgment]. This is an important finding that keeps the way open for climate-related corporate actions on a private law basis – at least in the Netherlands.

The appeal judgment, like the first instance judgment, is only partially transferable to the legal situation in Germany. This is because the Dutch tort law general clause (Art. 6:162 of the Burgerlijk Wetboek) used as a basis for claims has a far greater impact on unwritten legal principles than the corresponding general clauses in German law (Section 823 of the German Civil Code (“BGB”) or Section 1004 BGB). For this reason, the impetus provided by the Shell judgment of the District Court of The Hague of May 26, 2021 has not yet caught on in any of the climate lawsuits pending in Germany against individual companies.

From an environmental compliance perspective, climate lawsuits against companies must nevertheless be taken seriously. Since 2021, the number of climate lawsuits against companies has increased significantly. To reduce the risk of legal action, it is advisable from a corporate perspective to draw up a climate protection plan that includes reduction targets for 2030 and 2050. Companies that are required to report under the CSRD must in any case draw up and implement a transition plan for climate protection in line with the Paris Agreement (ESRS E.1-1). The same applies to companies subject to the EU Supply Chain Directive (Art. 22 CSDDD).