Bloomberg Law
July 7, 2021, 8:00 AM

The Hague’s Ruling on Shell’s Carbon Emissions—More to Come?

Ken Rivlin
Ken Rivlin
Allen & Overy LLP
Jochem Spaans
Jochem Spaans
Allen & Overy LLP

On May 26, the District Court of The Hague ordered Royal Dutch Shell (RDS) to reduce the Shell group’s C02 emissions—including emissions of its suppliers and customers—by 45% in 2030, compared to 2019 levels. This is the first reported case in the Netherlands requiring a corporation to reduce its carbon footprint.

The Shell ruling comes against the backdrop of increasing climate litigation globally (there are about 1,800 climate litigations pending, according to Columbia Law School’s Sabin Center for Climate Change Law) and the emergence of environmental, social, and governance (ESG) issues as a priority for corporations, financial institutions, and policy makers.

The ruling remains subject to appeal and is limited to Dutch law, but it is likely a harbinger of additional litigation, lobbying, regulation, and shareholder action around the world seeking to reduce carbon emissions, incentivize adaptation to climate change, and improve measurement and disclosure of climate and other environmental impacts for shareholders, investors, consumers, and citizens.

The Claim

The claimants, a collection of NGOs, alleged that RDS’ aggregate C02 emissions constitute “an unlawful act towards” the claimants because such emissions violated RDS’ obligations arising from its duty of care under Dutch law. The NGOs essentially argued that this duty of care imposed an obligation on RDS to “contribute to the prevention of dangerous climate change….”

Relying on scientific evidence developed by the Intergovernmental Panel on Climate Change (IPCC) and reports issued by, among others, the United Nations Environment Program (UNEP), the World Meteorological Organization (WMO), the International Energy Agency (IEA) and other sources, the claimants argued that RDS must reduce these emissions relative to its 2019 emissions. They argued for reductions of 45% relative to 2019 levels, or in the alternative for reductions of 35%, or 25%.

The Ruling

The court agreed and imposed the maximum reductions that claimants sought. It affirmed their contention that Dutch law imposed an obligation on RDS to reduce the CO2 emissions of its entire energy portfolio. In doing so, it stated that it relied on its interpretation of the unwritten Dutch duty of care with reference to “the best available science on dangerous climate change…, and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights.”

Specifically, it concluded that RDS must reduce the Shell group’s CO2 emissions by net 45% relative to its 2019 emissions, that these reductions apply to emissions from Shell group’s entire value chain (from suppliers to end-users of its products), and that RDS will be responsible for determining how to achieve these reductions.

Next Steps

Shell has indicated it will appeal. One key aspect of Shell’s likely appeal would be, as referenced in the ruling, that legislators rather than courts should be dictating how society tackles climate change.

Shell also has stated that, regardless of any further appeals, it will continue to “seek ways to reduce emissions even further,” and to continue to invest in lower-carbon energy, renewables, and other energy sources such as hydrogen and biofuels, while continuing to produce oil and gas products in order to meet customer demand.

Shell, like other key energy sector players, will continue to face public scrutiny of its approach to energy transition, how it balances and prioritizes oil & gas production with other energy sources, and its overall approach to climate and carbon reduction.

Observations and Likely Implications

It is easy to over-dramatize this ruling, which is clearly limited to unique aspects of Dutch law. While similar arguments could be made (and should be expected) in other fora, whether such arguments would succeed will depend very much on the applicable law and other case-specific circumstances.

In addition, it is not clear that other courts would so readily adopt the scientific evidence and reasoning that this court accepted as a basis for assessing Shell group’s particular contribution to global climate emissions.

We also believe that other courts may be more sympathetic to the argument that climate should be addressed through legislation rather than court action. Certainly, for example, it is highly unlikely that a U.S. court would conclude that it has the authority under current law to require a corporate or financial institution defendant to reduce its carbon emissions—unless perhaps to enforce a contractual agreement to do so or if those particular emissions could be directly linked to a particular harm, which is unlikely.

Nevertheless, more litigation is likely in the U.S. and around the world. Some plaintiffs may seek similar remedies (i.e., specific emissions reductions by a date certain) to those granted against Shell.

Most litigation, however, is likely to follow the patterns we have seen to date, including principally: government and private party claims alleging inadequate or misleading climate disclosure; NGO and citizen claims against governments for not adequately addressing climate or similar issues; and claims relating to approval of infrastructure projects, insurance, flood prevention, violation of public trust. The list goes on and on.

The Shell ruling is not the first example of public impact litigation and surely will not be the last. While based solely on Dutch law and therefore having limited precedential value outside the Netherlands, it nevertheless may provide some inspiration to other hopeful claimants in other jurisdictions.

More climate litigation, as well as litigation involving broader ESG concerns such as worker and human rights, supply sustainability, and reporting accuracy, is coming.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Ken Rivlin is a partner with Allen & Overy LLP, where he heads the International Environmental Law Group and co-heads of the International Trade and Regulatory Law Group.

Jochem Spaans is a partner in the Projects & Real Estate department of Allen & Overy in Amsterdam and specializes in EU environmental law, industry, and climate change.