On 26 May 2021, the Hague District Court located in the Netherlands issued a groundbreaking judgment which imposed on Royal Dutch Shell an obligation to mitigate climate change. Specifically, the court held that Royal Dutch Shell must reduce its CO2 emissions of the entire Shell group by net 45% by the end of 2030, relative to 2019. The case of Milieudefensie et al v. Shell plc is likely a landmark decision for climate change claimants globally, which is why the case has been followed and analyzed closely across jurisdictions.
Background
The claimants in Milieudefensie et al v. Shell comprised more than 17,000 Dutch citizens, and 7 environmental groups (referred to as “Milieudefensie et al.”). The claims brought by Milieudefensie et al. can be linked to a preceding Dutch case, State of the Netherlands v. Urgenda Foundation (“Urgenda”).
In Urgenda, the claimant, an environmental foundation, challenged the Dutch government to adopt a more stringent climate policy. Ultimately, the Hague Court of Appeal ruled that the State of the Netherlands had violated its duty of care under Articles 2 (right to life) and 8 (right to respect for private and family life) of the European Convention on Human Rights (ECHR). The Dutch State was therefore ordered to reduce its greenhouse gas emissions by at least 25 per cent by the end of 2020.
In the present case, the claimants sought to extend the principles applicable to the government, a public institution, to Royal Dutch Shell, a private corporation. For Milieudefensie et al., Royal Dutch Shell is the perfect face case in what hopefully will spur climate change litigation worldwide. Royal Dutch Shell is the largest polluting company in the Netherlands, emitting 9 times the level of CO2 as the Netherlands as a whole. Further, Royal Dutch Shell is aware of its disastrous effect on our environment but has made no substantial effort to mitigate its impact.
Applicable law
Milieudefensie et al. argued that under Article 7 of the Rome II Regulation (“Rome II”), Dutch law was eligible as applicable law for its claims. Under this Article 7 of Rome II, where a non-contractual obligation arises out of environmental damage, the claimant may choose to base its claim on the law of the country in which the “event giving rise to the damage occurred”. The claimants argued that the event in this case was the adoption of a corporate policy by the Shell group, which occurred at Royal Dutch Shell’s head office in the Netherlands. Although Royal Dutch Shell argued that the event directly giving rise to damages is the emission of CO2,, not its corporate policy, the Court followed the argumentation of the claimants.
Ultimately, this allowed the Court to hold that Royal Dutch Shell has an obligation under the “unwritten standard of care” laid down in Book 6, Section 162 of the Dutch Civil Code. Under Dutch law, this duty is to be interpreted in light of “what according to unwritten law has to be regarded as proper social conduct”.
International human rights law
In its ruling, the Court acknowledged that international human rights law was not binding on Royal Dutch Shell, but that it would nevertheless take account of Articles 2 and 8 of the ECHR, and Articles 6 and 17 of the International Covenant on Civil and Political Rights (ICCPR) in its interpretation of the Dutch legal provisions on Royal Dutch Shell’s standard of care.
Paris Agreement
The Paris Climate Agreement 2015 is an international United Nations treaty which came into force November 4th, 2016. Its aim is to reduce global warming to 2 degrees Celsius compared to pre-industrial levels.
In addition to the unwritten standard or care, the argument put forward by the claimants is that Royal Dutch Shell is breaching its obligations under the Paris Climate Agreement of 2015 (the “Paris Agreement”). However, Royal Dutch Shell countered that only countries are signatories to the Paris Agreement, not companies, and that despite that, they were already taking major steps towards reducing the use of fossil fuels.
Soft law
In addition to international human rights law, the Court also drew on a body of law which is gaining in importance and support, namely, business and human rights law. In particular, the Court referred to the United Nations Guiding Principles on Business and Human Rights (UNGP). The UNGP are soft law, but they are a strong guideline in defining the expectations we have of corporations’ accountability and level of responsibility, and therefore the UNGP can assist with interpreting the unwritten standard of care.
Decision
Importantly, the Court highlighted that the UNGP apply not only to a corporation, but to its entire value chain of activities. On this basis, the Court held that Royal Dutch Shell carried responsibility for the impacts of (i) the entire Shell group, (ii) the Royal Dutch Shell business partners; and (iii) the Royal Dutch Shell end-users of products. However, the Court did impose a lower standard of care for those activities and partners included under (ii) and (iii) (a significant best-efforts obligation) as compared to the emission from its own group company (results obligation). Taken all together, the Court concluded that Royal Dutch Shell has an obligation to reduce CO2 emissions from its entire group and value chain by 45% by the end of 2030, relative to 2019 levels.
Furthermore, the court criticized Royal Dutch Shell’s corporate strategy, describing it as “intangible, undefined, and non-binding plans for the long-term”.
If the ruling is upheld, this will mean that 740 million tons of carbon dioxide a year, which is more that total emissions of Germany, will have to be cut from Royal Dutch Shell’s environmental impact.
Comment
The Milieudefensie et al v. Royal Dutch Shell plc case signifies that the legal frameworks are finally catching up to the reality of contemporary business. The decision represents, in effect, the trend that corporations are recognized as major global players, who may even have more impact on and power over society and environment as entire countries.
Even if Royal Dutch Shell appeals the decision, the judgment is such a landmark ruling for business and human rights litigation that it is expected that the Court’s reasoning will be replicated by other national courts when they assess similar claims for climate-related liability,
Furthermore, the case signifies a hardening of soft legal mechanisms which have gone largely unenforced, notwithstanding their importance. The UNGP lack the effectiveness that one would require from a legal framework that governs such important matters. What Milieudefensie et al v. Royal Dutch Shell plc exemplifies is that there are international legal deficiencies when it comes to constraining the activities of corporations in order to protect people and planet. Corporations’ responsibility and accountability on an international level should not depend on national definitions of standard of care.
What is also demonstrated by the case, is that there still is a wide gap between climate activists on the one side, who argue what a company should be doing, and companies on the other, that argue what companies are generally capable of doing. Yet, it is promising that the Court is not looking to strike a balance between the two, but that the Court is signaling to Royal Dutch Shell and similar companies everywhere that they are capable of doing better.
