Milieudefensie v Shell: Dutch appeals court overturns ruling that Shell must reduce its CO2 emissions by 45%

On 12 November 2024, a Dutch appeals court ruled that Shell does not have to reduce its CO2 emissions by 45% by 2030 compared to 2019 levels, as previously ordered by the Hague District Court on 26 May 2021. Shell now has the right to adjust its own emissions reductions targets as it sees fit. However, the appeals court maintained the District Court’s stance that there exists a private law duty of care which requires, through corporate policy, that companies contribute to the mitigation of dangerous climate change by reducing their emissions. This “unwritten” Dutch duty of care requires that “companies like Shell, which contribute significantly to the climate problem and have it within their power to contribute to combating it, have an obligation to limit CO2 emissions in order to counter dangerous climate change”.¹ Therefore, whilst the appeals court judgment overturned the requirement that Shell reduce its CO2 emissions by 45%, it did not overturn this new duty. The appeal judgment confirms the following key takeaways based on Dutch law.

1. Protection from climate change is a human right: While the primary responsibility to protect human rights lies with states, companies are still expected to take proactive measures to mitigate their impact on climate change. This responsibility underpins the Corporate Sustainability Due Diligence Directive (“CS3D”), which imposes "obligations for companies regarding actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies”.² In other words, companies have a legal duty under CS3D to integrate environmental and climate impacts into their due diligence policies and risk management systems. When identifying their business risks, companies need to consider environmental and climate risks (extending across their chain of activities), and build an appropriate response into their documentation, reporting and preventability and remedial measures. The CS3D came into force in the EU on 25 July 2024. Member States have until 26 July 2026 to implement it in national law.
2. Regulatory compliance must not be perfunctory: In so far as environmental matters are concerned,  companies must also adhere to a broader duty of care, which may require additional efforts to reduce emissions beyond regulatory requirements. This is also tied into obligations under CS3D. The appeals court judgment clarifies the relationship between the unwritten duty of care and existing legislation: it is assumed that fulfilment of the duty of care takes into account obligations under all EU climate regulations, especially CS3D.
3. No specific emission standard: Shell cannot be bound by a 45% reduction standard as ordered by the District Court (or any other percentage) because this percentage does not apply to every country and every business sector individually.
4. Potential for more litigation in the future? Since the court denied the imposition of specific emission targets on Shell, it dismissed Milieudefensie's claim. Nevertheless, its affirmation that companies have a general responsibility to mitigate their impact on climate change may still pave the way for more lawsuits seeking to hold companies accountable for their contributions to global emissions. Now that this responsibility has been codified by CS3D, along with a civil liability regime for in-scope companies, activists will be all the more emboldened to pursue actions in civil courts once this legislative regime comes into force . Companies must be prepared for increased scrutiny from stakeholders, including environmental organisations, investors, and regulators.

Read our full analysis below. For more detailed guidance on best practice compliance with CS3D, which links points 1, 2 and 3 above, with a view to the risks in point 4, see Mayer Brown’s guide here and for tailored advice reach out to one of the authors of this post.

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Background

In 2021, the Hague District Court ruled that Shell must reduce its scope 1, 2, and 3 emissions³ by 45% by 2030 compared to 2019 levels. The claim was brought by Milieudefensie (the Dutch arm of Friends of the Earth) and others, which argued that Shell's current and projected CO2 emissions were unlawful and violated the unwritten standard of care under Dutch law, as well as human rights protected under Articles 2 and 8 of the European Convention on Human Rights (“ECHR”).  

The District Court’s decision had been heralded as a landmark in corporate climate responsibility and the application of human rights principles to climate change. While the case was brought under Dutch tort law, the interpretation of domestic law was heavily guided by international “soft law” instruments, including the UN Guiding Principles of Business and Human Rights (“UNGPs”) and the OECD Guidelines for Multinational Enterprises (“OECD Guidelines”).

Appeal

Shell appealed the decision on one ground: that the 45% emissions reduction requirement fails to fully identify and factor the activities and climate objectives of Shell and the Shell Group. On 12 November 2024, a Dutch appeals court overturned the 2021 ruling on this ground stating that “Shell cannot be bound by a 45% reduction standard (or any other percentage) agreed by climate science because this percentage does not apply to every country and every business sector individually”.⁴

However, the appeal court largely agreed with the first instance decision in terms of applicable law and assessment of merits, such that it affirmed the remainder of the District Court’s ruling, including in particular that an “unwritten” duty of care law exists which requires companies to mitigate the effects of climate change by reducing their emissions.

The court's reasoning is multifaceted.

• Human Rights and Climate Change: The court recognized that protection against climate change is a human right, as established in various international and national legal precedents. However, the court emphasised that the responsibility to protect human rights primarily lies with nation states, not private companies. The court also noted that, generally, rights under the ECHR have vertical effect in Dutch law (i.e. rights owed by a state to an individual). However, both the UNGPs and OECD Guidelines are instruments which place a responsibility on companies to respect human rights and mitigate adverse impacts thereby creating an indirect horizontal effect (i.e. such that human rights play a role in interpreting and applying civil law standards).
• Existing European Union Climate Legislation: The court examined the European Union's climate legislation, including the EU Emissions Trading System, the Corporate Sustainability Reporting Directive, and CS3D. These regulations impose various obligations on companies to report and reduce emissions but do not mandate specific reduction percentages for individual companies. These pieces of legislation work in tandem with the “unwritten” duty of care such that fulfilment of the duty can be achieved by meeting obligations under legislation.
• Shell's Climate Policy and Investments: The court reviewed Shell's climate policy and its planned investments in oil and gas. While acknowledging the potential negative impact of new fossil fuel investments, the court did not find sufficient grounds to impose a specific reduction obligation on Shell.
• Scope 1 and 2 Emissions: The court found no imminent threat that Shell would not meet its reduction targets for scope 1 and 2 emissions as Shell had already made significant progress and committed to a 50% reduction by 2030 compared to 2016 levels.
• Scope 3 Emissions: The court further concluded that a specific reduction obligation for scope 3 emissions could not be justified based on the available scientific consensus. Applying a general reduction target of 45% on Shell ignored the different reduction pathways for individual sectors that belong to Shell's customer base. In light of a variety of reports with different reduction pathways for oil and gas, the court also refused to establish a sector specific standard for oil and gas. The court further questioned the effectiveness of such an obligation, as it could lead to Shell merely reducing its trading activities without a corresponding decrease in global CO2 emissions as other companies could simply fill the gap.

Commentary

Whilst Shell will not be legally liable for reducing its CO2 emissions by 45% and can continue its operations, the judgment makes it clear that the onus remains on private companies in the oil and gas sector to assist in “achieving the targets of the Paris Agreement”.⁵

In addition to the key takeaways from the introduction, the judgment can be summarised into the following key points.

1. Scope 3 emissions out of scope? The judgment reflects the complexity of addressing scope 3 emissions. Companies must develop strategies to influence their suppliers and customers to reduce emissions. However, the court's decision indicates that imposing specific reduction targets for scope 3 emissions is an unlikely eventuality due to the lack of a clear scientific consensus and the potential for unintended consequences. As such, the questions of how scope 3 reduction obligations can be quantified and, once quantified, how such reductions might be enforced remain open. The judgment does not answer this but now that this dialogue has been initiated it is possible we will see clarity in future cases.
2. Additional obligations as to scope 1 and 2 emissions? The comments in the judgment as to scope 1 and 2 emissions, on the other hand, may strengthen attempts to bring similar claims as these reductions appear more quantifiable. This could be a continuation of the trend we have seen in Germany, for example, in the claims brought by Deutsche Umwelthilfe (“DUH”) against Mercedes-Benz AG and BMW AG, following the initial success of Milieudefensie against Shell in the Hague District Court. Notably, though, on 12 October 2023 and on 8 November 2023, the Courts of Appeal in Munich and Stuttgart respectively upheld the first instance courts’ rulings which had dismissed DUH’s claims seeking to impose scope 1 and 2 emissions reductions.
3. Continued transformation of soft law into hard law. By interpreting civil law standards (here the unwritten duty of care) by reference to soft law instruments like the UNGPs and OECD Guidelines, the judgment has not only placed an increased responsibility on companies to respect human rights but has also widened the parameters of what applicable laws companies must be aware of when operating in the Dutch jurisdiction.
4. Clarifying CS3D obligations. We have previously written about the scope and application of CS3D (see here) and have an up to date guide on best practice with CS3D which also addresses the links between climate change and human rights. Amongst other things, CS3D requires the implementation of a climate transition plan in accordance with the Paris Agreement objectives. The judgment specifically comments that Shell’s plan “need not necessarily include an absolute reduction commitment (of, for example, 45%) for scope 1, 2 and 3. The text of the preamble to the directive suggests some flexibility for companies to periodically adjust their own targets to market conditions”.⁶ This will be welcome news to companies in the oil and gas sector who, prior to this, did not have this level of clarity over the details required for their climate transition plans. In general, a risk-based approach reflecting the nature of the business (and its supply chain), the sector and geographies concerned will be appropriate, with priority being given to impacts on protected groups and vulnerable communities in line with jurisprudence to date. Those involved in the development of climate transition plans should also be aware of the dynamic and fast-evolving nature of climate-related human rights and may need to build a buffer into timetables given the long lead-in times associated with implementing the due diligence process.
5. Legal and reputational risks in the ESG space. The case illustrates the legal and reputational risks that companies in the oil and gas sector face regarding their climate policies. Companies must be prepared for increased scrutiny from stakeholders, including environmental organisations, investors, and regulators. Transparent reporting and ambitious and achievable climate targets can help mitigate these risks.

Milieudefensie has not yet confirmed whether it intends to appeal against the ruling but if it chooses to, it has three months to submit an appeal to the Dutch Supreme Court.

 

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¹ See paragraph 7.27 of the judgment.

² Article 1(1), CS3D. 

³ Scope 1 and 2 emissions are those produced directly by a company in the course of its operations. Scope 3 emissions are those produced when end customers use the company’s products.

⁴ See paragraph 7.111 of the judgment. 

⁵ See paragraph 7.27 of the judgment. 

⁶ See paragraph 7.46 of the judgment.