The Shell appeal ruling: a roadmap to future corporate climate litigation?
This week, the 2021 court ruling requiring Shell to reduce its emissions by 45% by 2030 was overturned on appeal. Whilst initially appearing to be a blow to corporate accountability on climate change, our Senior Legal Manager Sophie Prinz takes a closer look at some of the wider implications of the judgment.
The hearing on Tuesday. Photo by Frank van Beek.
On Tuesday, the Hague Court of Appeal released its long-awaited ruling in the appeal of the Milieudefensie case against Shell, which has galvanised the movement around climate corporate accountability for the past three and half years. Whilst the Court upheld the general obligation on Shell to take mitigation action in line with the Paris Agreement, it overturned the 2021 order to reduce its absolute emissions by 45% by 2030. Its ruling was that no specific percentage reduction obligation could be imposed on Shell, given that reduction pathways differ by sectors and countries.
Paving the way for future climate litigation
This decision is disappointing and will further delay the changes needed from the corporate sector to mitigate the climate crisis. But there are positive takeaways. The Court provided in its judgment – which may still be appealed to the Dutch Supreme Court – a wealth of arguments that have the potential to pave the way for future corporate climate litigation. In particular, it noted that:
High-emitting companies have an obligation to reduce their absolute emissions (including ‘scope 3’ emissions) in line with the Paris Agreement, and have a social duty of care to do so.
Protection against climate change is a human right which companies have a duty to avoid violating.
These findings can directly feed into ongoing cases challenging fossil fuel companies’ business models and fossil fuel expansion. They can also support a new wave of litigation against high-emitting sectors which have so far been subject to fewer litigation efforts, especially on the fossil fuel demand-side and the finance sector.
Companies have an obligation to reduce their emissions, including Scope 3
The Court of Appeal is clear: companies have a legal obligation to reduce their emissions in line with the Paris Agreement.
The Court put a particular emphasis on the companies “whose products have contributed to the creation of the climate problem and have it in their power to contribute to combating it” (paragraphs 7.26 and 7.27 of the ruling). This of course implies that fossil fuel producers must significantly drop their emissions.
But fossil fuel producers are only one part of this complex picture.
Fossil fuels are extracted to support unsustainable high-emitting activities on the demand-side – and these sectors, too, must reduce their emissions. The need to address both supply and demand is acknowledged by the Court, as it states that keeping the goals of the Paris Agreement within reach “will require not only taking measures to reduce demand for fossil fuels, but also limiting the supply of fossil fuels” (paragraph 7.61).
The Court goes on to outline how any regulatory and legislative framework should be additional to this emission reduction obligation, and stems from companies’ social duty of care. Recent laws adopted at EU level, notably the Corporate Sustainability Due Diligence Directive (CSDDD), reinforce this duty of care but do not replace it.
The Shell ruling offers a stark reminder that companies need to adequately prepare for the CSDDD by adopting and implementing a climate transition plan covering scope 1 to 3 emissions and in line with the 1.5°C goal of the Paris Agreement. The Court may not have been willing to impose a quantifiable emission reduction obligation on Shell, but it is anticipated that European courts will be asked to scrutinise and assess climate transition plans adopted by companies under Article 22 of the CSDDD and in light of their social duty of care.
For years, suppliers of fossil fuels and consumer-facing companies have claimed that they lack control and therefore responsibility over their upstream and downstream emissions (in climate jargon, ‘scope 3 emissions’). The Court is very clear on this point: companies have a legal responsibility to reduce their scope 3 emissions. When it comes to the aviation sector, this means that airport operators are directly responsible for reducing emissions from air traffic, including taking decisions to reduce air traffic growth.
The risk of ‘carbon lock-in’ for fossil infrastructures
Carbon lock-in (where the development of carbon-intensive infrastructures delays a low-carbon future) must be avoided in every sector to stand a chance of avoiding the worst consequences of the climate crisis – and yet, we still see significant global investments that continue to support the expansion of fossil infrastructures. In the transport sector, for example, existing airports and ports are planning to expand, and new ones to be built.
The risk of carbon lock-in for investments in such new fossil infrastructure is not overlooked by the Court, as it notes that there is an incentive for companies “to keep using this infrastructure for as long as possible” (paragraph 7.59). The Court hints that new oil and gas developments might not be in line with Shell’s obligations under its social standard of care – notably saying that it couldn’t rule on that aspect as it was not an issue before the Court. Other high-emitting sectors will need to consider carefully the impact of any large-scale investment in fossil infrastructure on their climate transition plan, in particular in light to the related scope 3 emissions of the project.
We need to assess new sectoral pathways for emission reduction
The Court stresses the need for sectoral pathways tailored to specific countries and sectors. As corporate climate litigation is likely to expand to new high-emitting sectors, this creates an opportunity for climate scientists to provide robust sectoral analysis that are equitable, ambitious and do not shy away from including demand reduction strategies.
It remains to be seen whether Milieudefensie will appeal the case to the Supreme Court. Whilst the ruling may not include enforceable reduction levels, it nonetheless reaffirms corporate responsibility for climate impacts and provides an important foundation for new litigation avenues.
Follow Opportunity Green on LinkedIn and BlueSky to stay in touch with future climate litigation cases.
