MILIEUDEFENSIE v SHELL: Key takeaways from a major judgment on climate change and corporate responsibility

On 12 November 2024, the Hague Court of Appeal delivered a landmark judgment in the case of Milieudefensie v Shell, overturning an earlier decision by the District Court to impose a set reduction target for Shell’s CO2 emissions. This is an important case on corporate responsibility in addressing climate change.

In April 2019, a coalition of environmental organisations, NGOs, and individuals, led by Milieudefensie (Friends of the Earth Netherlands), filed a lawsuit in the Dutch courts against Shell in relation to CO2 reduction, alleging it had breached its duty of care under both Dutch and human rights law.

District Court judgment

In 2021, the District Court ruled that Shell must cut its global greenhouse gas emissions by 45% by the end of 2030, relative to 2019 levels. In addition, it found there was a broad duty of care under Article 162 of the Dutch Civil Code for Shell to comply with the Paris Agreement and the UN Guiding Principles on Business and Human Rights (UNGPs).

Shell appealed and on 12 November 2024, the Hague Court of Appeal handed down its judgment.

Hague Court of Appeal Judgment

The judgment set out a history of Shell’s published climate targets, which show a goal of net-zero emissions by 2050. However, the judgment noted that in 2024, Shell’s pre-2050 reduction targets had been lowered, due to uncertainty about the pace of the energy transition.

The Court of Appeal took the issues in stages:

Human rights law

It affirmed the District Court’s finding that protection against climate change is a fundamental human right and States have an obligation to protect their citizens from climate change.

It noted that, in Dutch law, fundamental rights apply between citizens and the government (vertical effect), but the courts can take into account such rights in private relationships when general concepts of law are applied (ie a horizontal effect). It also noted that there are various relevant soft-law instruments, which include the UNGPs and the OECD Guidelines on Corporate Social Responsibility. 

The Court of Appeal concluded that in Dutch law, there is a social standard of care in private relationships and whether it is violated depends on many factors, such as the threat of the hazard, and the company’s contribution to it. In this case, the Court of Appeal found that Shell does have an obligation to limit CO2 emissions to combat climate change and to achieve the goals in the Paris Agreement.

EU legislation

Against this backdrop, the Court of Appeal examined EU climate regulations that had been updated since the District Court judgment, including the EU Emissions Trading System (EU ETS)¹, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD)², amongst other regulations and guidelines. 

It found that while the legislation imposes obligations on companies to reduce emissions, there are currently no set specific reduction targets for individual companies. However, it rejected Shell’s arguments that this meant that an obligation for individual companies to reduce CO2 emissions did not sit within the framework of the law.

The Court of Appeal found that the measures taken by the legislature to reduce CO2 emissions were not exhaustive, and that they did not preclude a social duty of care, although they should be taken into account in relation to such an obligation.  

New investments

There was discussion of Shell’s planned investment in new oil and gas fields, which Milieudefensie argued do not contribute to the Paris Agreement goals and would create a “carbon lock in” (ie the initial infrastructure requires significant investment which cannot be reversed until this is recouped). The Court of Appeal acknowledged that it is plausible that, to comply with the Paris Agreement, the supply of fossil fuels must be limited, and so continued expansion may not be in accordance with the social duty of care. However, it found that, within the context of this matter, which concerned whether Shell should be subject to a set emissions target, it was not necessary to consider this further.

Scope 1 and 2 emissions

As regards Shell’s scope 1 and 2 emissions obligations³, the Court of Appeal found that it had committed in its business plan and regulatory filings to making a 50% reduction by 2030 and had already made a 31% reduction. It dismissed this element of the claim as Shell was already complying.

Scope 3 emissions

The main issue was therefore whether the District Court had been correct to find that Shell should be subject to an emissions target of a 45% reduction in scope 3⁴ emissions. 

The Court of Appeal assumed that, as set out by Milieudefensie, there was a widely supported consensus that CO2 emissions must be reduced by 45% by 2030 and 100% by 2050. However, these figures related to a global reduction and some sectors would have to reduce emissions by more than this figure and others by less. 

The Court of Appeal found that it could not determine what specific reduction should apply to Shell, for reasons including the following:

• Shell’s activities could temporarily result in an increase in scope 3 emissions whilst on balance lowering global CO2 emissions, for example if it started supplying gas to a company that previously obtained coal from another supplier (as coal has a higher carbon intensity).
• Shell’s scope 3 emissions are spread across multiple sectors, in some of which it is harder to find alternatives to fossil fuel, and a general percentage reduction ignores the different reduction path of different customers. The fact that companies must make every effort to reduce emissions as quickly as possible does not mean a global average can be converted into a mandatory standard for Shell.

Arguments were also made as to whether Shell could be ordered to make a reduction linked to its specific supply portfolio of oil and gas. Scientific reports and expert evidence were put forward but the Court of Appeal found that no sufficiently unambiguous conclusion could be drawn as to what the required reduction should be on which to base a specific standard for one company.

The Court of Appeal accepted arguments that Shell could meet the reduction percentage however it wished, and that it could do so by restricting sales of third-party fossil fuels to end users. In this case, Shell would disappear from the value chain of these fossil fuels, but they would still reach the end user via another intermediary. Therefore, it had not been established that a reduction in resale activities would lead to a reduction in CO2 emissions, meaning that the order sought by Milieudefensie would not be effective and so it did not have an interest in the claim.

It is not yet clear whether Milieudefensie intends to appeal the judgment before the Supreme Court of the Netherlands.

Comment

Shell was successful in the appeal and corporates will welcome the finding that at present individual set reduction targets may not be placed on them by the courts (that is if other courts follow the Dutch approach, which was based on its national law). 

Targets placed on certain companies rather than across broader sectors or industries as part of an overall policy decision by a government or regulator could create challenges for those companies, as well as the potential for further litigation.

That said, NGOs will have welcomed the court’s strong confirmation that corporates have a clear legal and social duty to fight climate change, and the judgment does not change obligations to comply with relevant legislation or legal duties requiring alignment with the Paris Agreement.

This ruling could arguably be said to illustrate the current limits of what climate litigation can directly achieve in relation to an area that requires a complex balancing of multiple interests. However, as there are a number of other cases in various jurisdictions against corporates, this will certainly not be the last word that courts have to say on climate-related issues.

Shell itself has reiterated that it has a target to become a net-zero emissions energy business by 2050 and to halve emissions from operations by 2030, and it has noted that policies from governments and investment and action across all sectors is needed to drive progress to net-zero.

Footnotes

1. For more information on the EU ETS, see some of our publications on the topic here and here.
2. Please see our briefing on this in further detail here.
3. Scope 1 emissions are direct emissions from installations owned or controlled by Shell. Scope 2 emissions are indirect emissions from third-party installations from which Shell purchases electricity, steam or heat for its business activities.
4. Scope 3 emissions are other indirect emissions not included in Scope 2 generated in Shell’s value chain including consumption of products Shell supplies to third parties.