First industrial company ordered to reduce greenhouse gas emissions: new ripple effects to come?

First carbon major ordered to reduce greenhouse gas emissions: new ripple effects to come?

According to the United Nations Program for the Environment (UNEP), the number of climate litigation cases almost doubled between 2017 and 2020, reaching 1,550 worldwide.[1] Although the majority of these lawsuits are directed against States and public entities, private groups are also targeted. Data published by the Grantham Institute on Climate Change and the Environment of the London School of Economics show that around 25% of all climate litigation cases since the 1990s have been directed against corporations. [2]

However, up until recently, no private company had been ordered by a court to play its part in the global fight against climate change. In the United States, for instance, courts stumbled over arguments such as the separation of power between the executive and judicial branches.[3] In New-Zealand, courts found that the plaintiffs' alleged harm may be caused by climate change as a whole but could not be attributed to the defendant company's particular emissions.[4]

On May 26, 2021, six years after the District Court of The Hague ordered the Dutch State to reduce its emissions in the Urgenda case[5] – a decision that was ultimately confirmed by the Dutch Supreme Court on December 20, 2019[6] –, the same Court set a new precedent for global climate litigation: seized by Milieudefensie and other Dutch environmental organizations, it ordered Royal Dutch Shell ("RDS") to reduce its CO₂ emissions by 45% by 2030, relative to 2019 levels.[7]
 
Emissions reduction is part of RDS's duty of care towards Dutch citizens

Strictly speaking, there is no international or Dutch legal norm that makes it binding on companies to respect human rights or to reduce their greenhouse gas emissions.

The Court thus took the time to note that international human rights rules (e.g. right to life and right to the respect of privacy and family life, enshrined in both the European Convention of Human Rights and the International Covenant on Civil and Political Rights) and international soft law standards (e.g. the United Nations Guiding Principles on Business and Human Rights) are neither directly applicable nor binding on corporations.

Therefore, although it extensively cites and resorts to these rules, the Court does not directly apply them to RDS.

Instead, the Court followed the subtle approach that it had already applied in the Urgenda case and used this set of rules to shape and interpret RDS's duty of care under national private law.

The District Court of The Hague thus grounded its decision on Article 6:162 of the Dutch Civil Code, under which those who fail to exercize a reasonable standard of care shall repair the harm suffered as a consequence thereof.

The aforementioned international and soft law rules were merely used by the Court as guidelines to interpret the level of care that could reasonably be expected from a company like RDS.

In doing so, the Court also took into account other factors such as the size of the company, the severity of its potential human rights impact, the means that the company has to prevent such impact – ie. control and influence – as well as its knowledge of the existence of the risk.

The Court inferred from the above that it is now a globally shared expectation that all companies should respect human rights and take responsibility for their emissions. This standard of care applies to RDS with even more weight, given that that it shapes the corporate policy of the Shell group, a major player on the fossil fuel market that it is responsible for significant emissions with serious and irreversible consequences for the human rights of Dutch citizens.

This provided sufficient evidence for the Court to rule that, under the Dutch standard of care, RDS has an obligation to reduce its CO₂ emissions by 45% by 2030, relative to 2019 levels.
 
Emissions reduction obligation extends to indirect emissions

The District Court of The Hague further ruled that RDS's obligation to reduce its emissions not only applies to its own operations but also to those of its entire value chain, including its end-users.

This piercing of the corporate veil is justified by the Court on the basis of a due diligence obligation that falls upon RDS as the parent company of the Shell group. The Court considered that this position gives RDS determining control and influence over its value chain's decisions and operations. As such, it is responsible for proactively managing the human rights and environmental impacts of its value chain.

The level of control and influence that RDS has over the emissions generated by the companies in its supply chain thus directly determines the strength of its own reduction obligation.

This reasoning led the Court to distinguish between:

The fact that the Court decided to include Scope 3 emissions in RDS's reduction obligation is particularly noteworthy. Just as all carbon majors, 85% of RDS's emissions fall under Scope 3[8]. Therefore, if these downstream emissions are not taken into account, the main bulk of these companies' carbon footprint is actually ignored.
 
RDS's current goals are insufficient to fulfill its duty of care

After establishing the duty of care that falls upon RDS, the District Court of The Hague moved on to assess whether RDS's internal climate goals are in line with such duty.

Although the Court acknowledged RDS efforts in defining a more ambitious climate policy in 2019 and 2020, it still concluded that this policy largely amounts to intangible, undefined and non-binding targets for the long term. In addition, the Court pointed out that these plans are made conditional upon the pace at which the rest of society moves towards the goals of the Paris Agreement.

It therefore concluded that RDS's intentions are incompatible with its reduction obligation, thus implying an imminent violation of its duty of care.
 
RDS's violation of its duty of care contributes to climate change

For the Court to order RDS to reduce its emissions, it still needed to prove causation between the violation of its duty of care and the harm suffered by Dutch citizens.

Evidencing causation is one of the greatest challenges in environmental litigation, and more particularly in climate litigation. Environmental and climate related harm is often spread out in space, in time, and caused by a multiplicity of factors. This makes it hard for plaintiffs to link a particular conduct or omission to a specific harm.
This is why, in some climate lawsuits, plaintiffs have tried – so far unsuccessfully – to resort to scientific studies attributing a certain percentage of global emissions to a particular company in order to seek compensation for just the said percentage of harm suffered as a consequence.[9]

In its decision, the Court circumvents the causation hurdle and considers that the mere fact that RDS's emissions contribute to global warming in the Netherlands is sufficient to characterize a causal link between its conduct and the harm to plaintiffs.

The Dutch Court thus dismissed the argument that RDS is not the sole contributor to climate change and ruled that this does not absolve RDS of its own individual responsibility for the emissions over which it has control. This is especially true, the Court ruled, considering that the group's emissions worldwide exceed that of many States, including the Netherlands'.
 
A ruling with potential worldwide repercussions

At this stage, the ruling is a first instance decision and RDS has already announced its intention to challenge it before the Court of Appeals. However, the case will be examined by the same Court that upheld the District Court of The Hague's decision in the Urgenda case. There is thus little reason to believe that an appeal in the present case would lead to a different result.

The repercussions that the Urgenda ruling had on the development of climate litigation in Europe is also enlightening as regards to the impact that the Shell decision could have in other jurisdictions. Indeed, the Urgenda ruling against the Dutch State has already been influential in recent decisions rendered by other European courts. In France, in February 2021, the Paris Administrative Court recognized the failure of the French State in complying with its own climate targets and its responsibility for the ensuing ecological damage[10]. Two months later, the German Constitutional Court ruled that the German climate legislation violated human rights in that it was insufficient to fight climate change after 2030[11].  Finally, in June 2021, the Brussels Court of first instance ruled that the Belgian State did not act with sufficient care in conducting its climate policy[12]. More recently, the French administrative Supreme Court ordered the Prime Minister to take all necessary measures to curb France's emissions and reach the climate goals it set for itself[13].

Just as the Urgenda ruling had international repercussions, it can be expected that claimants and their lawyers worldwide will pay great attention to this case in developing their own legal actions. Similarly, national courts who will be presented with similar cases will likely carefully read – if not draw inspiration from – the District Court of The Hague 's reasoning, which was published in English version just a few hours after it was rendered.

The influence of foreign climate rulings on the development of national jurisprudence is well known. Just days ahead of the Shell decision, on May 21, 2021, representatives of the French Civil and Criminal Supreme Court (Cour de Cassation), of the Administrative Supreme Court (Conseil d'Etat) and of the Constitutional Court (Conseil Constitutionnel) held a joint symposium reflecting on the role of the French courts in environmental justice. Because of its topical transboundary, transtemporal and transdisciplinary, climate litigation was unanimously acknowledged as a potential source of inspiration for further legal innovation in environmental law, and possibly in other areas of French law.

As regards the Shell decision, this is particularly relevant given that it was rendered on the basis of a general duty of care, a legal concept shared in many jurisdictions. In theory, the Dutch Court's reasoning could thus be replicated abroad.
In France, for instance, courts could follow a similar reasoning on the grounds of Article 1240 of the French Civil Code, i.e. the basis of torts law. It also remains to be seen if and how this decision will impact the pending climate litigation brought this year against French carbon major Total by several NGOs and municipalities. Although this case is mostly based on a stricter duty of vigilance that ensues from a 2017 French law, the scientific and legal arguments put forward by the claimants are similar to those developed by the plaintiffs in the Shell case[14].

The outcome of these cases will at least partially depend on how the courts decide to shape the private law concept of "duty of care". Ultimately, this may imply that the courts will also implicitly be called upon to rule on whether 'the common interest that is served by complying with the reduction obligation outweighs the negative consequences [the carbon major] may face, (…) including as regards its commercial interest'.[15] This question, in turns, leads to another consideration ie. the role that the judicial branch is increasingly called to play in the global fight against climate change and the extent to which this may encroach on the role devoted to the executive power.

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