This blog post will debate whether companies have a legal obligation to reduce their emissions in line with domestic agreements as well as broader climate agreements such as the Paris Agreement. I will talk about a recent legal case involving the multinational oil and gas company Shell.
Milieudefensie et al v Royal Dutch Shell plc
On 26 May 2021, the Hague District Court passed down a landmark decision in proceedings between Milieudefensie and Shell. Milieudefensie, a Dutch environmental group founded in 1971, claimed that Shell’s 2019 emissions were too high and that they must be reduced to 45% by 2030.
According to Milieudefensie, Shell’s obligation to contribute to the prevention of dangerous climate change could be derived from its corporate policy. This policy was determined by the environmental group to then give rise to a duty of care, even though this duty of care is unwritten.
Milieudefensie also invoked the right to respect for private and family life, as is available under Articles 2 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedom (ECHR).
The court’s decision
According to the court, Shell’s unwritten duty of care requires that, when determining future corporate policy, it observes certain standards of care concerning emissions and climate change policies. While the court ruled that Milieudefensie could not invoke the human rights under the ECHR directly, in interpreting the specific duty of care applicable to Shell in this context, the court noted that responsibilities of states and businesses in relation to human rights did exist.
On that basis, the court concluded that Shell is obligated to reduce its overall CO2 emissions. The court split this obligation into two parts:
The best efforts obligation interestingly puts a lot of trust into Shell and potentially opens the doors to Shell bending the truth in regaShell to how ‘hard’ it tried to reduce emissions. The court likely ordered such a remedy to minimise court resources. By putting the onus of obligation on the company, the court does not have to constantly dictate what corporate strategy should be followed, thereby minimising the stress on public resources.
In the court’s decision, Shell has total freedom to comply with this reduction obligation as it sees fit and to shape the corporate policy of the Shell group at its own discretion. A potential consequence of extending this obligation to Shell's entire value chain may be that Shell will forgo new investments in fossil fuel extraction and/or will limit its fossil resources production. Detractors of this judgment will say that it will have a freezing effect on the development of new business and technology in the fossil fuel extraction and production industries. Notably, the court did not consider Shell’s current CO2-emissions unlawful.
The 45% reduction in CO2 emissions is based on the UN Intergovernmental Panel on Climate Change’s report, which concludes that limiting global warming to 1.5°C requires a net reduction of 45% in global CO2 emissions in 2030 relative to 2010. Shell’s CO2 emissions covered by the decision include:
Following the previous Urgenda decision, which ordered the Dutch government to take more action to prevent dangerous climate change, the Shell decision of 26 May 2021 marks yet another landmark judgment.
It is the first time a court has held a large company directly responsible for reducing its CO2 emissions in line with the goals of the Paris Agreement. This is an example of the legal system using its power to intrude in commercial dealings. It will be interesting to follow this issue through and see whether other countries will follow in the Dutch legal system’s footsteps when it comes to enforcing legal obligations to reduce emissions.