Royal Dutch Shell emission ruling could have ‘huge’ implications for corporates

The landmark Dutch court ruling that ordered energy giant Royal Dutch Shell to speed up its carbon-emission cuts is set to have big repercussions for many companies, legal experts say.

Following the ruling last week, Shell must now reduce its net carbon emissions by 45% by 2030, compared with 2019 levels. This is much more than it had previously planned.

It is the first time a court has held a corporation responsible for complying with the terms of the Paris Agreement on climate change, which sets legally binding, deep cuts in greenhouse gases for those countries that have signed up to limit global warming to less than 2°C above pre-industrial levels. The court ruled that companies like Shell must also play their part in tackling climate change.

Denise Eastlake, head of the climate change desk at DAC Beachcroft, said: “The court pointed out that Shell is bigger than some countries, so the role of non-state actors like it are just as important as governments.” Shell’s total greenhouse gas emissions in 2019 were around the same as Russia, the world’s fourth-largest polluter, according to Bloomberg.

The case was brought by environmental pressure groups led by Friends of the Earth Netherlands, also known as Milieudefensie, along with more than 17,000 Dutch citizens. “This is a turning point in history,” said Roger Cox, Milieudefensie’s lawyer. “This ruling may also have major consequences for other big polluters.”

Shell called the court decision “disappointing” and said it would appeal. But the court said it should start increasing the scale of its emissions cuts immediately regardless of any appeal.

Nigel Brook, who leads Clyde & Co’s global resilience and climate change risk campaign, called the judgment “epoch-making”.

“It’s easily the most significant climate-litigation decision against a company to date by a country mile. If this decision holds, then it has huge implications,” he said.

Shell already aimed to have net-zero emissions by 2050, in line with the Paris Agreement goal. But the Dutch court ordered it to move faster, saying its emissions-cutting plans are too vague, creating the risk that it would breach the obligation.

The order applies not only to emissions produced by Shell’s Dutch businesses, but those across its global operations, as well as its suppliers and customers.

“The court understands that the consequences could be big for Shell,” a court spokeswoman said. “But the court believes that the consequences of severe climate change are more important than Shell’s interests,” she added.

After the verdict, Shell said: “Urgent action is needed on climate change, which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050, in step with society, with short-term targets to track our progress. We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels. We want to grow demand for these products and scale up our new energy businesses even more quickly.”

The court found that Shell owes a duty of care to Dutch citizens to help protect them against dangerous climate change. The court said this was based on “the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights”.

This is a groundbreaking development, said Mr Brook: “It had already been established that governments owe citizens human rights, but not that companies did too. The court decided quite readily that in fact they do,” he explained.

Whereas other climate lawsuits brought against oil and gas companies – including about two dozen by US states and cities – have sought compensation for harming the environment, the Milieudefensie case against Shell sought to change its behaviour.

Sara Shaw from Friends of the Earth International called on other organisations across the world to launch their own legal actions, stating: “This is a landmark victory for climate justice.”

And this decision could have implications for all organisations emitting carbon, legal experts believe.

There are currently about 1,800 climate-change lawsuits being fought in courtrooms around the world against governments and companies, according to the database. This includes 48 lawsuits against corporations outside the US.

“Judges around the world are being confronted by climate-change cases and are looking to other judges for points of reference,” Michael Burger, executive director of Columbia Law School’s Sabin Center for Climate Change Law, told Bloomberg before the judgment.

The Shell judgment cited the Urgenda decision, in which the pressure group won an historic court ruling in 2019, forcing the Dutch government to make deeper cuts in carbon emissions, arguing that it had a duty to protect its citizens’ human rights by tackling climate change faster.

The Urgenda case inspired cases against the Irish and German governments, as well as a number of others waiting to be heard by the European Court of Human Rights. The Shell decision may do likewise, said Ms Eastlake. “There are a lot of really good legal charities focused on this issue. The UK has a climate change act, similar to that in the Netherlands, which makes it easier for plaintiffs to claim that organisations are behind where they need to be to meet the goals of the Paris Agreement.”

The Shell case is a “wow moment” for every company, said Ms Eastlake. It should make climate change a boardroom issue, if it isn’t already, added Mr Brook.

“The board needs to make sure that every aspect of the business is climate-aware. This isn’t something they can delegate to risk managers… they need to ensure that every material business decision they make takes climate into account, including acquisitions and disposals,” he said.

Ms Eastlake added: “The most important conclusion from this judgment is that every organisation needs to ask: ‘How can we adapt?’”

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