Landmark climate change decision in Milieudefensie et al v Royal Dutch Shell PLC and its aftermath

Three years have passed since on 26 May 2021 The Hague District Court issued its judgment in the landmark climate change case Milieudefensie et al. v Royal Dutch Shell Plc ('Milieudefensie v Shell').[1] Last April, a new chapter unfolded, as The Hague Court of Appeal held a four-day hearing on Royal Dutch Shell Plc's ('Shell') appeal. The Court of Appeal is expected to issue a decision by the end of the year, although it will most likely not be the end of this case. This article provides some insight on this ground-breaking decision as well as an overview of similar lawsuits from around the world, and considers what might be expected going forward.

The Hague District Court ordered Shell to reduce its CO₂ emissions

In May 2021, The Hague District Court (the 'District Court') issued a historic decision ordering Shell, the parent company of the Shell group, to reduce its net carbon dioxide ('CO₂') emissions by 45% by 2030 (compared to 2019 levels) through the Shell group's corporate policies. This reduction order relates to the Shell group's entire energy portfolio and to the aggregate volume of all its emissions (scopes 1, 2 and 3)[2], meaning not only the emissions from the Shell group's own activities would be taken into account, but those of its entire supply chain, including its business partners and end users. The District Court ruled that Shell has an obligation of result as regards the group's activities, and a significant best-efforts obligation as regards third parties' emissions, but left it up to the company to decide how to comply with its reduction obligation.

The plaintiffs in Milieudefensie v Shell had argued that Shell had a corporate policy that was not aligned with the global target of preventing the negative effects of climate change, as reflected in the Paris Agreement.[3]

The District Court based its ruling on the standard of care laid down in article 6.162 of the Dutch Civil Code,[4] which prohibits acting in conflict with what is generally accepted as proper social conduct. Pursuant to this standard of care, Shell must observe the due care exercised by society as a whole when it determines Shell group's corporate policy. The District Court assessed what was expected of Shell under this standard with respect to Dutch residents and the inhabitants of the Wadden region, whose interests the plaintiffs sought to protect. In interpreting the unwritten standard of care, the Court took into account several factors, both factual and legal.

On the factual side, the District Court considered Shell's policy-setting role within its group, remarking that the responsibility each Shell company has in implementing the policy does not alter the fact that it is Shell that determines the group's general policy and therefore has power and influence over the group's emissions worldwide. The District Court also considered the Shell group's total CO₂ emissions, observing that the group is a major player in the worldwide fossil fuel market and that its total emissions (considering all three scopes) exceed the CO₂ emissions of many countries, including the Netherlands. It added that it is common knowledge internationally that climate change caused by CO₂ emissions poses serious and irreversible risks, which are particularly high in the Netherlands and the Wadden region.

On the legal side, the District Court took into account several international instruments, such as the Paris Agreement, the European Convention on Human Rights and Fundamental Freedoms ('ECHR') and the International Covenant on Civil and Political Rights. It built on the Urgenda decision,[5] from which it concluded that Articles 2 and 8 ECHR offer protection against the consequences of the negative effects of climate change due to CO₂ emission-induced global warming. In so doing, it rejected Shell's argument that human rights offer no protection against dangerous climate change, stating that the serious and irreversible consequences of the negative effects of climate change in the Netherlands and Wadden region pose a threat to human rights.

The District Court also relied on soft law instruments, such as the UN Guiding Principles on Business and Human Rights, the UN Global Compact and the OECD Guidelines for Multinational Enterprises. Based on these instruments, the Court concluded that companies must respect internationally recognized human rights, meaning they should avoid infringing them and should address adverse human rights impacts in which they are involved –- which entails a global standard of expected conduct in the form of doing their part to reduce climate change.

The District Court thus concluded that Shell had a legal obligation to contribute to the prevention of the negative effects of climate change and to respect the human rights of Dutch residents and the inhabitants of the Wadden region, who face serious and irreversible consequences of climate change caused by CO₂ emissions. It ordered Shell to comply with its reduction obligation and declared the order provisionally enforceable, meaning that Shell had to comply with it immediately, regardless of any appeal it might file.

Milieudefensie v Shell's Repercussions Worldwide

It was unprecedented for a court to order a company to lower its CO₂ emissions. Previous decisions had ordered sovereign states to do so, such as the landmark Urgenda decision, but never a private actor.

The District Court acknowledged that the Paris Agreement is not binding on Shell, but still relied on this international instrument, noting that the signatories of the Paris Agreement sought the help of 'non-state stakeholders' to pursue its targets. While it may be debated whether Shell or its group should be considered one of those stakeholders, the District Court remarked that it did not have to resolve that issue, as it is generally accepted that states alone cannot achieve the CO₂ emission targets and that other parties must contribute to slowing down global warming. It held that the targets established in the Paris Agreement represent a globally accepted standard for preventing the dangers of climate change and would therefore be used in its interpretation of the unwritten standard of care. Following that reasoning, the District Court ordered Shell to reduce its CO₂ emissions in line with the Paris Agreement targets.

In this sense, the judgment supported the view of some academics that international instruments, and particularly the Paris Agreement, can be indirectly applied to companies even though they are theoretically not bound by such instruments.

At the time, this decision received a lot of attention and there was much speculation as to the possibility of it being replicated in other jurisdictions. But its actual impact at a global level is unclear, as ultimately the legal basis for the obligation imposed on Shell is the unwritten standard of care provision in the Dutch Civil Code. While the District Court interpreted the Dutch provision with the aid of various international instruments, its reasoning is nonetheless based on national law and, as such, might not be easily exported to other jurisdictions. It is also noteworthy that the benchmark for the Dutch unwritten standard of care is 'proper social conduct' and what amounts to 'proper social conduct' is open to interpretation. In this case the District Court understood that there is a common expectation in society that Shell (and, arguably, other private stakeholders) are expected to contribute to the reduction of CO₂ emissions.

In any event, similar lawsuits have been brought around the world. For instance, in September 2023, two NGOs (Greenpeace Italy and ReCommon) and 12 Italian citizens filed a lawsuit against the fossil fuel company ENI SpA and two of its major shareholders for their contribution to global warming ('ENI Case').[6] In their writ of summons, the plaintiffs cited Milieudefensie v Shell and other climate change precedents, and argued that ENI SpA's decarbonisation strategy is not in line with the Paris Agreement and the best available climate science recommendations. The plaintiffs asked a court in Rome to order the defendants to adopt an industrial strategy to reduce CO₂ emissions associated with their operations by 45% by 2030, mirroring the Milieudefensie benchmark. No decision has been issued yet, so the Milieudefensie Case impact remains to be seen.

In Germany, similar lawsuits regarding the application of the Paris Agreement's standards to non-State parties have taken a different turn. Three car manufacturing companies (Volkswagen, BMW and Mercedes-Benz) have been sued in different courts for not having committed to ceasing the manufacture and sale of vehicles with internal combustion engines. All three lawsuits were grounded on the Paris Agreement and German tort law. The plaintiffs also relied on a precedent from the country's Federal Constitutional Court, which stated that Germany's CO₂ emissions were budgeted for and that car manufacturers are consuming most of that CO₂ budget, so they will have to take radical measures in the future. Specifically, they requested the courts to order the companies to reduce their production by 65%, instead of focusing on the companies' level of emissions, as in Milieudefensie v Shell and the ENI Case.

The German courts dismissed all three lawsuits in 2023, as they considered that the companies were compliant with Germany's Federal Climate Change Act and their obligations did not extend beyond those of the German State. According to the courts, specific measures to deal with a situation in which the Paris Agreement goals are not reached are not foreseeable at the moment.

The High Court of England and Wales has also dismissed in 2023 a climate change lawsuit, ClientEarth v. Shell's Board of Directors,[7] that was based on Milieudefensie v Shell. One of Shell Plc's minority shareholders, an environmental organisation called ClientEarth, requested permission to bring a shareholder action on behalf of Shell against its directors, claiming that Shell's strategy was insufficient to manage its climate change risks, including those relating to its emission reduction targets and, specifically, the District Court's order in Milieudefensie v Shell. ClientEarth sought mandatory injunctions requiring the directors to adopt and implement a climate change risk strategy, as well as to comply with the District Court's order. The High Court denied the plaintiff's request for permission and refused its request to appeal, meaning its decision is final. It held that (i) imposing absolute climate-related duties on directors contradicts their obligation to balance the multiple factors involved in a company's success; (ii) ClientEarth's breach of duty allegations lacked evidence and failed to show that no reasonable director would make similar decisions; (iii) it was not possible to grant injunctions requiring ongoing supervision; and, finally, (iv) the claim was driven by the plaintiff's environmental agenda rather than the shareholders' best interests.

Yet the negative decisions in Germany and the United Kingdom appear not to be slowing down the global trend for ESG-related claims against companies, as new lawsuits continue to be filed. For instance, in March 2024 a farmer filed a claim for loss of profit caused by climate change against Total Energies before the Commercial Court of Tournai in Belgium. In the pending lawsuit, the plaintiff requested the court to order Total Energies to stop investing in fossil fuel projects and to reduce its gas and oil production by 75% by 2040.

In a nutshell, practical experience shows that, even though climate litigation deals with international instruments and transnational players, the courts' approach varies from one jurisdiction to another and it is not yet possible to infer a pattern. Also importantly, for the moment most of the decisions that have been issued are still first-instance decisions and cannot actually be considered as representing the corresponding jurisdiction's position until they become final and binding. That is precisely the case with Milieudefensie v Shell.

Milieudefensie v Shell's appeal

Shell appealed the District Court's judgment so it may be overturned. In its appeal, Shell argued that it was already taking action to reduce its emissions and support the energy transition, and that it was not fair or effective to single out one company when faced with a global problem that requires a collective solution. It also claimed that the District Court had ignored the role and responsibility of states and regulators, the complexity and uncertainty of the energy market and the energy transition, the autonomy of the Shell Group companies, and the competitive disadvantage and economic harm that the order would cause Shell and its group.

In response, Milieudefensie followed the District Court's reasoning in its judgment, contending that Shell had a legal obligation, derived from the unwritten standard of care, to respect the human rights of Dutch residents and the inhabitants of the Wadden region, who faced an existential threat from climate change caused by CO₂ emissions. They asserted that Shell had control and influence over the CO₂ emissions of its group and its business partners, and that it had to use its leverage to prevent or mitigate the adverse impact of its activities and products. It also maintained that Shell had not taken sufficient steps to align its policy with the Paris Agreement and the best available science, and that it continued to pursue a growth strategy for oil and gas production and exploration, which was incompatible with the ordered reduction.

In the same week as the Milieudefensie v Shell's hearing for the appeal, the ECHR issued its ruling in the climate case Verein KlimaSeniorinnen Schweiz and Others v Switzerland.[8] It found that the Swiss government had violated the right to life and the right to respect for private and family life of the applicants by not doing enough to combat climate change and protect them from the health risks of heatwaves ('KlimaSeniorinnen Ruling'). In the Milieudefensie v Shell hearing, both parties used the KlimaSeniorinnen Ruling in their favour.

Shell argued that the KlimaSeniorinnen Ruling confirmed that emissions reduction was a matter of state responsibility and that the courts should not interfere with the policy choices and discretion of States. It also argued that the KlimaSeniorinnen Ruling showed that the Dutch court had applied a higher standard of care to Shell than the European Court of Human Rights had applied to the Swiss government, which was unjustified and disproportionate.

In contrast, Milieudefensie argued that the KlimaSeniorinnen Ruling confirmed that climate change was a human rights issue and that the courts had a role in ensuring that companies respected human rights. It also argued that courts are not precluded from imposing obligations on companies, as the European Court of Human Rights had explicitly stated that its judgment did not affect the obligations of non-state actors under international law or domestic law.

What comes next?

The Hague Court of Appeal is expected to issue its decision by the end of the year. It will either confirm or overturn Shell's legal obligation to reduce its emissions by 45% by 2030, influencing the global energy transition and climate change-related litigation landscape. This being said, the decision on the appeal will most likely not be the final chapter in this case, as it may be appealed to the Dutch Supreme Court.

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[1] Milieudefensie et al. v Royal Dutch Shell Plc, Case No. C/09/571932 / HA ZA 19-379, 26 May 2021 ('Milieudefensie v Shell').

[2] The District Court relied on the metrics of the World Resources Institute Greenhouse Gas Protocol (GHG Protocol), which categorises greenhouse gas emissions in three scopes: (i) scope 1, which encompasses direct emissions from sources that are owned or controlled in full or in part by the organisation; (ii) scope 2, which encompasses indirect emissions from third-party sources from which the organisation has purchased or acquired electricity, steam or heating for its operations; and (iii) scope 3, which encompasses all other indirect emissions resulting from activities of the organisation, but occurring from greenhouse gas sources owned or controlled by third parties, such as other organisations or consumers.

[3] The aim of the Paris Agreement, which was adopted on 12 December 2015, is to limit the increase in global temperatures to below 1.5°C (preferably 2°C) above pre-industrial levels.

[4] The parties disagreed as to the applicable law. The District Court decided to apply Dutch law, as the law of the country where the event giving rise to the damage occurred (namely, Shell adopting its corporate policy in the Netherlands), per Article 7 of the Rome II Regulation (which governs environmental damages).

[5] The Urgenda case was brought on behalf of 886 Dutch citizens against the Netherlands. It concluded in December 2019 with the Dutch Supreme Court confirming both the Court of Appeal's and the District Court's decisions ordering the Dutch government to reduce its greenhouse emissions by a minimum of 25% (compared to 1990) before 2020. The decision held that the state had an obligation to take appropriate measures to protect the rights to life and to private and family life set out in Articles 2 and 8 of the ECHR. Decision 19/00135, Supreme Court of the Netherlands, 20 December 2019.

[6] Greenpeace Italy et Al. v. ENI S.p.A, the Italian Ministry of Economy and Finance and Cassa Depositi e Prestiti S.p.A.

[7] ClientEarth v. Shell's Board of Directors, [2023] EWHC 2182 (Ch), Judgment, High Court of Justice of England and Wales, 31 August 2023.

[8] Verein KlimaSeniorinnen Schweiz and Others v Switzerland, Application no. 53600/20, Judgment, European Court of Human Rights, 9 April 2024.