Businesses have Paris climate agreement obligations, rules Dutch court

The Hague Court of Appeal suggested, however, that companies cannot be held accountable for failing to achieve specific greenhouse gas emission reduction targets by milestone dates – even if there is a consensus within the climate science community over the general need for those targets to be met if the broader Paris Agreement goals are to remain in reach.

Amsterdam-based Valérie van den Berg of Pinsent Masons, an expert in dispute resolution and ESG compliance, said the ruling could inform other climate-related cases that come before the courts in Europe.

With the Paris Agreement in 2015, governments around the world pledged to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels”.

In 2021, the district court in The Hague held that Shell must cut its global carbon emissions by 45% by 2030, compared to 2019 levels, ruling in favour of a group of non-governmental organisations (NGOs) led by Friends of the Earth Netherlands (Milieudefensie). The NGOs have argued that Shell will be acting unlawfully if it does not do so.

In that ruling, the district court determined that Shell owed an “unwritten standard of care” under the Dutch civil code to Dutch residents, requiring it to act in line with the Paris Agreement. This standard of care also incorporated Shell’s obligations under human rights law, it said. Those findings have now been upheld by The Hague Court of Appeal, which said that even though it was governments that signed up to the Paris Agreement, businesses too have obligations – as contributors towards emissions – to align their actions with the agreement, to help curb the rise in global temperatures and mitigate against the potentially catastrophic effects of climate change associated with that rise.

However, the appeal court overturned the district court’s findings in relation to the 45% emissions reduction target, despite acknowledging that such a target would align with consensus climate scientists have reached about what must be achieved globally by way of emissions reductions by 2030 if the world is to remain on track to meet the Paris Agreement objectives.

The court reflected on the increasing climate-related regulation that has been imposed in the EU since the original 2021 ruling, but it acknowledged that there has been no new law has been developed “based on the premise that an absolute reduction percentage set by the European Union applies to each individual company”. It also highlighted the fact that there is no agreement in the energy sector as to the precise carbon reduction targets the industry as a whole should hit by 2030 or other deadlines to accord with the Paris Agreement.

“Shell cannot be held to the existing consensus within climate science about a reduction standard of 45% (or any other percentage) because this percentage does not apply to every country and to each business sector separately,” the court said.

Amsterdam-based Valérie van den Berg of Pinsent Masons, a specialist in climate litigation, said: “Shell, on the basis of the 2021 first instance judgment, had to reduce its scope 1 and scope 2 carbon emissions by 45% in 2030, compared to 2019 levels. For scope 3 emissions, the first instance court imposed a duty on Shell to put in serious efforts to reduce these in equal measure. The court of appeal in The Hague has now overturned the first instance judgment.”

“In relation to scope 1 and 2 emissions, it considered there is insufficient substantiation available to impose a duty to reduce carbon emissions with any specific percentage. In relation to scope 3 emissions, it said it is unclear how a reduction by Shell would lead to climate impact, as clients of Shell may just go to another supplier of fossil fuels, for example,” she said.

Van den Berg said the appeal court had confirmed that a duty to fight climate change arises for companies as part of its broader social responsibilities, and that breaching those duties can qualify as an unlawful act triggering damages claims.

“The nature and scope of the duty that rests on individual companies will vary depending on the company’s contribution to dangerous climate change and the company’s possibilities to prevent such climate change,” she said, adding that  the horizontal effect of human rights in climate cases – as established by the European Court of Human Rights earlier this year – has been confirmed by The Hague Court of Appeal.

Van den Berg said: “The judgment confirms that companies are to behave in line with the Paris Agreement and that they are under a duty by law to fight and prevent dangerous climate change, failing which they can be held liable. However, imposing a specific percentage-based obligation on Shell for scope 1 and 2 emissions was a bridge too far as the substantiation for that percentage was insufficient. This is the best that Dutch courts have to offer: a nuanced and balanced approach to complex climate cases, with laser-focused and clear legal reasoning. This will prove very helpful for the development of other climate cases.”