Into Reverse Gear
Shell v Milieudefensie and the Non-Regression Principle
The recent Hague Court of Appeal judgment, in the appeal brought by Shell against the first instance decision in favour of the NGO Milieudefensie, held that Shell is legally obliged to reduce its scope 3 emissions, but did not order Shell to reduce them by 45%, or indeed any percentage. The judgment is likely to have a significant impact on climate change litigation against corporations beyond just the Netherlands. That impact will be all the greater if the losing parties, Milieudefensie and others, do not appeal.
The core of the appeal concerned whether Shell owed a legal obligation to reduce both its more direct scope 1 and 2 greenhouse gas (GHG) emissions (those from its own operations and from purchased energy), and also the indirect scope 3 emissions in its value chain (largely CO2 from customers burning its fossil fuels).
The impact of EU and human rights law
The Court of Appeal usefully set out that Shell’s principal climate law obligations in a Dutch context stemmed from EU climate law, including: the EU Emissions Trading System (ETS) and the new EU ETS2 (with Shell obliged to buy emission allowances for relevant operations, including road transport fuel sales under ETS2 in due course); the GHG emissions corporate reporting obligation under the Corporate Sustainability Reporting Directive; and the need to have a Paris-aligned corporate net zero transition plan under the Corporate Sustainability Due Diligence Directive (CS3D).
However, this was not a case centred around EU law duties. The question addressed by the Court was whether Shell had any other legal obligation beyond these binding legislative ones. One place you might be tempted to look for additional legal obligations is human rights law (including the ECHR), but the Court noted that, under Dutch law, human rights cannot be enforced against companies directly: there is no horizontal direct effect (para. 7.18). Human rights were relevant, but not as a stand-alone source of legal obligation. Instead, via indirect horizontal effect, Dutch civil law could be interpreted in the light of human rights values (paras. 7.17-7.18). And it was that Dutch civil law which was the source of the relevant legal obligation in the form of the social duty of care.
Duty to reduce scope 1-3 emissions
Under the social duty of care (reinforced by human rights law), the Court held that Shell did indeed owe a legal obligation to reduce both its scope 1-2 emissions and, more controversially, also its scope 3 ones. In the end the Court did not really engage with scope 1-2 emissions, because it was satisfied that Shell was on track with reducing those in line with appropriate targets it had set itself.
With scope 3 emissions, Milieudefensie had argued that Shell’s target for these was inadequate and that the Court should order Shell to reduce them by 45% by 2030 relative to 2019 levels (para. 7.1). The Court rejected this. It stated that Shell has a social duty of care to reduce its emissions in order to prevent dangerous climate change (para. 7.79). At first instance, the District Court had framed this obligation as one of “result” for scope 1 emissions and “best efforts” for scopes 2-3 (para. 4.3), but the Court of Appeal did not address the nature of the legal obligation. In the end, despite ruling that Shell had a legal obligation to reduce its scope 3 emissions, the Court was unwilling to order Shell to reduce them by 45%, or indeed any percentage. That was because, despite the existence of numerous global suggested average targets for companies in general and the oil and gas sector in particular, the Court felt unable to read down from these averages to set an emissions reduction target for a specific company (paras. 7.80-7.81).
The non-regression principle
Where does this leave us, and what might Milieudefensie usefully argue in an appeal to the Supreme Court? What is clear is that in this corporate climate litigation appeal, the Court was reluctant to interfere with the company’s discretion in setting a scope 3 target for itself and deciding how to meet it. It certainly did not want to replace that target with a judicially mandated one. To use the language of human rights, it must be correct that companies, like states, be allowed a margin of appreciation that respects a degree of discretion. However, the Court here failed sufficiently to test whether Shell had abused that discretion and taken a decision that was manifestly unreasonable. If one looks at Shell’s scope 3 targets, then one can see that, under its new CEO, it has clearly rowed back from these. It has reduced its prior target to transition its business model more towards renewables and it has set increased sales targets for liquefied natural gas. This is going backwards in the transition, not forwards.
It is one thing for a court not to order a company to adopt a particular percentage scope 3 emissions reduction target. However, if the idea of a company having a legal obligation is to have any real meaning at all, then a decision to increase emissions cannot be regarded as compatible with a legal obligation to reduce them. The Paris Agreement’s climate law non-regression principle is important here. Just as, under Articles 3-4 of the Agreement, states are not allowed to lower the ambition of their nationally determined contributions, so too companies should not be able to go into reverse gear on their scope 3 targets in the way that Shell has. The role of the non-regression principle in climate litigation has so far been discussed only in relation to state climate targets, but it should apply equally to corporate targets.
In the EU, under the CS3D, companies must set themselves Paris aligned targets as a matter of legislative legal obligation. Their wider legal obligation (whether grounded in general civil law like in this case, human rights law, or under specific due diligence laws like France’s) means they should not be allowed to weaken their climate commitments by slackening the target itself, or by taking action that will manifestly lead to it not being met. The decision of the Hague Court of Appeal has done nothing to dent this particular obligation of Shell’s as one of what Paiement has characterised as its “bundle” of obligations. Milieudefensie should make a case before the Supreme Court that includes non-regression in the bundle.
