Milieudefensie v ING: Climate Breakdown and Banks’ Duty of Care

There is a trend towards climate lawsuits against companies based on their alleged duty of care not to emit more than a certain amount of greenhouse gases (GHGs). Currently, there are four such cases before courts in Germany, all of which have been unsuccessful so far. On 19 January 2024, Milieudefensie, a Dutch environmental group, initiated legal proceedings against the Dutch Bank ING, for the first time raising the issue of whether financial actors have such a duty of care. This case represents a significant milestone in the worldwide effort to transform the financial sector and curb its seemingly endless appetite for financing fossil fuels. In light of these proceedings, I argue that the German courts have adopted an imprecise understanding of what the duty of care entails and that an appropriate application of this duty can increase the accountability of financial actors.

Milieudefensie v ING

Milieudefensie, the environmental group otherwise known as ‘Friends of the Earth Netherlands’, which is also behind the landmark climate case against Shell, demands that ING establishes a climate policy in line with the 1.5°C target of the Paris Agreement and consequently halves its total CO2-emissions by 2030, compared to 2019-levels. Furthermore, ING must require all its corporate clients to provide a climate transition plan and stop the expansion of their fossil fuel businesses. Should the clients fail to comply with these requirements within one year, ING shall cease their financing and support. The bank was served with a corresponding liability notice, granting it eight weeks to fulfil these demands, prior to being summoned before the District Court in Amsterdam.

My analysis focuses on the replicability of the main line of argument from the perspective of German law. Specifically, it revolves around the extent to which banks bear responsibility for emissions attributable to their financial activities. This question is situated in the context of the climate nuisance cases brought before German courts. My claim is twofold. I argue that German banks have a duty to maintain public safety rather than a duty of care. Further, I contend that if the financed activities are on a trajectory to exceed the defined planetary boundary for carbon emissions, the financing itself can violate this duty.

German banks’ duty to maintain public safety

Milieudefensie bases its claim on Art. 6:126 (2) of the Dutch Civil Code, which defines tortious acts as violations of „a rule of unwritten law pertaining to proper social conduct”. The claim resembles the legal proceedings against Shell in 2021, where the Hague District Court ordered Shell to reduce its emissions by 45% until 2030 relative to 2019.

German civil law is equipped with two related duties, whose differences must be carefully fleshed out to understand why the mentioned cases have been unsuccessful so far. On the one hand, there is the duty of care (Sorgfaltspflichten), defined as adherence to the level of care required under the relevant circumstances. On the other hand, there is a duty to maintain public safety (Verkehrssicherungspflichten), which demands that anyone who creates a hazard take the necessary and reasonable measures to prevent harm to others. The practical difference between both concepts lies in the fact that the duty of care is applied when an act directly infringes a right, whereas the duty to maintain public safety relates to cases where the relevant conduct first creates a hazard, which demands additional actions to mitigate the hazard. Only if one fails to provide these additional measures this violates the duty to maintain public safety.

The financing of emitting activities clearly does not breach a duty of care since it does not directly infringe on any right. However, it is reasonable to consider whether these activities pose a risk in the sense of the duty to maintain public safety, which in turn would impose additional obligations for banks.

The emission of greenhouse gases (GHG’s) creates a hazard in the form of consuming the limited carbon budget, meaning the amount of emissions that remains to stay within the planetary boundary defined for climate. Every additional tonne of CO2 brings society closer to a threshold beyond which the climate system could derail catastrophically.

Additionally, it is well established that the shift of financial flows must facilitate the societal transition towards a climate-neutral economy. Accordingly, a moratorium on financing companies that are on the path to breaching the planetary climate boundary is a condition sine qua non for staying within it. This is reflected in Milieudefensie’s demand that the Bank ING ask their corporate clients to provide a climate transition plan in line with the 1.5°C degree threshold. Similarly, German banks have a duty to maintain public safety by ensuring that their loans, bonds, and other investment portfolios reflect an emissions pathway compatible with the respective limits.

This is a narrow interpretation of what the duty to maintain public safety entails. As laid out by Auz and Paiement, the current levels of warming already directly and grossly violate public safety worldwide. In addition, this duty should not be limited to the boundaries of the respective national jurisdiction but must reflect the global impact of GHG emissions. This fact is acknowledged in the case of Luciano Lliuya v RWE AG, where the claimant argued that a duty to maintain public safety exists in relation to the transboundary effects of GHG emissions.

The public-private interface

As mentioned in the first section, the duty to maintain public safety refers – exclusively – to the second of a two-stage process: creating a hazard (1) and taking the necessary and reasonable measures to prevent harm to others (2). Logically, one can only apply the duty to maintain public safety to cases where the initial creation of the hazard itself is not a tortious act. Hence, the question is not about the legality of creating a hazard (stage 1) but about the appropriate preventive measures to maintain public safety (stage 2). In other words, emitting GHG’s and financing emitting activities might be legal. However, exactly because it is legal (and hazardous), the agents undertaking these activities must provide appropriate countermeasures under the discussed duty to maintain public safety.

In the cases against Mercedes, BMW and VW, currently before German courts, claimants have alleged a breach of their duty to maintain public safety. In turn, the corporations have successfully defended themselves by referring to the legality of their (hazardous) conduct. Specifically, they have argued that by securing all the necessary permits under the rules of public law, they fulfilled all obligations to operate emitting infrastructure.

These cases indicate the broader (structural) problem of the interplay between public and private law. In other words, should public law have the final say in determining the level of harm citizens must endure? Or is it up to individual rights holders to fight out the societal distribution of risks and rewards themselves?

In the proceedings against the mentioned car manufacturers, the first and second instance courts have based their dismissing judgements on this public-private interface, voting in favour of the public authority to regulate the legality of the conduct definitively and rejecting the claim that any private law guardrails should be placed on their behaviour. This misjudgement has arisen from the fact that courts have treated these cases exclusively as falling under the duty of care, whereas claimants have rightfully based them on the duty to maintain public safety.

In the context of financial actors, it is doubtful whether courts will be able to use this line of argument at all to reject similar claims. Banks do not need any permits to finance highly emitting activities, which broadens the avenue for private-law interventions.

Material substance of the duty to maintain public safety in the climate crisis

Although at a dangerous level, climate change is currently controllable. The last IPCCC report has reiterated that through swift and drastic emissions reductions, humanity can stay in its safe operating space and avoid crossing climate tipping points. Hence, it is still possible to prevent self-reinforcing feedback loops from exacerbating climate change in a manner that would not be controllable through human intervention. Thus, it is paramount that we do not exceed the remaining emission budgets. This is the substance of the preventive measures that banks must take. They have to ensure that their investment portfolios represent an emissions pathway consistent with staying within these budgets. Concurrently, the legal substance of this duty is consistently reconfiguring itself in relation to the factual shrinking of the remaining budget.

Systemic importance, systemic responsibility

Under Transnational Banking Law, the Financial Stability Board annually selects so-called „Global Systemically Important Banks“ (ING being one of them). Due to their size, cross-border activities, interconnectedness with the financial system, and the complexity of their operations, these banks matter for the entirety of the global economy. As a result of this status, they must meet additional requirements to ensure that the risk they pose does not result in real damage. The same rationale must be applied to their financing of emitting activities and their corresponding impact on the depletion of global emissions budgets. Whether Dutch and German courts will recognize this importance and put private law guardrails on hazards, authorized by public law, remains to be seen.