Urgenda case affects private companies
The judgment in the Shell case suggests that companies should comply with the targets in the Paris Climate Agreement. The case possibly sets a new, climate-friendly precedent in corporate law
On 26 May 2021, the District Court of The Hague ‘extended’ the Urgenda case argumentation to private companies in a lawsuit against Shell (ECLI:NL:RBDHA:2021:5339). In the Urgenda case, the Supreme Court confirmed that the Dutch government had violated a duty of care to its citizens in taking insufficient measures to prevent dangerous climate change (ECLI:NL:HR:2019:2007). The Dutch government was subsequently ordered to reduce its greenhouse gas emissions. Similar rulings, all aimed at increasing governmental action to curtail carbon dioxide emissions, have since reverberated throughout courtrooms around the entire world. The Shell case marks the first time a private company was ordered to abide by the Paris Climate Agreement.
Shell is the largest oil and gas company based in Europe and the fifth largest in the world, measured by 2020 revenues. Following the global adoption of the Paris Climate Agreement, Shell had assessed the possibilities of making operational alterations to meet the Climate Agreement’s sustainability targets. Even though the company is not bound by the Paris Climate Agreement, Shell committed to a 20% reduction of its greenhouse gas emissions by 2030 compared to 2016 emission levels, and a 65% reduction by 2050. Because these reduction targets would fail to meet the goals as set out by the Climate Agreement, NGO Milieudefensie (Friends of the Earth) and six more NGOs including Greenpeace, initiated a lawsuit against the company.
The plaintiffs argued that not only states, but companies such as Shell, have individual environmental responsibility too. They claimed Shell has an obligation to prevent dangerous climate change ensuing from Dutch tort law. According to Book 6 Section 162 of the Dutch Civil Code (DCC), ‘an act or omission breaching a rule of unwritten law pertaining to proper social conduct are unlawful’. This open norm is known as the unwritten standard of care and the norm is determined by weighing all relevant facts and circumstances of the particular case. It was decided in the Urgenda case that Article 2 (right to life) and Article 8 (right to a private and family life) of the European Convention on Human Rights (ECHR) offer protection from dangerous climate change and consequently provide a duty to take measures against this threat. The plaintiffs held that Shell owes them a climate-related duty of care to reduce its greenhouse gas emissions, based on the same human rights that were invoked in the Urgenda case. The plaintiffs requested a declaratory decision stating that Shell acts unlawfully towards them if the company fails to reduce the aggregated volume of all carbon dioxide emissions associated with its business activities. This reduction, they contended, should amount to 45% compared to 2010 levels by 2030 and 100% by 2050, to be in line with the Paris Climate Agreement.
The Court started off by reiterating what was established in the Urgenda case: greenhouse gas emissions cause dangerous climate change and dangerous climate change poses a threat to human rights. The Court then acknowledged that Shell is de jure not bound by Articles 2 and 8 ECHR as Shell is a non-state actor. Consequently, these human rights provisions cannot be invoked vis-à-vis Shell directly. However, the Court observed that these provisions ‘play a role in the relationship between the plaintiffs and Shell’. Mainly drawing on the UN Guiding Principles on Business and Human Rights, the Court recognised ‘a global standard of expected conduct for all business enterprises wherever they operate’. The Court took the UN Guiding Principles in conjunction with inter alia the UN Global Compact, the UN Sustainable Development Goals and the OECD Guidelines for Multinational Enterprises, to interpret the unwritten standard of care as a ‘universally endorsed’ responsibility of companies to respect human rights, as well as avoid infringing them. Therefore, the Court found that all companies bear an individual responsibility for protecting human rights, including those enshrined in Articles 2 and 8 ECHR.
The means through which a company is expected to meet this responsibility is proportional to the severity of adverse human rights impacts. Noting that Shell’s emissions are greater than that of most countries, the Court was of the opinion that ‘much may be expected of Shell’. In keeping with the plaintiffs, the Court interpreted Book 6 Section 162 DCC’s standard of care as an emissions reduction obligation that rests on Shell, and then went on to formulate a reduction standard congruent with the Paris Climate Agreement. Shell was not found in violation of this duty of care yet, but its sustainability targets for the future were deemed insufficiently concrete to meet the expected reduction standard. Because of the ‘imminent threat’ that Shell would default and consequently breach Book 6 Section 162 DCC, the Court ruled in its final verdict that Shell must adhere to a 45% reduction in greenhouse gas emissions by 2030, compared to 2019 emission levels.
This case goes to show that Book 6 Section 162 DCC’s unwritten standard of care can be interpreted as an environmental responsibility that private companies bear. The duty of care can be ‘reached’ via several soft law documents, as these documents – according to the Court – house a universal responsibility for all companies to respect human rights. Implementing corporate policies that are not on par with the targets formulated in the Paris Climate Agreement, can amount to an infringement of Articles 2 and 8 ECHR. This means that the same rules that signatory states are expected to adhere to under the Paris Climate Agreement, can be extended to companies as well. ‘This case is unique’, Milieudefensie attorney Roger Cox said, ‘because it is the first time a judge has ordered a large, polluting corporation to comply with the Paris Climate Agreement.’ Shell has since appealed, so whether this judgment will effectuate a new, climate-friendly precedent in corporate law depends on the decision in the appeal proceedings.
This blog was written as part of the Sustainability & Law lecture series 2021 (Duurzaamheid & Recht collegeserie).