Shell - the legal case that keeps on giving
Much of the world has been paying attention to the ‘wins’ in court for environment over oil exploration but there is a subtly in the Shell win which is event more important than the others, beautifully explained here by the European Coalition for Corporate Justice or ECCJ as it’s know in boardrooms around the world. Read on an enjoy just how historic a victory this was…..
Landmark ruling: Shell ordered to slash CO2 emissions throughout its global value chain
In a historic case, a Dutch civil court ruled on Wednesday, that by 2030 the oil giant Shell must reduce its CO2 global emissions by 45% compared to 2019 levels.
For the first time in history, a judge has held a corporation accountable for its contribution to climate change. The verdict comes as a result of legal action brought by Friends of the Earth Netherlands (Milieudefensie) together with 17,379 co-plaintiffs and six other organisations.
Royal Dutch Shell, a British-Dutch multinational headquartered in The Hague, is Europe’s largest public company and the world’s ninth highest emitting company from 1988-2015. The company currently emits nine times as much CO2 as the entire Netherlands put together.
“Precedent-setting”, “a turning point in history”, “a massive win”, “Earth-shattering”, “a gigantic victory for our children”, “an enormous step forward for the international climate movement”… The ruling has been acclaimed and celebrated worldwide.
Shell is expected to appeal before a higher court, but regardless of whether the ruling issued yesterday is confirmed or overturned, it definitely and incontestably represents a major step forward in the ongoing paradigm shift against ‘business as usual’ and toward a higher degree of corporate accountability for human rights and environmental impacts at global scale.
The judgment is ground-breaking in two fundamental aspects:
it obliges a company to align its policies and comply with the emission targets set by the Paris Agreement, resorting to the Intergovernmental Panel on Climate Change reports to measure the reduction obligation, and
it extends the company’s responsibility to prevent human rights impacts linked to climate change beyond the perimeter of the companies’ own activities and beyond national borders, covering the whole global value chain, as prescribed by the UN Guiding Principles on Business and Human Rights.
Brief analysis of the court’s reasoning
The court distinguishes between the CO2 emissions of (1) the Shell group (Royal Dutch Shell and the other Shell companies) and (2) the business relations of the Shell group, including suppliers and customers.
It considers it is internationally accepted that companies bear responsibilities for all indirect emissions from the generation of purchased energy that occurs in the value chain of the company, highlighting the fact that approximately 85% of Shell’s emissions fall under this category (scope 3).
The court concludes that Royal Dutch Shell is obliged to reduce all emissions, but notes that the level of responsibility is related to the extent to which companies have control and influence over them:
The far-reaching control and influence of Royal Dutch Shell, the parent company, over the Shell group means that its reduction obligation is an obligation of result for emissions connected to the activities of the entire group (i.e. scope 1 emissions and scope 2 emissions from subsidiaries).
With regard to the business relations of the Shell group, Royal Dutch Shell has an obligation of “significant best-efforts“, which means that it must take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by their suppliers and customers, and to use its influence to limit their consequences as much as possible. This obligation cannot be reduced by the individual responsibility of Shell’s business relations for their own emissions.
As regards suppliers, the court stresses that, through its purchasing policy, the Shell group is able to exercise control and influence over its suppliers’ emissions (scope 2).
As regards the group’s customers, it concludes that Royal Dutch Shell can also exert control and influence over them. Royal Dutch Shell can (and should) change its energy package in accordance with its reduction obligation.
The court agrees with the claimants that the energy transition cannot be left to the market, and that Shell alone cannot stop climate change. Mutual dependencies and the need for cooperation are expressed in the best-efforts obligation. However, this does not absolve Shell of its individual partial responsibility.
The court partially accepts that the European Emissions Trading Scheme (ETS) system – and other similar ‘cap and trade’ emission trading systems – has an indemnifying effect, as argued by Shell, but only to a certain extent. The ETS system only covers a small part of the Shell group’s emissions, and only applies in the EU, leaving out global emissions. Only for those emissions, Royal Dutch Shell does not have to adjust its policy due to the indemnifying effect of the ETS and similar systems.
The court rejects other – hardly convincing and rather rhetorical – arguments invoked by the defendant.
Shell argues that the place of the Shell group will be taken by competitors. The court finds that this argument cannot justify escaping an obligation, especially in the current post-Paris Agreement scenario, where other oil and gas companies are equally expected to limit their investments in oil and gas, voluntarily, under pressure, or due to retreating investors, or as sustainable methods of energy generation become available.
The defendant company argues that imposing a reduction obligation will lead to unfair competition and a disruption of the ‘level playing field’ on the oil and gas market. The court also rejects this argument, as other companies will also be required to take drastic measures to prevent climate change, especially since, as acknowledged earlier in the ruling, the responsibility of companies to respect human rights, as formulated in the UNGPs, is a global standard of expected conduct for all companies wherever they operate.
Finally, the court highlighted that Royal Dutch Shell has total freedom to comply with its reduction obligation as it sees fit, and to shape the corporate policy of the group at its own discretion. The fact that the reduction obligation is a global one actually gives it significant freedom of action.
The entire ruling is available in English here.
