CORPORATES AND CLIMATE CHANGE: THE BUCK STOPS HERE

CORPORATES AND CLIMATE CHANGE: THE BUCK STOPS HERE
A Critical Analysis of the Case of Milieudefensie et al v. Royal Dutch Shell

– Lianne D’Souza, Research Fellow, CEERA

INTRODUCTION

On December 20th, 2019, the Apex Court of the Netherlands made climate history as for the first time in the world a Court recognised and enforced the legal duty of the government to address the pervasive and deeply concerning issue infamously known as ‘Climate Change’. The case of Urgenda Foundation v. State of the Netherlands was truly a remarkable judgement and path-breaking precedent as it was the first case of its kind world-wide whereby citizens successfully established that the government has a legal duty to prevent dangerous consequences of climate change.

Two years have passed since the judgement was pronounced, yet again the Dutch judiciary hasfound itself creating history in climate change litigation. Only this time, the Court has cracked down more vigilantly on a multi-national corporation as opposed to a state authority. In a case that marks a turning point in the history of climate change law and activism, a Hague District Court has held a corporation responsible for averting the climate crisis by meeting certain carbon targets.It is the first instance of a court ruling that a company can be held liable for its carbon emissions. The latest in a string of legal challenges filed around the world, this judgement is monumental for expanding fronts where fossil-fuel companies are coming under pressure.

BACKGROUND OF THE CASE

In April 2019, the environmental group Milieudefensie – the Netherlands branch of Friends of the Earth -took the Anglo-Dutch oil and gas giant Royal Dutch Shellto court, alleging that Shell’s contributions to climate change violate its duty of care under Dutch law. The lead Claimant, backed by 6 other prominent environment groups and approximately 17000 citizens sought a ruling from the Court directing Shell to cut down on its carbon emissions by 45% by the end of the current decade compared to 2010 levels and to zero by 2050, in line with the Paris Climate Agreement.
The Claimants sought a declaratory order of the Court on the grounds that the combined volume of carbon emissions from the activities of the Defendant amount to a violation of the Dutch Civil Code over and above a transgression of their human rights. It was argued that the universally applicable safety standard to prevent dangerous climate change is a responsibility not to be borne independently by the State of Netherlands alone. That the failure to observe the global climate goal was sufficient to establish liability under the heading of wrongful act in relation to the global climate danger.Furthermore, it was argued that the Defendant’s failure to observe a universally applicable safety standard amounted to a violation of the social duty of care rooted in Article 162 Book 6 of the Dutch Civil Code (DCC).
According to the Claimants, the violation of the duty of care by the Defendant includes inter alia unlawful endangerment and breaches of obligations under the European Convention on Human Rights that are owed by Shell by virtue of its responsibility to respect human rights. Furthermore, relying on the obligations outlined in the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinationals and the principles drawn up by the UN Global Compact, the Claimants claimed that the Defendant is committed to the obligations of reducing carbon emissions, provided thereunder.The claim itself was viewed through a different lens, as the Claimants specifically demanded the reduction of carbon emissions as opposed to simply seeking damages for the pollution and consequential environmental harm caused.
In its final ruling, the Court ordered Royal Dutch Shell to cut its absolute carbon emissions by 45% by 2030 compared to 2019 levels. The Court noted that the sustainability and climate resilient policy of the defendant was not concrete enough to meet the predetermined carbon targets, and therefore, it was imminent for the Company to undertake necessary strategies to cut carbon emissions through its climate policy.

IMPLICATIONS OF THE JUDGEMENT

(a) Changes in the Course of Climate Litigation

First and foremost, the case has paved the way for an entirely new era of litigation on climate change. It is the lighted matchstick to the new trail of corporate climate litigation that is to come. Arguably, the case has turned the tables for climate change litigation in Netherlands and quite possibly, in the whole world. Thus far, climate litigation has been a means of holding governments and state authorities responsible for adopting and implementing measures to combat climate change. Mitigation efforts, in particular, were made enforceable through the legal duties that the State owed to its citizens. For example, in a recent case of Greenpeace Netherlands v. State of the Netherlands, the Dutch Government’s bailout package for airline KLM was challenged on the ground that State had violated its duty of care to prevent high-risks of climate change. Thus, the duty to mitigate and combat climate change was primarily viewed as the obligation of the government.The present judgement,however, gives an entirely new dimension to the status quo. By pinning responsibility on individual corporations such as Royal Dutch Shell, the Court has issued a strong signal that corporations as well can be held liable for causing runaway climate change. The judgement is a watershed ruling as it moves away from the popular and convenient narrative that the main burden of addressing climate change rests not with the industries but with governments and consumers. It emphasizes that companies and not just governments may be subject to strategic litigation which seeks to drive changes in behaviour.

(b) Recognition of the Duty of Care by Corporations

On the second count, the case highlights the role and responsibilities of corporations in mitigating climate change. By holding the company responsible for striving toward the overall carbon targets under the Paris Agreement, the Court has established a higher threshold of the duty of care owed by corporations to the public at large. In the present case, the Court relied on general principles of public law by pinning a duty of care owed by the Company to the public. It noted that although the Company was not in breach of its commitment to reduce emissions, a breach was ‘imminent’, the aversion of which was necessary to protect human health and the environment. By ingeniously linking the breach of corporate commitments to slash emissions with the transgression of human rights, the Court has raised the bar of accountability for companies, especially those functioning in the energy sector. Furthermore,considering the transboundary nature of climate change, the ruling has implications for transnational corporate governance. This is because powerful private globally operating economic superpowers will have to rethink their strategies according to possible impact their activities have various countries, especially vulnerable nations, and align their policies according to the respective national framework.

(c) Shift in Climate Change Claims

Thirdly, the case is pioneering as it represents shift in the way actions for climate change are being raised against energy companies. Typically, high emitters have been made accountable for their actions in retrospect. Corporates have borne liability for their emissions or pollution in general either by way of paying damages or by compensating victims for the harm caused. However, if this case is any lesson of sorts, litigants may start demanding mitigation and adaptation measures at the very threshold, as opposed to simply seeking damages. This precedent could trigger a wave of climate litigation against big polluters forcing them to cut dependency on fossil fuels. It could have significant implications for fossil fuel giants since they will no longer be able to seek refuge under the polluter pays principle but will compelled to resort to cleaner alternatives. The Court has issued a warning that the time has come for big corporate polluters to mend their ways and can no longer get away with wreaking damage and then paying their way out.

(d) Greater Impetus for Climate Change Act

On another note, this judgement resonates the spirit and goals of the Dutch Climate Change Act which was recently enacted in the year 2019. As per the mandate of the Act, the Government of Netherlands is duty-bound to work towards the emission reduction target whereby the emissions of greenhouse gases are 95% lower than the baseline levels in 1990. To achieve the same, the Government has to embark on the daunting task of meeting the interim target or reducing greenhouse gas emissions by 49% (pre-1990 levels) by the year 2030. Furthermore, considering that the Dutch Government has taken upon themselves the rather ambitious goal of transitioning into carbon neutral electricity generating economy by the year 2050, this judgement has given impetus and judicial backing to government efforts towards fulfilling its statutory obligations.

(e) Implications for Corporate Sustainability

From a cursory glance of the ruling, it is clear that this case could have far reaching consequences for the fossil fuel industry. On the economic front, the case undoubtedly opens a door of multiple challenges for industries in the energy sector. Companies will have to invest large sums in research and development to identify and ultimately switch to new and clean alternatives. Some may even face the risk of scaling down in the absence of sustainable technology. Having stated this, on the environmental front, it will create tremendous pressure on big oil companies and carbon emitters alike to slash emissions. As weak regulatory systems can be rectified through judicial intervention, heavy polluting industries will be brought under strict scrutiny of the courts. The fact that individual corporations may also be dragged to court on account of its outdated and highly polluting energy policies will force such corporations to move to cleaner technologies. Therefore, invariably, the verdict is a staunch lesson for carbon emitters to rethink their energy policies. Furthermore, the ruling could quite possibly create a ripple effect on companies to transition into zero or low emission alternatives. Considering the fact that companies will no longer be able to escape the clutches of judicial scrutiny, such bodies will have to accelerate their efforts towards energy transition through effective policy, investment in technology and changing customer behaviour. This will not only incentivise transition of businesses to sustainable practices but will also reduce the overall carbon footprint of countries in which such companies function