Malcolm Gunnyeon

The recent landmark ruling by the Dutch courts against Royal Dutch Shell, one of the world’s biggest energy companies, is a stark warning to large emitters everywhere of the potential risks that they now face from corporate climate change litigation. Should large emitters in the UK be worried?

The Shell decision

In May, the District Court of The Hague ordered Royal Dutch Shell (RDS) to reduce the CO2 emissions of the entire Shell group by 45 per cent by 2030, compared to 2019 levels. It was the first court decision of its kind, anywhere in the world. While RDS is going to appeal, the decision will nevertheless have major consequences in both the Netherlands and internationally. Even if the decision does not survive an appeal, it will likely embolden environmental campaigners.

The Dutch court concluded that RDS’s responsibility to reduce CO2 emissions arises from a standard of care set out in Dutch law’s general tort statute, in particular a section providing protection against acts or omissions which breach a rule of unwritten law relating to proper social conduct. The court decided that, in interpreting this standard of care, it could look to ‘soft law’ instruments endorsing corporate responsibility to respect human rights, such as the UN Guiding Principles on Business and Human Rights (UNGP). These instruments were said to reflect what is now generally accepted as the required standard of corporate responsibility.

A precedent for the UK?

The key question for large emitters in the UK is whether our courts would be likely to reach a similar conclusion.

The Dutch court’s decision turns on a particular rule of Dutch law which is not replicated in English or Scots law. However, both English and Scots law impose a general duty of care, in certain situations, to avoid acts or omissions which cause foreseeable harm to others.

Breach of this duty may entitle a claimant to an order requiring particular activities to cease, or payment of damages for harm caused. The courts also have the power to order performance of a specified act. That could, at least in theory, be the route to an order similar to the one made against RDS.

Based on our current legal framework, a significant degree of judicial innovation will be required for such a claim to succeed. A key battleground will be the need to show that the activities of a particular organisation will cause, or at least materially contribute to, a harmful situation. This is challenging when the number of CO2 emitters, both current and historic, is almost incalculable. The Dutch court took a flexible approach to this question, stating that RDS had an “individual partial responsibility to contribute to the fight against climate change according to its ability”.

Until we see the outcome of the RDS appeal and how other courts interpret the decision, we expect that the more established routes to climate change challenges will continue to prove attractive to activists. These include:

• Challenges by way of judicial review to approvals of major infrastructure and other carbon-intensive projects: such challenges often lead to delay, disruption and public debate, even where the claimants are ultimately unsuccessful in the court case. A notable example is the Supreme Court’s recent reversal of the Court of Appeal’s decision that the intended expansion of Heathrow Airport was unlawful on climate change grounds.
• Allegations of “greenwashing”, in the form of advertising complaints against companies that misstate the environmental benefits of their products or services.
• Investor action: on the same day as the Dutch court issued its decision against Shell, Chevron Corporation’s shareholders voted in favour of a resolution to cut emissions, and a small activist hedge fund was successful in having two of its members elected to Exxon Mobil Corporation’s board. Investors are also turning to court action in claims relating to corporate disclosure and reporting obligations, alleging failures to disclose material climate change risks to a company’s activities.

Whatever the outcome of the RDS appeal, the court’s analysis in the case and the encouragement it may give to others to pursue similar challenges present a rapidly evolving risk that should be a standing item on all corporate agendas.

Malcolm Gunnyeon is a partner at Dentons