Shell’s successful appeal will not end climate lawsuits against firms, say experts

Dutch appeal court ruled in favour of oil and gas company over judgment telling it to limit emissions

A court ruling in favour of Shell does not spell the end of climate litigation against companies, legal experts have said.

The oil and gas company celebrated on Tuesday when it won an appeal against a landmark climate judgment by a Dutch court.

In 2021 a lower court ruled that Shell must cut its global carbon emissions by 45% by the end of 2030 compared with 2019 levels. It was the first such ruling against a company in the world, and led to a growing trend of lawsuits against corporations.

However, the Dutch court of appeal ruled that, while Shell did have a “special responsibility” to cut its emissions as a major oil company, this would not be achieved by imposing a specific legal goal.

Milieudefensie, the NGO that brought the claim, was disappointed with the ruling because it rejected its key demand.

However, the lawyer Roger Cox said he could see a number of important points to build on in the NGO’s legal battle against large polluters. “The court makes it abundantly clear that not only countries, but also companies, have a responsibility to reduce their emissions in line with the Paris climate agreement,” said Cox.

Thom Wetzer, an associate professor of law and finance at the University of Oxford, believes this leaves the door “wide open” for future litigation against corporations in the Netherlands and beyond.

The appeal court found no solid basis on which to order Shell to cut its emissions by 45% by the end of the decade. Shell successfully argued that the target was based on a global average and did not take into account the fact that the company did not sell the most polluting fossil fuel, coal. Nor was the court persuaded by Milieudefensie’s suggestions of more tailored emissions reductions for oil and gas.

But the court agreed in principle that it was able to order companies to meet absolute emission reductions.

Joana Setzer, an associate professor at the Grantham Research Institute on Climate Change, said this laid the basis for future claims, particularly once the EU set clear pathways for emission reductions in particular sectors.

Noah Walker-Crawford, a research fellow at Grantham, said he believed scientists had an important role in this. “Research in this field is advancing rapidly to bridge the gap between global emissions reduction goals and specific actionable targets.”

The court stressed that business environmental rules were getting tougher. Both the EU’s corporate sustainability reporting directive and its later corporate sustainability due diligence directive (CSDDD), which was finalised earlier this year and takes effect from 2027, impose climate-related obligations on companies such as Shell.

According to Wetzer, the original Shell ruling was an important catalyst in changing the political landscape, “which led business to support the CSDDD codification in an attempt to gain legal certainty”.

Setzer said these rules provided a more robust framework for holding corporations accountable but the court made it clear that they were not exhaustive. “This creates space for litigants to argue that companies must go beyond baseline regulatory compliance to fulfil their human rights and environmental responsibilities.”

The court affirmed that corporations had responsibilities to respect human rights. More than 20 legal cases are examining this issue in relation to climate change, and Fred Kelly, a senior associate at law firm Peters & Peters, expects the judgment to prompt more.

Another point of contention was the extent to which companies should have to cut emissions from their suppliers and customers, also known as “scope 3” emissions. The court accepted Shell’s arguments that the specific target Milieudefensie had requested might not contribute to global climate efforts, because any oil or gas it chose not to sell may simply be sold by another company.

But Wetzer said that this left the door open for legal claims if companies did not have, or failed to adhere to, more direct scope 1 and 2 emissions. It may even leave room for more nuanced scope 3 claims focusing on fossil fuel production.

Although it would not impose a specific obligation on Shell to cut its emissions, the court said it was “reasonable to expect oil and gas companies to take into account the negative consequences of a further expansion of the supply of fossil fuels for the energy transition also when investing in the production of fossil fuels”.

It said that Shell’s plan to develop hundreds of new oil and gas fields despite the International Energy Agency having warned against investments in any new fossil fuel extraction “may be at odds with this”.

Wetzer said he saw this as a “strong hint” that Shell’s fossil fuel exploration and development should have limits, while Setzer anticipated that the ruling could inspire more project-specific cases. “The court’s critique of Shell’s new fossil fuel investments aligns with the argument that such projects are fundamentally at odds with the Paris agreement,” said Setzer. “Project cases, like the legal challenge to the Rosebank oilfield in the UK, are increasingly paving the way for courts to demand that emissions from fossil fuel use be fully considered before approving high-emitting projects.”

Companies are not off the hook, said Wetzer. “Although the pathway to injunction-based cases of the Shell type succeeding may be a bit longer and bumpier than some might have hoped, it is definitely there. So, as before, companies should act in anticipation of this norm being enforceable or face significant legal risk.”

Cover photo: Milieudefensie, which brought the claim against Shell, was disappointed by the ruling, which rejected its key demand. Photograph: Yves Herman/Reuters