The impact of a revolutionary Dutch Climate Change Judgment on companies worldwide

Introduction: revolutionary judgment for multinationals in all sectors

Last week a revolutionary climate change judgment was rendered with potentially great impact on companies worldwide, especially on their environmental footprint policy. In a judgment against Royal Dutch Shell (RDS) dated 26 May 2021, for the first time in history, a court has handed down a judgment that holds a multinational company directly responsible for climate change on the basis of a duty of care following from international treaties such as the UN Guiding Principles and Paris Climate Agreement. RDS has the obligation to reduce its group's CO2 emissions with 45% to meet their reduction goals to prevent climate change. Notwithstanding any possible appeal, with the foundation of this judgment being in international treaties, this judgment is anticipated to be a further catalyst for the current and future wave of climate change litigation against multinational companies in the Netherlands and most likely also in other jurisdictions.

This judgment does not only affect the oil and gas industry, but also other companies in their production or logistic processes. The claim foundation involved, Milieudefensie, already announced actions against Dutch companies in other sectors, such as steel producers, dairy companies and the beef industry.

Dutch Climate Change Litigation Wave: Urgenda-case based on human rights as crowbar

A Dutch climate change litigation wave has reached the court rooms, since the Netherlands is also frontrunner in holding a national government accountable for reducing emissions.

Earlier, on 20 December 2019, the Dutch Supreme Court ruled in the landmark case Urgenda Foundation v The Netherlands that the Dutch government must reduce emissions immediately in line with its human rights obligation. The pressure group Urgenda (Urgent Agenda), used article 2 (right to life) and article 8 (right to family life) of the European Convention on Human Rights to bring a claim against the Dutch Government on the basis that there was a real and imminent threat that required the State to take precautionary measures.  The Supreme Court confirmed decisions of the two lower courts, namely that the Dutch Government was acting unlawfully by failing to pursue a more ambitious reduction of greenhouse gas emissions and that it must reduce emissions emitted in the Netherlands by at least 25% by the end of 2020. 

This Urgenda case is used as crowbar in further international climate change litigation. Supported by the argumentation of this Urgenda-judgment, Greenpeace summoned the Government before the Court with request to require more climate safeguards in government funding of Dutch Airline KLM in November 2020.

It was and still is food for discussion if treaties between countries can result in obligations for companies.

At the end of May 2021, in a landmark judgment, RDS was ordered by the district court of The Hague to cut its global carbon emissions by 45% by the end of 2030 compared with 2019 levels. This was the result of a collective legal action brought by Friends of the Earth Netherlands (Milieudefensie) together with 17,000 co-plaintiffs and six other organisations. According to Milieudefensie, the company needs to contribute to the prevention of dangerous climate change via the corporate policy it determines for its group and its entire value chain, on basis of a duty of care. This duty of care was substantiated with human rights articles 2 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedom (ECHR) and soft law instruments such as the UN Guiding Principles on Business and Human Rights (UNGP).

The Court ruled that RDS was responsible for its overall group policy and needs to observe a certain duty of care regarding emissions and climate change policies. The Court ruled that Milieudefensie could not invoke the human rights under the ECHR directly, but in interpreting the specific duty of care applicable in this context, the Court followed the UNGP. The Court concluded that the group's policy is most likely insufficient to meet the 45% reduction standard. Since the violation of the unwritten standard of duty of care is clear, a court order has been granted that RDS must comply with the reduction standards by 2030. At the moment of writing, RDS announced that it probably will appeal. RDS emphasized that it takes all reasonable efforts to be CO2 neutral in 2050, but that it now needs to speed up this process.

Vereniging Milieudefensie & ors v Royal Dutch Shell plc C/09/571932 / HA ZA 19-379 is a turning point in history: it is the first time a judge has ordered a large corporation to comply with the Paris Climate Agreement and it will have major consequences for other companies by forcing them to play their part in tackling the climate emergency. The oil company’s sustainability policy was found to be insufficiently “specific” by the Dutch court and it was told it owed a duty of care.  This unprecedented ruling will have wide implications for the energy industry, as well as for multinational companies in other sectors.

Sustainability awareness and risk management against threat of climate change litigation

This climate change judgment is a precedent and firm basis for further climate change litigation against multinational companies in the Netherlands and in other jurisdictions (seeing the foundation in international treaties). In France, the environmental organization Notre Affaire à Tous is preparing a lawsuit against oil company Total on basis of the Dutch judgment.

The Covid-10 crisis already accelerated the focus on sustainability and social responsibility. Besides this, existing social dynamics result in more public pressure on climate change prevention.

Companies already need to have a focus on the sustainability perspective in order to keep sympathy of consumers. If the transition process will not go fast enough, private enforcement through legislation in court might act as a big stick, motivating them to get on the right track.

In light of the existing Dutch infrastructure for class actions, the liberal attitude of the Dutch courts (with the possibility to have the proceedings in English) and the balanced (claimant-defence side) new class action regime (in combination with good enforceability of its judgments), all the ingredients for more class action activity in the Dutch jurisdiction, in the coming years, are present.

The litigation threat is relevant for sectors, with production and logistic processes that impact climate change, such as airline, beef, cacao, dairy, palm oil, seafood and steel industries. The degree of responsibility of companies in other sectors depends on their size and impact of its CO2 emissions. In principle companies have the obligation to take appropriate action in line with their degree of responsibility.

What companies can do to reduce the risks of climate change and ESG related disputes and negative publicity

Companies should be mindful of their role in the climate transition and their environmental, social and corporate governance (ESG) policy and put in place an adequate international risk assessment of CO2 emission and crisis management process in order to tackle possible class actions in an early stage. It is important that ESG commitments on behalf of a company are taken seriously at all levels of the organization, compliance is monitored and adequate risk assessments are performed. We also recommend that companies critically review all ESG related public statements made on behalf of the company, so that statements are considered accurate and reflect a company's true policies.