Milieudefensie et al v. Royal Dutch Shell: Budding Legal Corporate Accountability in the Climate Change Fight

In the past fifty years, torrents of environmental regulations have washed down upon corporate activity around the world, collecting into what many have termed an ‘environmental alphabet soup.’ Indeed, over 1,300 multilateral environmental agreements, 2,200 baseline environmental assessments, 250 other environmental agreements, and 90,000 individual country actions in accordance with these assessments currently exist. [1] Yet, because international environmental standards lack systematic means of enforcing corporate adherence, corporate heads have the leeway to continue prioritizing profit over their environmental responsibilities, and, as a consequence, the world has seen a 75 percent increase in global greenhouse gas emissions between 1970 and 2004. [2] To remedy this lack of oversight, the corporate accountability movement aims to build an environmental standard of care: a set of responsibilities each corporate entity has to prevent any anticipatable environmental damage. As opposed to a one-size-fits-all rule, this standard of care expects corporations to address risks relevant to the rights-holders they will impact as well as comply with environmental regulations and compensate victims of corporate-inflicted environmental damage. [3] 

To successfully implement this standard of care, the existing corporate legal framework—which inherently rejects social responsibility, due in part to the law’s genesis as a tool to aid (rather than regulate) corporate development—must be overhauled. Currently, the size of multinational corporations frees it from total liability within one country’s jurisdiction; moreover, the structure of the corporate veil and short-term profit-driven nature of the corporation disincentivize shareholders and corporate heads alike from complying with regulations, causing many to view penalties for environmental effects as necessary business costs. [4] Legal action provides society with the means to build a standard of care, by mandating corporate compliance with environmental standards, apportioning serious financial and reputational damage, and ultimately incentivizing behavioral changes to root out a corporate culture of environmental abuse.

Milieudefensie et al. v. Royal Dutch Shell plc, decided by the Hague District Court in May 2021, was the first major case to hold a multinational corporation responsible for environmental damage. The plaintiffs in this case were Milieudefensie (Friends of the Earth Netherlands), an environmental group, alongside their co-plaintiffs Greenpeace Netherlands, Fossielvrij NL, Waddenvereniging, Both Ends, Jongeren Milieu Actief, ActionAid (all third-party environmental organizations), and 17,379 citizens of the Netherlands. They sued the Royal Dutch Shell (RDS), arguing that RDS’s contributions to climate change violated United Nations (UN) human rights regulations and the standard of care articulated in Book 6 Section 162 of the Dutch Civil Code, which requires all those who commit a civil wrong to “repair the damage which the other person suffers.” [5] The court ruled that because RDS’s own environmental policy is vaguely worded and has no emissions target for 2030, it cannot override international and state emissions regulations; Shell must therefore reduce its net emissions by 45 percent by 2030 in compliance with the Paris Climate Agreement. [6] Because this order is provisionally enforceable, it cannot be overridden by an appeals court, ensuring that the Milieudefensie precedent is lasting. Altogether, the Milieudefensie decision establishes a corporate duty of care for harm caused by climate change.

The court’s strategic interpretation of the standard of care within the Dutch Civil code forms the first major pillar of its decision. Referencing international environmental legislation, notably the UN Guiding Principles on Business and Human Rights, the UN Sustainable Development Goals, and the Paris Climate Agreement, the court concluded that “RDS’ policy, policy intentions and ambitions for the Shell group… amount to rather intangible, undefined and non-binding plans for the long-term (2050).” [7] RDS and other private parties may argue “that the energy transition must be achieved by society as a whole” through national policy frameworks, however the court found that the need for a societal shift does not absolve RDS of its responsibility to reduce the emissions under its control. [8] 

The second pillar of the court’s decision involves its prioritization of Dutch citizens' interests over those of RDS’s. According to Book 3 Section 305a of the Dutch Civil Code, a public interest class action must contain a “similar interest,” where all the claimants have interests that can be addressed together for legal efficiency and maximum impact. [9] While the “world’s population” might be served by improving climate change, each sect of its population may find a different utility in the amelioration. [10] In this case, the Dutch population’s interests are far more cohesive, in that “climate change will affect all Dutch residents similarly” and is therefore prioritized over other collective interests. [11] Thus, by measuring RDS’s environmental transgressions against the damage inflicted upon Dutch citizens, the court delineates a strict, causal relationship between corporate action and detriments to its local inhabitants—the very manifesto of the corporate accountability movement. Together, both pillars shape Milieudefensie into a pioneering legal case in the environmental corporate accountability field. 

Nevertheless, the court’s order is not inviolable. Because the Hague District Court’s decision draws from soft laws such as international norms, it leaves room for interpretation that could weaken the precedent that it sets for future cases. Indeed, because negotiations are routinely held on the wording of the Paris Agreement (which the court draws from), an accumulation of minor changes can gradually efface the strength of the court’s decision. Furthermore, the case’s established duty of care is defined by the Dutch Civil Code as being “what according to unwritten law has to be regarded as proper social conduct.” [12] “Proper social conduct” is inherently open to interpretation. While the Hague District Court references the “Kelderluik criteria”—the principles used to measure a party’s liability in “creating a dangerous situation for others”—to define “proper social conduct” as a “right to life and the right to respect for private and family life,” other courts could easily distort its application based on a different targeted audience, or use of an entirely different set of criteria. [13] As Iva Lea Aurer, a Faculty of Law at Vrije Universiteit Amsterdam, notes, “a legal obligation is enfeebled if it is construed upon legal instruments that have intentionally and explicitly renounced their legally binding character.” [14] Given that the court’s emission-reducing orders stem from its conception of proper social conduct, its vague legal foundation weakens the standard of care that its ruling establishes. 

The court’s reduction of emissions order in Milieudefensie also contains ambiguities. In ordering SDS to reduce net emissions by 45 percent by 2030, the Hague District Court chose to follow the guidance of the Intergovernmental Panel on Climate Change (IPCC), whose mitigation pathway assumes that a 45 percent reduction in emissions will keep temperatures below the 2º cap. [15] Yet the court offers no explanation for why it chose to follow the IPCC’s guidance. The ruling also claims that Shell must reduce emissions at the same rate at which global carbon dioxide emissions rose from 2010 to the present day, neglecting the fact that increasing and reducing emissions are two vastly different changes occurring in two different decades of technology and fuel usage. [16] Both ambiguities could be contested in an appeals court. 

Furthermore, part of the court’s decision draws from a human rights argument found within statements of the United Nations High Commissioner for Refugees (UNHCR) Committee and Special Rapporteur and sections of the United Nations Guiding Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines, and other soft law instruments. All these documents claim that human rights norms are implicated in climate-change related matters and that corporations need to abide by human rights “and actively prevent, mitigate and remedy violations thereof.” [17] Yet the strength of these claims, even while they might be morally justified, remains legally ambiguous. Building a lineage of future environmental corporate accountability cases will prove to be difficult if decisions are staked upon soft laws such as those cited in Milieudefensie, rather than indisputable, binding legislative standards.

Going forward, the corporate accountability movement must rally behind efforts to create these legislative standards. More stringent standards will ensure that court interpretations endure, even if cases are contested or appealed to higher courts. As the European Commission writes future laws, it must precisely delineate corporate obligations if corporations are to be held accountable. Key phrases used in “aspirational text[s]”—such as “using leverage,” “integrating findings,” “directly linked” and “negative human rights impact”—must be translated into hard standards that corporate actions can be measured against. [18] 

Efforts to pass such laws are already underway. The European Parliament proposed an “initiative on mandatory human rights due diligence and directors' duties” that would consolidate the United Nations’ Guiding Principles on Business and Human Rights into due-diligence legislation; the resolution was adopted with majority support in 2021. [19] Additionally, the German Parliament passed the “Act on Corporate Due Diligence in Supply Chains” in June 2021 that gives both German companies and foreign companies in Germany the “binding obligation” to “establish, implement and update due diligence procedures to improve compliance with specified core human rights and, to a limited extent, environmental protection in supply chains.” [20] While the act has a greater emphasis on human rights, environmental matters are nonetheless represented in its language. Because fossil fuel corporations are known for employing effective lobbying and misinformation campaigns in their favor, only precise, cut-and-dry international legislation can ward off the biases that these corporate practices will inevitably invite.

The climate corporate accountability movement has only just started. Indeed, a series of ongoing cases are poised to change the field. In the ongoing Lliuya v. RWE AG case, under the jurisdiction of the Higher Regional Court of Essen, Germany, Saúl Ananías Luciano Lliuya, a farmer who lives in Peru, claims that his house will imminently be destroyed by a glacier flood due to the environmental damage caused by RWE AG, a German energy company. [21] A number of cities and counties within the United States are also suing fossil fuel companies for the damage that weather anomalies, such as extreme temperatures, have wreaked upon their populations. [22] At a time when governments have failed to effectively enforce or enact climate change legislation, the law provides an opportunity to expose a corporation’s environmental actions, force it to take responsibility, and serve it with appropriate consequences. If pursued successfully, a strong legal climate corporate accountability movement will reposition the role of corporations within what hopefully becomes a remodeled world.

Edited by Radhika Goyal

Sources:

[1] Ronald B. Mitchell, “IEA Database Home.” International Environmental Agreements (IEA) Database Project, online at https://iea.uoregon.edu/ (visited July 28, 2021). 

[2] “Global Greenhouse Gas Emissions Increased 75% since 1970,” PBL Netherlands Environmental Assessment Agency (November 2006), online at https://www.pbl.nl/en/publications/TrendGHGemissions1990-2004 (visited July 28, 2021).

[3] Lise Smit and Claire Bright, “Human Rights and Environmental Due Diligence as a Standard of Care,” Business & Human Rights Resource Centre (2020), online at https://www.business-humanrights.org/en/blog/human-rights-and-environmental-due-diligence-as-a-standard-of-care/ (visited July 28, 2021). 

[4] Hope M. Babcock, “Corporate Environmental Social Responsibility: Corporate "Greenwashing" or a Corporate Culture Game Changer?” 21 Fordham Environmental Law Review, 1 (2010).

[5] Art. 6:162 Code Civil (Netherlands).

[6] Milieudefensie et al. v. Royal Dutch Shell plc., C/09/571932 (The Hague District Court 2021).

[7] Id.

[8] Id.

[9] Jan de Bie Leuveling Tjeenk and Dennis Horeman, Netherlands: Class and Group Actions Laws and Regulations 2021 (De Brauw Blackstone Westbroek 2021).

[10] Mark Clarke, Clare Connellan, Seth Kerschner, Jacquelyn MacLennan, William De Catelle, and Thomas Hansen, “Milieudefensie Et Al v. Shell: Climate Change Claimants Prevail Again in Dutch Court – This Time, against Corporations,” White & Case LLP (May 28, 2021), online at https://www.whitecase.com/publications/alert/milieudefensie-et-al-v-shell-climate-change-claimants-prevail-again-dutch-court (visited August 11, 2021).

[11] Id; Iva Lea Aurer, “Milieudefensie Et Al. v. Royal Dutch Shell Plc.,” Vereniging Voor Milieurecht (May 25, 2021), online at https://www.milieurecht.nl/nieuws/milieudefensie-et-al-v-royal-dutch-shell-plc (visited July 28, 2021). 

[12] Art. 6:162 BW.

[13] Teraine Okpoko, “Milieudefensie vs Royal Dutch shell - an Environmentalist Delight,” American Bar Association (June 24, 2021), online at https://communities.nysba.org/blogs/teraine-okpoko/2021/06/24/milieudefensie-vs-royal-dutch-shell-an-environment (visited July 28, 2021). 

[14] Iva Lea Aurer, “Milieudefensie Et Al. v. Royal Dutch Shell Plc.,” Vereniging Voor Milieurecht (May 25, 2021), online at https://www.milieurecht.nl/nieuws/milieudefensie-et-al-v-royal-dutch-shell-plc (visited July 28, 2021).

[15] Neville Ellis, Tania Guillén Bolaños, Daniel Huppmann, Kiane de Kleijne, Richard Millar, and Chandni Singh, “Summary for Policymakers,” The Intergovernmental Panel on Climate Change (2018), online at https://www.ipcc.ch/sr15/chapter/spm/ (visited July 28, 2021).

[16] Iva Lea Aurer, “Guest Commentary: An Assessment of the Hague District Court’s Decision in Milieudefensie et al. v. Royal Dutch Shell Plc,” Climate Law Blog: Sabin Center for Climate Change at Columbia Law School (May 28, 2021), online at http://blogs.law.columbia.edu/climatechange/2021/05/28/guest-commentary-an-assessment-of-the-hague-district-courts-decision-in-milieudefensie-et-al-v-royal-dutch-shell-plc/ (visited July 28, 2021).

[17]  Iva Lea Aurer, “Milieudefensie Et Al. v. Royal Dutch Shell Plc.,” Vereniging Voor Milieurecht (May 25, 2021), online at https://www.milieurecht.nl/nieuws/milieudefensie-et-al-v-royal-dutch-shell-plc (visited July 28, 2021).

[18] Björn Fasterling, “Mandatory Corporate Due Diligence in European Union: A Promising Step Forward for Businesses,” EDHEC Business School (June 21, 2021), online at https://www.edhec.edu/en/edhecvox/droit-fiscalite/mandatory-corporate-due-diligence-european-union-promising-step-forward (visited July 28, 2021).

[19] Id.

[20] Anna Burghardt, Adele Juliane Kirschner, Alexander Kiefner, Sabine Kueper, Julia Sitter, Christian Theissen, and Norbert Wimmer, “The German Parliament passed the "Act on Corporate Due Diligence in Supply Chains" on 11 June 2021,” JD Supra (June 24, 2021), online at https://www.jdsupra.com/legalnews/the-german-parliament-passed-the-act-on-3070854/ (visited July 28, 2021).

[21] Luciano Lliuya v. RWE AG (District Court Essen 2016)
[22] Hope M. Babcock, “Corporate Environmental Social Responsibility: Corporate "Greenwashing" or a Corporate Culture Game Changer?” 21 Fordham Environmental Law Review, 1 (2010).