The indirect horizontal effect of human rights - aligning people and planet in Shell v Milieudefensie

Lara Douvartzidis
Senior Legal Executive, Net Zero Lawyers Alliance

In a ruling^[1] dated 12 November 2024, the Hague Court of Appeal upheld Shell’s appeal against the Dutch NGO/campaign group Milieudefensie, overturning a 2021 ruling that had ordered Shell to reduce its carbon dioxide (‘CO2’) emissions by 45 per cent by 2030 relative to 2019 levels. For the reasons set out below, the Court of Appeal quashed the 2021 judgment, denied the claims of Milieudefensie and ordered it to pay costs (determined by Shell to be around €12,000). This judgment provides key considerations on the linkages between the climate crisis and the corporate responsibility to respect human rights, which are discussed below. 

Background

Milieudefensie, along with other environmental organisations, were initially successful in a lawsuit brought against Shell in 2021. This ruling mandated Shell to reduce its CO2 emissions by 45 per cent by 2030 compared to 2019 levels, aligning with the Paris Agreement. This order (obligation) to reduce emissions was based on the unwritten social standard of care in Article 6:162 of the Dutch Civil Code, a provision which the District Court found was inspired by and to be interpreted in alignment with the right to life and the right to respect for family life (found in Article 2 and 8 of the European Convention on Human Rights (‘ECHR’) and Articles 6 and 17 of the International Convention on Civil and Political Rights (‘ICCPR’) respectively). Additionally, the District Court applied the UN Guiding Principles on Business and Human Rights (‘UNGPs’) to demonstrate a global standard of behaviour, applying broadly the spirit of pillar two of the UNGPs – that a company should respect human rights.

Findings of the Court of Appeal

The appeal question

Shell filed ten grounds of appeal and requested that the Court of Appeal declare that Milieudefensie et al have no cause of action, or alternatively dismiss the claims made in 2021, and to pay costs of the proceedings to date. In response, Milieudefensie requested that the Court of Appeal uphold the contested 2021 judgment, with amendments if necessary, and sought costs for the appeal proceedings. Milieudefensie also sought additional rulings on a number of matters related to Shell’s existing obligations under the 2021 judgment, including: legal clarification on the ‘obligation of result’, the use of CO2 offsets when fulfilling reduction obligations, the use of the EU Emissions Trading Scheme and confirmation that Shell cannot meet the reduction obligation by selling its assets. Shell objected to these further requests, arguing that cross-proceedings should have been instituted instead.

Rather than deal with each ground individually, the Court of Appeal conducted a substantive assessment of the matter, articulating the appeal question as follows: whether on the basis of this social standard of care, can an obligation on Shell be assumed that requires it to reduce its CO2 emissions by a certain percentage (at [7.3]).

To answer the appeal question, the Court of Appeal examined links between:

• climate change and human rights;
• indirect horizontal effects of human rights and the right to protection in private relationships;
• applicable EU climate legislation;
• new investments in oil and gas violating this standard of care;
• obligations of Shell regarding scope 1 and 2 emissions; and
• consideration of Shell’s obligations regarding scope 3.

Clear endorsement for climate science

The Court of Appeal acknowledged and upheld the scientific consensus and findings in respect of climate change, citing findings from the IPCC, UN Environmental Programme Emissions Gap and Production Gap Reports, and the International Energy Agency – including that no new oil and gas projects are needed and that investment in existing fields and already approved projects will suffice (at [3.11]). The Court of Appeal then applied these findings into a Dutch context, noting that climate change-related health problems for Dutch residents include heat stress, increasing infectious diseases, deteriorating air quality, increased UV exposure and an increase in water-related and foodborne diseases, as well as broader consequences to water availability to agriculture and biodiversity (a vital but oftentimes overlooked link) and the energy sector.

Climate change and human rights: the doctrine of indirect horizontal effects of fundamental rights makes ‘soft law’ justiciable

In this case, the Court of Appeal confirmed that the right to life includes positive obligations to take measures to protect life. It drew on the Urgenda and KlimaSeniorinnen cases and noted other cases around the world where human rights had been invoked to protect against the effects of the climate crisis, as well as citing UN reports and resolutions, including the right to a healthy environment. Pooled together, the Court of Appeal concluded at [7.17] that ‘there can be no doubt that protection from dangerous climate change is a human right’ and that companies also have a role to play due to the doctrine of indirect horizontal effects.

But what is the doctrine of indirect horizontal effect of fundamental rights? It is effectively an application of fundamental rights, or as the Court of Appeal says in this instance ‘the values embodied in them’ (at [7.18]), when interpreting private law between person and company, rather than the vertical effect between citizen and government.

In conducting this exercise, the Court of Appeal relied on the UNGPs, the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises on Responsible Business Conduct (‘OECD Guidelines’) and other initiatives including the UN Global Compact and Race to Zero. On the UNGPs, the Court of Appeal stated: ‘all companies are expected to adhere, wherever they operate. It is not enough for companies to monitor developments and follow the measures states take’ (at [4.3]).

In this case, and although not legally binding, the Court of Appeal cited principle 11 of the UNGPs:^[2] ‘Business enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.’ It also cited Chapter IV (human rights) and Chapter VI (environment and climate change) of the OECD Guidelines, noting in the latter that commentary encourages companies to set emissions reductions targets for scopes 1 to 3 in keeping with the best available science as established by the IPCC. It echoed a number of guidelines and recommendations on the importance of non-state actors and corporates reducing emissions (at [7.23]), observing the starting point that companies have a responsibility on climate. On this, the Court of Appeal highlighted that Shell was a founder of UN Global Compact, an organisation committed to ‘corporate sustainability’ and ‘corporate social responsibility’. Further, the Court of Appeal cites the delivery of the UN Sustainable Development Goals (‘SDGs’), specifically SDG 13: ‘Climate action: Take urgent action to combat climate change and its impacts’.

In its conclusion, the Court of Appeal effectively held two things to be true: treaty provisions are primarily directed at governments, but treaties also impact private law relationships ‘by giving substance to open standards, such as the social standard of care’. It concluded that large companies are also responsible for taking appropriate measures to counter climate change (especially where the company has contributed to the climate problem). In this case, the right to life and right to private life are decisive for the interpretation of the social standard of care and for deciding what can be required of Shell under that standard, with the Court of Appeal ruling (at [7.27]):

‘[…] Shell, which contribute significantly to the climate problem and have it within their power to contribute to combating it, have an obligation to limit CO2 emissions in order to counter dangerous climate change, even if this obligation is not explicitly laid down in (public law) regulations of the countries in which the company operates. Companies like Shell thus have their own responsibility in achieving the targets of the Paris Agreement.’

Application of European Union law: is legislation enough?

The Court of Appeal examined several new directives introduced since the District Court’s decision in 2021 and assessed the relevance to an ongoing social standard of care owed by Shell. It did so because of Shell’s argument that ‘an obligation on individual companies to reduce their CO2 emissions is not in keeping with the system of the law. According to Shell, decisions on reducing CO2 emissions belong to the domain of the legislator and not the domain of the civil court.’ (at 7.52]). The Court of Appeal disagreed with this proposition, finding that the measures of legislators to reduce CO2 emissions are not exhaustive, and companies have their own duty to reduce emissions too – a social standard of care can exist on top of any legislative mandate to reduce CO2 but a company’s obligations under said duty may be affected by what the legislation demands a company do.

Did Shell violate the social standard of care by making new investments in oil and gas?

Milieudefensie argued that Shell’s current policy was not in line with the Paris Agreement goals due to investment in new oil and gas fuels. The Court of Appeal acknowledged that to keep the climate goals of the Paris Agreement within reach, emissions will have to be drastically reduced by 2030. In this respect the Court of Appeal ‘deems it plausible’ that this would require not only taking measures to reduce demand for fossil fuels, but also limiting the supply of fossil fuels. However, the Court of Appeal found that because Milieudefensie were not seeking a ruling on whether Shell’s investment choices were violating the social standard of care, this question need not be answered. Instead, the ruling sought was whether an obligation can be imposed on Shell to reduce its scope 1, 2 and 3 emissions by 45 per cent, 35 per cent or 25 per cent. Despite this, the Court of Appeal stated that the social standard of care is to be interpreted on the basis of Articles 2 and 8 ECHR and soft law such as the UNGP and OECD guidelines, which requires producers of fossil fuels to take responsibility in this respect, observing that ‘Shell's planned investments in new oil and gas fields may be at odds with this’.

Scope 1 and 2…and 3

Shell sought a ruling that would dismiss the obligations to reduce scope 1 and 2 emissions as previously decided in the District Court because first, it has specific reduction targets for scope 1 and 2 and second, there is no threat that Shell will not comply with the (alleged) reduction obligation. The Court of Appeal ultimately agreed in this respect, finding that an impending violation of a legal obligation was not established.

With respect to scope 3, while the Court of Appeal acknowledged that Shell may have obligations to reduce scope 3 emissions, it ruled that the company cannot be bound by a 45 per cent reduction standard (or any other percentage) agreed by climate science because of a lack of specificity – the percentage did not apply to every country and every business sector individually. In this respect, the arguments around scope 3 were decided not on substance, but on form – the construction of the Dutch Civil Code required sufficient interest in a legal action and in this case, there was none due to lack of specificity.

The Court of Appeal nevertheless rejected an effective control argument by Shell – that their scope 3 is someone else’s scope 1 and that they would be liable for acts of third parties (their customers). In rejecting this, the Court of Appeal said (at [7.99]) that ‘this argument does not hold water’ and that it is ‘too easy to say’, citing a number of EU directives as well as the OECD Guidelines and GHG Guideline to demonstrate it all presupposes corporate responsibility for scope 3. Further, on arguments put forward by Shell that an obligation to reduce scope 3 does not guarantee a positive effect on combatting climate change, eg, because other companies could continue operating and selling (this is sometimes called the ‘prisoners’ dilemma’), the Court of Appeal noted (at [7.106]) that there may be (note the Court’s emphasis) a ‘causal relationship between a production limitation and emission reduction, as assumed by the district court […] but Milieudefensie et al. have failed to put forward sufficient grounds to assume that in this case a causal relationship (also) exists between a sales limitation and emission reduction.’

Moving forward

This judgment is difficult to couch in binary win or loss terms and may yet be appealed. Nevertheless, it is an endorsement of the indirect horizontal effect of fundamental rights (being the application of fundamental rights in private law, between person and company) and the widening scope of responsibility on companies with respect to the climate crisis. It also demonstrates that, in relevant cases, courts will consider the UNGPs and OECD Guidelines as relevant to the climate crisis, which could provide an insight into the direction of future discussions around delivery of a just transition.

It also provides guiderails on considerations of scopes 1, 2 and 3 and provides insight into framing or responding to the ‘prisoners’ dilemma’ and the potential for future litigation on the lawfulness of a ban on new fossil fuel projects. Although there are jurisdictional limits to its reach, previous Dutch cases, such as the Urgenda case (against the Dutch state), have inspired new cases further afield, for example the Sharma litigation in Australia. This judgment therefore informs potential for future litigation and will be relevant to legal advice relating to the obligations of corporations with respect to the climate crisis, the connection between human rights and climate change and reduction of emissions across the value chain, in line with the goals of the Paris Agreement.

Disclaimer: This article was written using an English translation of this judgment, solely intended to provide information. The text of the translation used is an unofficial translation. Liability cannot be claimed for possible errors and/or omissions in this translation. The Dutch text of the judgment is the only authentic and formal text (ECLI-number: ECLI:NL:GHDHA:2024:2099).