This ruling has been commented by media outlets all over the world. Some viewed the ruling as a major win for big corporations [1], others claim it is a groundbreaking precedent that supports climate litigation [2]. Our alert outlines briefly the key take-ways from the Millieudefensie vs. Shell decision for companies and contrasts it with current developments in climate change litigation in Germany and, thus, analyses the repercussions on doing business in Germany.
Traditionally, the responsibilities for climate change adaptation and mitigation have been seen as falling within the purview of the executive and legislative branches of government. Historically, states have reached consensus on climate measures through international agreements. The discussions surrounding the implementation and amendment of these agreements, as well as the delineation of further state responsibilities to ensure a clean, healthy, and sustainable environment, continue to take place at both political and legal levels. National courts, such as the German Supreme Court, regional courts like the European Court of Human Rights, and international courts such as the International Court of Justice, are increasingly called upon to define and enforce state obligations concerning climate change. In Germany, for instance, the NGOs Greenpeace and Germanwatch submitted a joint constitutional complaint (Verfassungsbeschwerde) against the Federal Climate Protection Act (Klimaschutzgesetz) in September of this year. This complaint, supported by more than 54,000 signatories, argues that the state must secure the freedoms of the younger generation through sufficient and timely climate protection measures. This concept of intertemporal human rights, which emphasizes the protection of future generations, was recognized by the German Constitutional Court in the landmark Neubauer et al. decision in 2021.
Additionally, NGOs are increasingly turning to civil courts to translate state-imposed obligations into civil law. This strategic approach seeks to establish new responsibilities for companies, extending beyond the current environmental regulations they are mandated to comply with.
Shell Litigation
In its recent decision, The Hague Court of Appeal determined that, under the Dutch concept of tort, Shell is not legally obligated to reduce its carbon emissions by 45% in alignment with the global temperature objective of Article 2(1) of the Paris Agreement. The Court found no written obligation to this effect, nor did it consider such a requirement appropriate within the context of social conduct as outlined in Article 6:162(2) of the Dutch Civil Code. Nevertheless, the Court recognized the protection from climate change as a human right under the European Convention on Human Right citing the recent decision of the European Court of Human Rights in the Klimaseniorinnen case. While the Dutch Court emphasized that it is primarily the responsibility of legislators and governments to implement measures to mitigate climate change, it also indicated that Shell has a duty to take actions to counteract dangerous climate change.
Furthermore, the Court asserted that companies significantly contributing to the climate crisis and possessing the capability to mitigate it have a duty to reduce CO2 emissions to combat climate change. This duty exists even if it is not explicitly mandated by the public law regulations of the countries where the companies operate. The Court then examined the current climate legislation within the European Union, specifically the EU ETS2 Directive, the Corporate
Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD). It concluded that the obligations arising from these existing regulations do not negate the duty of care that individual companies have to reduce their CO2 emissions. However, the Court acknowledged that this existing legislation influences Shell's obligations under the unwritten social standard of care. It emphasized that in fulfilling the duty of care, companies must consider the obligations imposed by existing legislation.
In the end, the Court rejected the direct application of the global temperature objective in Article 2 (1) Paris Agreement on an individual company. The Court identified, inter alia, that there is not a ‘sufficient interest’ of Millieudefensie to warrant awarding the claim. The Court questions the effectiveness of an imposed reduction of Scope 3 emissions (emissions that are not produced by the company itself, but up and down the value chain). In short, the Court stated that any reduction efforts by Shell could be offset by the remaining demand being met by ‘equally or worse’ products being supplied by its competitors. Thus, while the Court acknowledged that Shell might not have done enough to reduce its emissions, it could not be determined that the order Milieudefensie sought in relation to Shell’s Scope 3 emissions is effective to create a ‘sufficient interest’ as required by Dutch law. [3]
Current state of play in German climate litigation
Currently, German civil courts exhibit a certain reluctance to impose unwritten civil law due diligence obligations on companies that go beyond what is clearly required by written (public) law. As an example, one could cite the decision by the Higher Regional Court of Munich in October last year, where the court rejected the claim of an NGO that unwritten rules of the German civil law require BMW to stop selling cars with a combustion engine after 2030.
Unlike The Hague Court of Appeal, the Court in Munich highlighted that climate mitigation obligations for companies cannot be deduced from the German Constitutional Law that binds the German State. Similar to The Hague Court of Appeal in Shell, the Court in Munich considered the climate change laws enacted by the EU, like the EU Regulation 2019/631 setting CO2 emission standards for new cars and stated that compliance with those (public) laws is important evidence for a legitimate conduct of a company.
There is a potential risk that a different German Court would apply the climate change protection obligations of states, established in international treaties and human right legislation like the European Convention on Human Right, directly to companies through general clauses in the civil law. However, such a decision would be a turnaround from the established doctrine that human rights do not directly apply horizontally on companies – a doctrine that is currently recognized and upheld by all German Courts including the German Constitutional Court.
However, litigation in Germany is ongoing and continues to offer a platform for innovative judicial reasoning: For example, the Regional Court of Erfurt issued two rulings this autumn that were rather unexpected in their reasoning and ventured into new legal territory. In these cases, the plaintiff sought damages from manufacturers for vehicles affected by the German "Diesel-Scandal". The court emphasized that in estimating damages, the inherent rights of nature must be considered. In this regard, the Court applied the rights enshrined in the Charter of Fundamental Rights of the European Union to "ecological persons" to extend the German rules for calculating damages.
It remains to be seen whether this new line of reasoning will endure. A certain amount of skepticism is certainly warranted. Nevertheless, these recent rulings in Germany, as well as other court proceedings all over the world, underscore the unpredictable nature of climate litigation.
Litigation risks triggered by more recent climate change regulations
Besides the discussions regarding unwritten obligations of companies, Germany and the European Union have enacted ambitious laws that place climate change mitigation obligations on companies. Notable examples include the European Deforestation Regulation, CSRD, and CSDDD. For example, under the CSRD, companies will be required to prepare sustainability reports, which often must include a climate transition plan – a forward-looking strategy detailing how a company intends to meet its climate goals, particularly in reducing greenhouse gas emissions. Further obligations arising from the CSDDD are imminent. Companies will have to conduct due diligence assessments on environmental and social risks in their supply chains. In these assessments, companies must determine whether their business model and strategy are compatible with the 1.5°C goal of the Paris Agreement. If not, companies must develop plans to achieve this goal and take corrective actions.
The fact that a company complies with the climate change laws might serve as defense strategy in civil climate litigation cases. As explained above, both the Dutch and the German Courts have recognized this in their reasoning.
Complying with these EU laws, however, will demand significant efforts from companies. Firstly, the implementation and enforcement of the European Directives may vary between member states. Germany has not even implemented the CSRD in German law, despite the deadline having passed in July 2024, creating legal uncertainties for businesses. Secondly, the upcoming laws are untested, leading to uncertainties in their interpretation and implementation. Lastly, recent discussions around the delay and amendment of the European Deforestation Regulation indicate that legislators are willing to modify existing laws, adding another layer of complexity for companies.
Consequently, leveraging compliance with climate change laws as a defense strategy is becoming increasingly challenging for companies. This could result in additional litigation risks for companies in Germany. Experiences from member states with similar legislation, such as France's "Loi de Vigilance" (similar to the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz)), have shown a trend of increased lawsuits, primarily targeting companies with allegedly inadequate climate action plans.
Outlook
There has been a significant surge in environmental legislation and climate litigation in Germany and within the European Union in recent years.
Climate litigation based on general civil due diligence rules against companies has been widely unsuccessful so far. The German Courts uphold the established doctrine that international agreements and human right obligations apply to states, not companies. Therefore, the Dutch Millieudefensie vs. Shell decision will likely not significantly increase the chances of success of civil climate litigation against companies in Germany. This ruling does not mark the conclusion of climate litigation efforts, but it will introduce additional complexities for companies.
The surge of environmental legislation means that companies' obligations are steadily increasing, requiring greater efforts of companies to assess and monitor their environmental impact and identify ways to reduce their carbon emission.
Overall, defining climate change obligations of companies is expected to remain a challenge in the coming years, potentially increasing the litigation risks for companies. Given the unpredictability of court decisions, it is imperative for companies to remain vigilant and prepared for potential legal challenges.
Footnotes
[1] https://edition.cnn.com/2024/11/12/energy/shell-climate-case-netherlands/index.html.
[2] https://cil.nus.edu.sg/blogs/milieudefensie-et-al-v-shell-analysis-and-commentary-of-the-hague-court-of-appeals-decision/.
[3] Our experts Hilde van der Baan and Jochem Spaans explained the implications of the decision in the Shell case (the Court of Appeal has quashed the first-instance judgment and denied the claims by Milieudefensie et alia) and answered questions during a webinar. Please click here for the recording of this webinar. Note: An account is required, visible under past seminars after logging in.