Financial Times
- Anjli RavalIf successful, the legal action in the Netherlands could force companies to
accelerate the shift to cleaner fuels
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Shell is one of many energy companies facing litigation over
their impact on climate change. © FT montage; AP
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It is five years since the Netherlands
lost a court action forcing it to cut its greenhouse gas emissions. It was the first time a government had been compelled by law to take action
on
climate change
and was upheld by an appeals court in 2019, meaning that Dutch authorities have
to reduce emissions by 25 per cent compared with 1990 levels.
The
case, brought by climate group Urgenda, argued that the state’s lack of action
was putting Dutch citizens in danger.
And the court agreed.
Now the lawyer behind that 2015 case — Roger Cox — has a new target,
Royal Dutch Shell, in a legal fight in The Hague that some believe could force oil and gas
companies to accelerate a
shift away from fossil fuels
and push other corporate polluters to reassess their carbon footprint.
In
an opening statement in December, Mr Cox, acting on behalf of a group of
activists including Milieudefensie, the Dutch wing of Friends of the Earth, said
the Anglo-Dutch group’s business model and corporate strategy “is on a collision
course with global climate targets” and presented “a great danger for
humanity”.
The activists want Shell — valued at close to £113bn
— to cut its total carbon dioxide emissions by 45 per cent by 2030, compared
with 2019 levels, ultimately stopping short of an initial push to get the
company to eliminate them entirely by 2050. It would force the energy group to
completely overhaul its operations and corporate strategy.
Mr Cox
says the environmental campaigners “asked me if an Urgenda-style case could be
brought against a fossil fuel company [and it] made me think that we had a
realistic chance of winning a case against an oil major.”
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Shell and 24 other major corporations are responsible for over half
of all global industrial emissions since 1988, according to
non-profit group. CDP © Bloomberg
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Litigation against fossil fuel companies is not new. But until now the focus has
largely been on
liability suits, asking
corporations to pay damages
for past behaviour. Attention is now shifting to so-called human rights-based
cases which have the potential to redraw the future business models and plans of
corporate polluters.
These cases are designed to advance climate
policies, say their backers, raise public awareness and drive behavioural shifts
by entire industries.
“The need to explore avenues to reduce
emissions is much more important than discussions about compensation,” says Jaap
Spier, author of
Climate Obligations of Enterprises, which sets out the
obligations of the corporate sector and the liability risks posed by climate
change. The Shell case, he says, is helping to shift the debate from, “‘OK there
is a problem and we need to do something,’ to ‘what needs to be done by whom and
by when’”.
Lawyers, environmentalists and energy analysts say
if Shell loses, it and some of its rivals, might preemptively adopt policies —
from divestments to ramping up investment in
clean energy
— to avoid further legal action. They would be forced to prepare for climate
litigation failure as a financial risk. It is also likely, they say, that future
legal cases will target not just fossil fuel companies, but also investors and
related entities, such as banks extending finance to them.
Shell has
already said it will reduce the carbon intensity of the energy products it sells
by around a third by 2035. It also seeks to be a “net zero” emissions company by
2050 by investing more in cleaner fuels. But climate activists say these targets
— which do not include absolute emissions — amount to a tinkering around the
edges. The oil company can still continue to expand its fossil fuel businesses
while meeting its “net zero” emissions goal.
In a series of public hearings in December, the plaintiffs argued Shell has
known about the dangers of climate change for years and as a major producer of
fossil fuels has played a large role in causing the detrimental effects.
Therefore, they say, it needs to play a major role in the transition away from
fossil fuels. A verdict in the case is expected on May 26.
“If
successful it would set a precedent. It would be the first time a court could
force an oil major to change course,” says Mr Cox. “That’s what we’re looking
for here. Not damages, not compensation. A new approach.”
Future proofing Such legal actions are opening up a new front in the fight over
responsibility for climate change. Over the past three years a
growing number of cases
in the US — filed by cities, states and counties — have sought damages from
energy companies for a litany of climate-related problems.
They are
based on a simple scenario. If the burning of fossil fuels creates emissions
that cause climate change, then polluters should compensate public authorities
for having to
upgrade sea walls
or retrofit storm drains to mitigate against the effects.
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Marjan Minnesma, director of environment NGO Urgenda (second from
right) which won a landmark legal action forcing the Dutch
government to cut its greenhouse gas emissions.
© ANP/AFP via Getty Images
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The template for these actions is the successful litigation brought
over decades against tobacco companies. This ended with a 1998 settlement
guaranteeing $206bn in payments to 46 US states, over a period of 25 years, to
cover costs of healthcare payouts and other related claims.
The
action against Shell is viewed by legal experts as particularly significant
because of a series of factors: the Urgenda case provides a precedent, the
Netherlands has its own duty of care obligations for corporations as part of the
Dutch Civil Code and Shell is based in the country.
A
separate case in France, against Total, is also seeking to force the energy major to overhaul its
corporate strategy to ensure operations align with the targets set out in the
Paris Climate Accord. But in this instance there is no legal precedent.
A case in Ireland — similar to that brought by Urgenda — argued that
the government’s mitigation plan was not ambitious enough. The supreme court in
Dublin agreed.
European oil majors have come under increasing
pressure from environmentalists and investors in recent years to be more
accountable for their contribution to climate change. This has forced them to
take preliminary action — from investing in low carbon technologies and greener
energies to announcing net-zero emissions goals. But the rising scrutiny over
their operations has coincided with a pandemic that has shredded their finances,
threatening their ability to make good on lofty ambitions.
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Last year, Britain's advertising watchdog opened an investigation
into Shell’s ‘drive carbon neutral’ campaign following complaints
from the public. © REUTERS
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Shell has repeatedly said that action to fight climate change is
necessary. But argues that, given the global nature of the problem, a battle in
the courts will do little to overhaul the energy system. It also points out that
even as it supports international efforts, the
Paris Agreement
obligates governments, not individual corporations, to act.
In court
the company argued consumers such as motorists are just as responsible for the
choices they make and producers should not be penalised disproportionately.
The company has invested in biofuels, hydrogen, wind power, electric
vehicle charging and smart energy storage solutions and plans to increase
investment in low carbon technologies as part of its broader net zero emissions
goal. Prior to the pandemic, Shell planned to spend up to 10 per cent of its
$30bn in annual capital expenditure on cleaner energy businesses until 2025.
That fell to $20bn last year because of the coronavirus pandemic.
The company is expected to issue a strategy update in February, but
it is likely that spending on low carbon initiatives will remain a fraction of
what is spent on its traditional fossil fuel businesses.
“We agree
with Milieudefensie that action is needed now on climate change,” says Shell.
“What will accelerate the energy transition is effective policy, investment in
technology and changing customer behaviour, none of which will be achieved with
this court action.”
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A Shell jack-up oil rig stands next to an offshore wind farm in
Teesside, north England. The company says it can continue to expand
its fossil fuel businesses while meeting its ‘net zero’ emissions
goal. © Bloomberg
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Growing public discontent Oil companies also point to the
world’s overwhelming dependence on fossil fuels. While governments and
individuals — particularly in Europe — want to shift towards renewable forms of
energy, such as solar and wind power, this does not change the reality of our
consumption patterns.
Even at the height of coronavirus induced lockdowns and travel
bans, oil consumption only fell by around a quarter, which indicates how
embedded these fuels are into our everyday existence.
Shell says it
seeks to move “in step with society”. But critics argue the world and even
peers, like BP, are moving faster than Shell is willing to go, which has even
seen a string of
top clean energy executives leave the company.
Despite those consumption numbers the legal actions are tapping
into growing public discontent, with governments over climate change putting
pressure on them to pursue cleaner energy goals and net-zero policies as part of
the
Paris Agreement
commitments.
Frustration with politicians is partly driven by the
feeling that they are not going far enough to mitigate the realities of climate
change but also that they are failing to regulate company behaviour effectively,
or impose binding targets on some of the world’s biggest polluters.
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One of Australia’s largest pension funds last year agreed to settle
a climate risk case brought by Mark McVeigh in 2018.
© Bloomberg
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“There is really just one fundamental question,” says Donald Pols, chief
executive of Milieudefensie. “Is it possible to meet the Paris goals without
regulating the emissions of corporations?”
Shell and 24 other major
corporations are responsible for over half of all global industrial emissions
since 1988, he says
citing data from not-for-profit group CDP. Until now these companies have set broad goals to reduce emissions rather
than legally enforceable targets.
Mr Pols says he hopes the Shell
case will have a “ripple effect” — not only would it shift Shell’s investment
plans, but it could prompt other companies to bolster their defences against
similar litigation.
Activism against energy companies has already
gone far beyond green campaigners scaling oil rigs and blockading corporate
headquarters.
Environmentalists are now targeting the oil
industry’s lobbying tactics and challenging their corporate advertising. Client
Earth, an environmental charity,
filed a 2019 legal complaint
against oil company BP claiming it was misleading consumers about its focus on
low carbon energy through its multimillion pound advertising campaign.
Chief executive Bernard Looney scrapped the advertising shortly
after taking over in February 2020. Meanwhile investors are filing a growing
number of
shareholder resolutions
to force change.
“If you look at these things as a whole, there is
pressure growing from all sides,” says Joana Setzer at the Grantham Research
Institute on Climate Change and the Environment at the London School of
Economics, who focuses on climate litigation and environmental governance.
“There are lots of different strategies being tried. People are saying — how can
we push the boundaries even further?”
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In France, a case against Total, seeks to ensure the company brings
its operations in line with the Paris climate targets.
© Thomas samson/AFP via Getty Images
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Increasing litigationThe
Grantham Institute
recorded 1,587 cases of climate litigation between 1986 and the end of May 2020:
1,213 cases in the US and 374 cases in 36 other countries and eight regional or
international jurisdictions.
An analysis of 534 US cases between
1990 and 2016 found that 42 per cent had outcomes favourable to climate change
action.
Outside the US, 58 per cent of the 187 cases between 1994
and May 2020 were successful.
“We are still seeing many, many more
failures of high-profile strategic litigation — like the liability cases against
carbon majors or cases against governments challenging their lack of ambitious
targets — than successes,” says Ms Setzer. “But lawyers who bring these kinds of
cases know it will take many years and may end in failure. With climate
litigation however, this is the problem — we don’t have the time.”
Experts counter that even in defeat there are successes. Cases may
raise awareness and influence future litigation. Corporations can see the
momentum and are beginning to build their legal defences.
“It’s no
longer a secret. Businesses that are complicit in enabling climate change, while
ignoring the ramifications, are going to face higher legal risks going forward,”
says Carroll Muffett, chief executive at the Center for International
Environmental Law, a non-profit organisation. “It is exceptionally rare that a
single case changes corporate behaviour. But we’re already in a place where
Shell, ExxonMobil, Total and BP are all facing litigation.”
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Donald Pols, director of Milieudefensie, centre, says he hopes the
Shell case will have a ‘ripple effect’ forcing other companies to
examine their environmental practices.
© Peter Dejong/AP
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She adds: “It took three decades to turn tobacco litigation into a
transformative moment, when plaintiffs began winning cases. With climate
litigation we have covered the same ground in a decade. Now plaintiffs are not
going to limit themselves to the carbon majors.”
Oil companies are
already being forced by investors, regulators and the public to make greater
disclosures about their environmental footprints. And at the same time they are
being confronted by better climate science and more granular data on emissions,
helped by
new technologies.
Nigel Brook, a London-based lawyer at Clyde & Co who leads
the firm’s climate change risk business, says it is inevitable that there will
be more legal cases and more victories for those who bring them. “What is known
and knowable is changing so fast,” he says. “The duty of care obligation for top
managers will only grow. This is real, this is happening and will only grow
significantly over the next decade.”
Pension funds and asset
managers are particularly in focus for campaigners. One of Australia’s largest
pension funds late last year agreed to
settle a climate risk case
brought by 23-year-old Mark McVeigh in 2018.
He alleged that the
Retail Employees Superannuation Trust was failing to protect his retirement
savings against climate change. As part of the settlement the pension fund
agreed to incorporate climate change financial risks in its investments.
David Barnden, at Equity Generation Lawyers which represented Mr
McVeigh, says the impact of the case will be far reaching. “This is the first
time that a pension fund has been taken to task in this way,” says Mr Barnden.
“In the future, we may see trustees and asset owners go after individual pension
fund managers.”
Mark Clarke, a partner in legal firm White &
Case’s dispute resolution department who works on oil and gas lawsuits, says the
Shell case could provide a turning point that stretches well beyond the energy
sector if it establishes that a corporation has a duty of care.
“Clearly that will have ramifications and will likely encourage
similar claims against other corporations,” he says. “Climate change litigation
is absolutely on the rise there is no doubt about that.”
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