In May 2021, Royal Dutch Shell (RDS) was ordered by the Hague District Court to reduce the emissions of its entire group by 45 percent by 2030.1 The decision, Milieudefensie v. Royal Dutch Shell, shocked many onlookers, not only fossil fuel–intensive corporations, but also many of those who watch closely and write about corporate climate liability. While the decision may be overturned on appeal, or its influence confined to European jurisdictions, it is still, for many, a startling result.
September 29, 2021 Feature
The Escalating Risks of Climate Litigation for Corporations
By Dr. Lisa Benjamin and Dr. Sara Seck
This judgment comes as less of a surprise, however, to those who have taken seriously the need to understand the relationship between human rights and climate change and the implications of the social expectation that all business enterprises have an independent responsibility to respect human rights irrespective of state conduct.2 Without doubt, the Milieudefensie decision is clear evidence of the growing trend of climate litigation against corporations and raises the increasing possibility of climate liability for these entities.
“Attribution Science”
One of the many reasons it is so difficult to attach liability for climate impacts to nonstate actors, particularly through tort claims, is the issue of causation. While “attribution science” (an evolving area of climate research) has developed quickly, it is still difficult, if not impossible, to attribute a particular event to a particular emitter or emission.3 Greenhouse gas emissions (GHGs) diffuse all over the world and are long-lived, so effects felt today are likely due to emissions made many decades ago.
Certain extreme weather events are easier to attribute to climate change than others. Confidence in attribution studies is strongest where there exist long historical records of observations that can be simulated adequately by climate models. These tend to be purely meteorological events, which are not strongly influenced by issues such as infrastructure and population trends, or in circumstances where other, often unpredictable, factors can be carefully and reliably considered. Attribution studies on extreme events related to aspects of temperature, such as extreme heat or cold events and heavy rainfall, are often more robust.
Attribution to Corporations
One of the often-cited studies attributing GHG emissions to corporations is Richard Heede’s 2014 “carbon majors” study. In it, Heede examined the historical records of ninety fossil fuel and cement producers (or carbon majors) that were investor-owned, state-owned, and nation-state producers of oil, natural gas, coal, and cement. His study concluded that these ninety carbon-major entities were responsible for 63 percent of cumulative worldwide industrial emissions of carbon dioxide (CO2) and methane from 1854–2010.4 Investor-owned entities contributed the majority of these emissions (315 gigatonnes), followed closely by nation-states and state-owned fossil fuel– and cement-producing entities.5
Heede’s study has been cited in numerous climate litigation cases against major carbon emitters, including Milieudefensie. In that case, the Dutch court also relied on Intergovernmental Panel on Climate Change reports6 to illustrate the urgency of near-term climate reductions, as well as Heede’s paper, which attributed 1.8 percent of all CO2 emissions to RDS (compared to 0.5 percent attributed to the Dutch state). Interestingly, the court’s decision ordered the parent company to reduce emissions across its entire corporate group, and to reduce its Scope 1, 2, and 3 emissions. Scope 1 emissions are those limited to those produced by the entity; Scope 2 emissions are those attributed to the suppliers of the entity; and Scope 3 emissions are attributed to the use and consumption of the products and services of the entity.
While the court acknowledged that RDS had limited control over Scope 3 emissions, it found that it did have some control and influence over Scope 3 emissions of end users as a result of the products it put on the market. This conclusion accords with the approach taken by RDS in its Responsible Investment Annual Briefing from 2020, which included Scope 1, 2, and 3 emissions in its discussion of “Shells’ Net Carbon Footprint,” stating that although “Shell only controls its own emissions,” in order to “support society in achieving the Paris Agreement goals,” Shell “aim[s] to help and influence” its “suppliers and consumers” so that they may “likewise lower their emissions.”7 The inclusion of Scope 3 emissions within the responsibility of RDS also aligns, according to the court, with the conclusions of a 2020 University of Oxford report that examines diverse climate change guidelines for business.8
Jurisdiction-Specific and Human Rights Arguments
To arrive at this result, the court interpreted the unwritten standard of care in the Dutch Civil Code in light of human rights to life and to respect for private and family life enshrined in both the European Convention for the Protection of Fundamental Freedoms (ECHR) and the International Covenant on Civil and Political Rights (ICCPR).9 Drawing upon various sources of international human rights law, the Dutch court concluded that the “serious and irreversible consequences of dangerous climate change” “pose a threat to the human rights of Dutch residents.”10 As international human rights law could not be directly invoked against RDS, the court turned to the 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs),11 supplemented by the OECD Guidelines for Multinational Enterprises, to interpret the responsibilities of business—and so the adequacy of RDS’s climate policy—under the unwritten standard of care.12
The court described the UNGPs as an “authoritative and internationally endorsed ‘soft law’ instrument” that provided a suitable guideline for the interpretation of the standard of care, irrespective of whether or not RDS had itself committed to the UNGPs (although, in fact, RDS did so on its website).13 Crucially, the UNGPs distinguish between the duties of states and the responsibilities of businesses, and clarify that the business responsibility exists independently of the ability or willingness of the state to meet its own human rights obligations.14 Under the UNGPs, business enterprises are expected to avoid “causing or contributing to adverse human rights impacts through their own activities and address such impacts when they occur” and to “seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.”15 The court interpreted this as applying to a company’s entire value chain, from closely affiliated companies of RDS to the businesses from which it purchases raw materials and energy and the end users of its products. Consequently, the responsibility to respect human rights extends also to Scope 3 CO2 emissions.16 However, while the expectation of RDS with regard to its group of companies was treated as an obligation of result equal to its own given its control and influence over the group, the expectation with regard to those in business relations with RDS, including end users, was treated as a “significant best-efforts obligation, which is not removed or reduced by the individual responsibility of the business relations, including the end users, for their own CO2 emissions.”17
The decision is being appealed, but, irrespective of the outcome of the appeal, it is anticipated to inspire similar litigation in other jurisdictions. While the court relies on the human rights in the ECHR, it also relies upon the almost universally ratified ICCPR, including the right to life, potentially extending its influence outside the European context. The court describes the UNGPs as having “universally endorsed content,” and indeed the business responsibility to respect rights was embedded in the human rights chapter of the OECD Guidelines for Multinational Enterprises in its 2011 revision.18 There are currently fifty adhering states to the OECD MNE Guidelines, including thirty-eight OECD and twelve non-OECD member states,19 and the Dutch court specifically relied upon the environment chapter of the OECD MNE Guidelines to confirm the universal expectation that companies respect human rights, while at the same time drawing upon the OECD’s articulation of the precautionary principle to bridge this expectation to the climate context.20 It remains to be seen whether similar litigation efforts will be attempted, or at a minimum whether this might inspire interest in raising climate concerns through OECD National Contact Points.21
The State of U.S. Climate Litigation
While the Dutch decision may have some jurisdictional limitations, it is still an important decision. In the United States, there has been less movement on climate litigation, as many existing suits are still stuck in the jurisdictional phase. For example, the Baltimore case was recently remanded by the Supreme Court back to the Fourth Circuit, siding with energy companies on specific federal officer removal and Civil Rights Act exceptions.22 The Supreme Court, in May 2021, determined that the 4th Circuit Court of Appeals had not properly analyzed whether the case could be heard in federal court, but the decision does not automatically mean the case will be removed to federal court. The Supreme Court left that specific jurisdictional issue to the lower courts.
Energy companies have been fighting to keep or remove a series of climate litigation cases to federal courts, on the basis that energy production is an inherently federal issue. This would benefit the companies as these cases are likely to be dismissed on federal displacement grounds in federal courts.23 But the cases just keep coming. And the diversity of claims continues to increase. In June 2021, Massachusetts’ claim against ExxonMobil for shareholder and consumer deception was allowed to proceed in Massachusetts state courts.24 Massachusetts is claiming that ExxonMobil downplayed the risks of climate change to its assets, to maintain an inflated stock price.
The same month, ExxonMobil faced a unique and surprisingly successful strategy by activist hedge fund Engine No. 1. Shareholders accepted several of the hedge fund’s nominees to Exxon’s board. Engine No. 1 has also urged the company to reduce its emissions to net-zero by 2050 and challenged its lack of action around climate risk. Chevron also faced a similar strategy, pursued through a nonbinding shareholder proposal. Even in the absence of litigation, major companies are facing increasing investor pressure to disclose the risks of climate change to their business and make difficult business decisions around emissions reductions. A complaint was filed by nongovernmental organizations against Chevron at the Federal Trade Commission earlier this year, claiming that Chevron’s advertisements were deceptive and overstated its commitments to renewable energy and reducing emissions.25
At the same time, the SEC has decided to enforce its 2010 guidance on climate-related risk disclosure and is considering issuing regulations mandating public issuers disclose the risks of climate change to its businesses.26 Whether or not a new rule is issued, the SEC is likely to more robustly enforce its 2010 guidance and therefore police climate-related financial disclosures more closely.
Even in the absence of successful litigation strategies, U.S.-based companies are facing increasing pressure internally by investors, and externally by regulators, to take more ambitious action on climate change. These challenges are unlikely to abate anytime soon. The impacts of climate change are escalating in frequency and severity. The World Weather Attribution Network recently released a study finding that the western heatwave of June 2021 would have been “virtually impossible without human-caused climate change.”27 As these impacts increase, so will the pressure on corporations to take more robust action on climate change. Corporations will face new and increasingly diversified litigation efforts around climate liability. These efforts will include human-rights-based claims. The New York City Bar Association’s recent statement, issued in May 2021, on the application of the business responsibility to respect human rights has, as a central theme, the tipping points we have already reached in the global environmental crisis.28 Legal and financial advisors may incur liability as a result of their failure to warn their clients of the risks of fossil fuel–intensive activities.29 Law students in the United States have already developed a “score card” of law firms actively fighting the climate crisis and those actively working for clients that are exacerbating the crisis.30 Corporations, and their legal advisors, should be on notice. We are all climate lawyers now.31
Endnotes
1. Milieudefensie v Royal Dutch Shell, C/09/571932 /HA ZA 19-379, Hague Dist. Ct., 26 May 2021, ECLI:NL:RBDHA?2021:5339 (Neth).
2. Sara L Seck & Michael Slattery, Business, Human Rights and the IBA Climate Justice Report, 34 J. of Energy & Nat. Res. L., 34:1, 75 (2021), DOI:10.1080/02646811.2016.1120044; Sara L. Seck, A Relational Analysis of Enterprise Obligations and Carbon Majors for Climate Justice, 11 Oñati Socio-Legal Series 254 (2020).
3. Attribution of Extreme Weather Events in the Context of Climate Change, Nat’l Acad. of Sci. (2016), https://www.nap.edu/catalog/21852/attribution-of-extreme-weather-events-in-the-context-of-climate-change.
4. Richard Heede, Tracing Anthropogenic Carbon Dioxide and Methane Emissions to Fossil Fuel and Cement Producers, 1854–2010, Climatic Change 229, 234 (2013).
5. Id.
6. Milieudefensie, paras. 2.3.5–2.3.5.4, 2.4.4, 4.4.6, 4.4.26–4.4.34.
7. Id., para. 2.5.20. See Mapping of Current Practices around Net Zero Targets (May 2020), https://netzeroclimate.org/wp-content/uploads/2020/12/Net-Zero-Target-Map.pdf
8. Milieudefensie, para. 4.4.18
9. Id. para. 4.4.9. See European Convention on Human Rights (ECHR), arts. 2 & 8, https://www.echr.coe.int/documents/convention_eng.pdf; International Covenant on Civil and Political Rights (ICCPR), arts. 6 & 17, https://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx.
10. Milieudefensie, para. 4.4.10. The human rights impacts on current and future generations living in the Wadden Sea area of the Netherlands were also noted.
11. “Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises,” Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, (UNGPs), U.N. doc. A/HRC/17/31 (Mar. 21, 2011), http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf.
12. Milieudefensie, para 4.4.11.
13. Id.
14. Id., paras. 4.4.12–4.4.13.
15. Id., para. 4.4.17 (citing UNGPs Principle 13).
16. Id., para. 4.4.18.
17. Id., paras. 4.4.23–4.4.24.
18. OECD, OECD Guidelines for Multinational Enterprises (2011), http://www.oecd.org/daf/inv/mne/48004323.pdf.
19. OECD Declaration and Decisions on International Investment and Multinational Enterprises, https://www.oecd.org/daf/inv/mne/oecddeclarationanddecisions.htm.
20. Milieudefensie, para. 4.4.14.
21. Sara L. Seck, Climate Change, Corporate Social Responsibility, and the Extractive Industries, 31 J. Env’t L. & Prac. 271 (2018); see, e.g., specific instance brought against ING, http://mneguidelines.oecd.org/database/instances/nl0029.htm
22. BP p.l.c. v. Mayor of Baltimore 141 S. Ct. 1532 (2021).
23. Lisa Benjamin, The Road to Paris Runs Through Delaware: Climate Litigation and Directors’ Duties, 2020 Utah L. Rev. 313.
24. Jonathan Stempel, Exxon Must Face Massachusetts Lawsuit Alleging Climate Change Deceit, Reuters (June 23, 2021), https://www.reuters.com/business/exxon-must-face-massachusetts-lawsuit-alleging-climate-change-deceit-2021-06-23.
25. Ryan Schleeter, Greenpeace Jointly Files FTC Complaint Against Chevron, Greenpeace (Mar. 16, 2021), https://www.sec.gov/news/public-statement/lee-climate-change-disclosures.
26. Press Release, Allison Herren Lee, Acting Chair, U.S. Sec. & Exch. Comm’n, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021), https://www.sec.gov/news/public-statement/lee-climate-change-disclosures.
27. Western North American Extreme Heat Virtually Impossible Without Human-Caused Climate Change, World Weather Attribution Network (July 7, 2021), https://www.worldweatherattribution.org/western-north-american-extreme-heat-virtually-impossible-without-human-caused-climate-change.
28. Bus. & Hum. Rts. Working Grp., N.Y.C. B. Ass’n, Statement on the Application of the Business Responsibility to Respect Human Rights to Environmental Human Rights Abuses (May 2021).
29. Victor Flatt, Disclosing the Danger: State Attorney Ethics Rules Meet Climate Change, 2020 Utah L. Rev. 569.
30. The Law Firm Climate Change Scorecard, Law Students for Climate Accountability (July 15, 2021), https://www.ls4ca.org.
31. Hana Vizcarra, Climate Change Is Changing the Practice of Law, Env’t & Energy L. Prog. (July 30, 2020), https://eelp.law.harvard.edu/2020/07/climate-change-is-changing-the-practice-of-law-beyond-environmental-law.