Picking through the investor briefing now. A few choice points:
This judgment serves as a stark warning–apart from the reputational and strategic risks,there is litigation risk for companies (and follow-on stranded asset/re-valuation risk for investors) that do not adjust their strategies and policies to align with a net zero by 2050 pathway.Even more litigation will be brought using similar arguments to this case, or in respect of greenwashing if company claims are misleading about their compatibility with a net zero future.
Markets and regulators are increasingly waking up to climate risks from a purely financial/fiduciary perspective - see also NZ's plans for climate declarations, for instance. The risk of big lawsuits like this, especially for countries based in the EU (and we'll see what kind of stance the UK and USA are taking towards businesses soon enough), is another source of that risk that will erode the attractiveness of investments in fossil fuels.
Ultimately, the Court found that Shell’s inadequate climate policy constituted a breach of its legal duty of care towards Dutch citizens. While Shell does not have a government’s direct human rights legal obligations, its human rights responsibilities shaped the court’s interpretation of the company’s duty of care. In particular, the court referred to the UN Guiding Principles on Business and Human Rights, a global standard consolidating existing international human rights law, which requires companies to identify, prevent, and address human rights impacts linked to their businesses.
According to the judgment, management of financial and business risks alone is not sufficient. As such, failure to act on the real-world environmental and social impacts of a company’s business, irrespective of the bottom line, increases litigation risk. If courts or governments in the Netherlands and elsewhere look to international business and human rights standards, this principle would require a significant shift of mentality in many boardrooms in their climate planning.
And not just climate planning. I can't help but notice that in this case it's the human rights of Dutch citizens being defended. But there are loads of huge businesses, doubtless including many Dutch ones, whose supply chain routinely and directly infringe the human rights of poorer, browner humans - mining, textiles, electronics, logging, even a lot of agriculture.
I absolutely welcome the consideration of businesses human rights abuses, and would love businesses to be expected, encouraged and cajoled not to infringe human rights across the world, and not only on trendy issues like climate change.
The Court was clear that Shell’s Board and ultimate parent company is responsible for setting climate policy across the whole group. As such, the court order extends to Shell’s entire business, in all of the jurisdictions in which it operates.
The Court order applies to all of Shell’s direct and indirect emissions throughout its value chain (the latter known as Scope 3emissions). The Court found that Shell controls and influences the Scope 3 emissions of end-users by the products that it sells. It is therefore responsible for these emissions, and can reduce them through changes to its business. The Court emphasised that scope 3emissionsarea particularly key consideration for companies that produce and sell fossil fuels, as it comprises the majority of their emissions.
So there we have it. Somebody is responsible, and it isn't individual consumers, who are mostly locked into systems beyond their control. And it isn't (exclusively) governments, of whom I could cynically say the same thing. If you produce something and sell it for a particular purpose, you have responsibility when the purchaser uses it as intended. No sh.t: the law is catching up with ethics.
The IEA confirmed in its Net Zero by 2050 report that there can be no new oil and gas fields approved for development and no new coalmines or mine extensions in a pathway to 1.5°C. Renewable energies will need to expand at an unprecedented pace to become the largest source of energy supply by 2050, while fossil fuel use sees a “huge decline”.
None. Zero. Presumably governments have already updated their policies on approving such developments, to align with the science they claim to be led by, and the commitments they've made under international law.
Under a 1.5°C pathway, many high emissions assets including coal and gas power plants must be retired early. Fossil fuel companies face an existential stranded asset risks under this pathway unless they fundamentally transform their energy offerings and align their business strategies to meet climate goals.
Really this is for their own good, long-term.
Companies should also consider how their auditing and financial accounts and the underlying assumptions need to change to reflect and disclose transition-related material risks to investors –including litigation risk.
Activist lawyers are badass.
The costs of delayed action are evident in the abrupt change Shell is now required to undertake. Other high-emitting businesses must consider why they are delaying change, including in light of the associated litigation risks. Action now would be considerably cheaper,and less disruptive to business, than being forced to do so in a short time frame by a court order, by rapid regulatory developments or due to delayed decision-making.
They've f.cked around long enough, and now they're finding out.
It would be easy to feel perhaps a twinge of sympathy for Shell, if they (inter alia) hadn't been fighting climate science and legislative responses to it for decades. They've known this risk existed for my whole lifetime, played dirty to delay the final whistle, and somehow still messed their sums up and the gamble hasn't paid off. Losers.
Additional risks now arise for Shell’s Directors, who must comply with the judgment and also discharge their duties of care to the company itself. This decision clearly shows that a failure to adequately manage the transition exposes Directors of all high emitting companies to personal liability risks. Properly discharging those duties means aligning business plans fully with Paris, and mitigating stranded asset and related losses.
I read this paragraph in a stereotypical Mafia accent, tbh.
The court made clear that, based on international consensus, rapid emissions reductions must happen by 2030 in order to reach net zero by 2050. However, the court left Shell some flexibility by setting a “net”target.This means that Shell will be able to use so-called ‘negative emissions’,carbon capture and storage (CCS) and/or carbon offsets, although the Court noted the scientific warnings over the risks in relying on large-scale negative emissions technologies and their deployment by 2030 is highly doubtful.
The carbon budget is dwindling rapidly.As time goes by, the room for companies to avoid adequate policy adoption and implementation will become progressively more restricted.
Really this is the key issue with CCS, and it's there in the judgement which is nice. Nothing against it in principle, but it isn't ready, and "nature-based solutions" are cheap, work at scale, and have positive externalities. It would be super dumb to put too many eggs in the CCS basket.
If Shell appeals the case all the way to the Supreme Court, a decision may not be issued for several years. Even if an appeal judgment is in Shell’s favour, Shell will have had to implement the target in the meantime, by which time it may be only a few years until 2030. In addition, there is also a risk that judgments from higher courts may confirm or strengthen the Hague District Court’s decision,as occurred in the landmark Urgenda litigation against the Dutch government,including in view of worsening climate change and narrowing carbon budgets.
Yeah, I'm not sure what Shell can think they're going to get out of the appeal - compensation because they had to adapt to the future economy too quickly? Their best option is surely to get their sh.t together in the meantime, and once they've started that work I can't imagine it'll be cheaper or desirable to backtrack in a few years.
TLDR here are the conclusions. Just soak this in:
This judgment is the first to require a company to reduce their emissions in line with the Paris Agreement and climate science.It has implications for the requirements of corporate and financial law, for example the fiduciary obligations of directors and asset managers.It makes clear that compliance with legislation and weak, hedged voluntary commitments cannot absolve a company of the risk of liability. Companies may be held responsible for scope 3 emissions across their value chain. As with the spread of climate litigation against governments following the Urgenda judgment, a similar growth globally in cases against companies is likely.The Hague District Court has set out reasoning and a framework for analysing the minimum standard of corporate climate responsibility,which can in principle be readily transferred to other jurisdictions and systems of law. To manage litigation risks, business risks and financial risks–if not simply as a matter of good business –-companies should act now to ensure that their businesses are aligned with a global pathway for net zero by 2050, incorporating meaningful short-term (5-10 year)targets and plans.
And you know ClientEarth are already poring over the documents looking for ways to bring cases against other polluters.
If you'd have told me 10 years ago that some of the biggest climate wins would come from lawyers, I'd have been most surprised. But now I'm delighted. Activist lawyers ftw.
He has the grace of a swan, the wisdom of an owl, and the eye of an eagle—ladies and gentlemen, this man is for the birds!