Dutch Court Points The Way
7 June 2021
Berry, NSW. Australia
On Wednesday, 26 May 2021, a court in The Hague ordered multinational oil company, Royal Dutch Shell (Shell), to cut carbon emissions by 45% by 2030. The court held that business enterprises must respect human rights, and this includes providing protection against dangerous climate change.
The clock is running out on mankind’s ability to reverse global warming. The Dutch court recognized the exigency of the situation and acted accordingly on behalf of the Dutch people. Its decision came in the nick of time and couldn’t be more welcome. If it were applicable to all the world’s big fossil fuel producers, it would significantly alleviate the threat of global warming and climate change.
The Dutch government and governments around the world should now enact laws that reflect the court’s decision. The new laws should require all fossil fuel producers, including Shell (regardless of the outcome of the appeal it says it will bring), to reduce emissions along the lines prescribed by the court.
The decision holds that Shell has both an “obligation of results” to reduce its own emissions and a “best efforts obligation” to reduce the emissions of its suppliers, customers and downstream users of its products. The court leaves it up to Shell as to how total emissions will be reduced by 2030. It recognizes these obligations may require Shell to “forgo new investments in the extraction of fossil fuels and/or … limit its production of fossil resources.”
“The reduction obligation requires a change of policy, which will require an adjustment of the Shell group’s energy package... This could curb the potential growth of the Shell group. However, the interest served with the reduction obligation outweighs the Shell group’s commercial interests, which for their part are served with an uncurtailed preservation or even growth of these activities. Due to the serious threats and risks to the human rights of Dutch residents …private companies such as [Shell] may…be required to take drastic measures and make financial sacrifices to limit CO2 emissions to prevent dangerous climate change.” (Decision paragraph 4.4.54)
Legislatures should follow the court’s road map. First, they should impose an “obligation of results” on all companies prohibiting them from causing severe harm the environment. Second, they should pass environmental legislation specifically requiring that large oil, gas and coal companies reduce emissions by 45% within ten years.
A former corporate lawyer, I’ve been an advocate for imposing an “obligation of results” on companies for more than 20 years. Citizenship is the glue that holds liberal democracy together. It needs to come with obligations to preserve the public interest as well as rights to pursue self-interest. Unfortunately, the corporate laws of the world now encourage rights and discourage obligations.
There needs to be more balance. Company directors should never be encouraged (as they are under current law) to continue destroying the public interest in the pursuit of profit and the protection of assets. This encouragement should be eliminated.
As regards the environment, balance between corporate rights and obligations can be achieved by adding 8 simple words to the existing duty of directors “to act in the best interests of the corporation.” Those eight words are: “but not at the expense of the environment.” This addition will encourage corporate directors to protect the environment in the pursuit of the company’s interests. It will lift their game.
Legislatures should fill in the details of the new obligation not to harm the environment with new laws that specifically require large producers to rapidly decrease their greenhouse gas emissions over the next decade. To ensure the goal will be met, the legislation should include provisions to monitor and regularly assess the progress being made towards achieving it.
The court’s decision is just common sense. Big oil companies should have a legal obligation to protect human rights, including the environment. Activists, socially responsible investors, responsible businesspeople and elected officials should now pick up on the Dutch court’s initiative and see that its good sense is enshrined in law everywhere.