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Shell Victory Not the End of the Road

Dutch court reiterated oil and gas major’s legal obligation to meet net zero, but short-term progress requires investor pressure. 

A decision by The Hague Court of Appeal to overturn a ruling requiring Shell to almost halve its carbon emissions by 2030 has allowed the firm to delay decarbonisation in the short term.  

But the oil and gas major’s delay tactics do not mean the firm can completely evade its legal responsibility to mitigate negative climate impacts. And investors may be able to utilise their influence via engagement and voting to counteract legal action.  

A landmark 2021 ruling by a Dutch court ordered Shell to reduce its greenhouse gas emissions across global operations by 45% by the end of the decade from 2019 levels. Earlier this month, the Court of Appeal dismissed the 2021 ruling, saying there was insufficient agreement in climate science on a specific reduction percentage that carbon-intensive companies should adhere to. 

“Our concern is that this could lend credence to Shell’s poor performance on emission reductions,” Maeve O’Connor, Oil, Gas and Mining Analyst at think tank Carbon Tracker, told ESG Investor.   

“Investors with decarbonisation targets or mandates to take climate into account will need to consider whether it is still appropriate to hold Shell in their portfolio.” 

The court clarified that carbon-intensive companies have a legal obligation to citizens under Dutch law to limit emissions – based on the human right to protection against dangerous climate change. This includes Scope 3 emission reductions, countering Shell’s argument that it is not responsible for the emissions from products it sells. 

Shell welcomed the decision, calling for “smart policies” from governments to reduce customer demand for fossil fuels. 

Tim Smith, Senior Policy Advisor at the Interfaith Center on Corporate Responsibility (ICCR), said it falls under investors’ fiduciary duty to challenge companies that are choosing to “block forward-looking climate policies or not address climate-related risks to their business”. 

Business as usual 

Shell’s successful appeal is the latest in a string of actions demonstrating climate-related backsliding by the firm 

Milieudefensie, the Dutch arm of Friends of the Earth responsible for the 2021 legal case, has accused Shell of failing to comply with the original ruling, which expressly stated the firm should begin to act on the judgement – irrespective of any appeal. The NGO pointed to Shell’s plans to develop hundreds of new oil and gas fields. 

Earlier this year, Shell’s 2024 energy transition strategy watered down its decarbonisation commitments – lowering its emissions reduction target from 20% to 15-20% by 2030 and scrapping its 45% emissions reduction by 2035 commitment. 

According to Carbon Tracker analysis, Shell is the second worst performer among European oil and gas majors when it comes to the scope and scale of its emissions targets. 

In addition, InfluenceMap research shows that Shell continues to advocate for a role for fossil fuels in the world’s future energy mix, despite its net zero commitments.  

“Shell remains a member of many industry associations that lobby obstructively on climate policy and appear to be set on safeguarding a business-as-usual approach to energy policy,” said Tom Holen, Programme Manager for the Energy Transition at InfluenceMap. 

Delaying tactics

With court cases often taking years to resolve, litigation is a popular tactic deployed by oil and gas firms to delay the energy transition, according to Holen.  

“Investors should expect oil and gas firms to continue to use all the tools available to delay and weaken climate policy and should be prepared to use their power to speak up against it and demand transition plans that are aligned with 1.5ºC,” he said. 

This includes legal challenges against shareholders themselves.  

Earlier this year, ExxonMobil filed a lawsuit against investment manager Arjuna Capital and climate activist group Follow This in response to their shareholder proposal requesting medium-term decarbonisation targets. The Texas District Court dismissed Exxon’s lawsuit in June. 

“Legal challenges like this have allowed oil and gas companies to push back against the evolving climate agenda in a way that can delay or weaken shareholder action,” said Mark van Baal, Co-founder of Follow This. 

Paul Benson, Senior Lawyer at environmental law firm ClientEarth, said the Dutch ruling is “unlikely” to be the end of the road of the claim against Shell or of climate-focused legal action against the oil and gas industry in the longer term. 

Benson and other lawyers have also noted that the recent ruling allows scope for future cases against Shell using other legal arguments, particularly relating to new investments in oil and gas exploration. 

Shell is currently battling other legal action against ClientEarth in the UK and NGO Global Witness in the US. There are around 20 other legals cases similarly examining the human rights responsibilities of companies regarding climate change. 

Last line of defence 

In parallel, investors must now “use all their powers” to make sure carbon-intensive companies are committing to ambitious climate action, said Agathe Masson, Sustainable Investment Campaigner at French NGO Reclaim Finance. 

She encouraged investors to vote against directors’ re-elections and restrict new investments in firms that continue to be misaligned with the goals of the Paris Agreement. 

“Shareholders are the last line of defence and must be supported in changing big oil from within,” said Rosa High, a member of the Fundraising and Legal team at Follow This. “Companies will only change if shareholders intervene.”

The post Shell Victory Not the End of the Road appeared first on ESG Investor.

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