Piercing The Corporate Climate Veil

A landmark 2021 Dutch district court ruling ordered Shell to slash emissions by almost half by 2030. Now the oil and gas company is appealing the decision, claiming the emissions target is “just not feasible — or even reasonable,” and arguing that consumers who buy its products are actually the ones responsible for the climate disaster.

But Milieudefensie, the Dutch environmental organization that spearheaded the Shell lawsuit, is ready to fight back and is even optimistic about the outcome of the appeals process. This time, the environmentalists are contemplating a radical litigation tactic: holding Shell board members personally accountable for violating human rights by furthering the climate crisis.

Both Shell’s appeal and Milieudefensie’s planned response could prove pivotal in the battle to combat climate change, since both tacks aim to put a personal spin on corporate climate malfeasance. While the fossil fuel giant wants to pin the blame on its customers, climate defenders are taking aim at the corporate shield that protects the business executives behind these disastrous decision-making processes from liability.

“This is what we call piercing the corporate veil,” said Angelo Golia, senior research fellow at the Max Planck Institute for Comparative Public Law and International Law (MPIL). Golia, a lawyer, specializes in the interface between corporate actors, globalization, and the public. Usually, corporations are treated as separate legal persons with a set of rights, while shareholders and board members have limited liabilities.

In April, the Dutch organization sent a letter to Shell board members warning of their personal liabilities if they don’t obey the court orders and work to meet the emission targets outlined in the 2016 Paris Agreement on climate change.

In the letter, Milieudefensie said board members were “wilfully exposing Shell to potential damage claims” and that “there is a real risk that Shell’s directors could face personal liability in the future.”

Milieudefensie added that it “will send a copy of this letter and the accompanying Annexes to large investors, who have to be aware of the material and increasing risks associated with the lack of Paris-aligned action.”

Tom Sparks, a climate lawyer and senior research fellow at MPIL, said holding board members personally liable is a clear way to make sure climate activists’ legal tactics have a huge impact. “When it’s not just the companies but also their directors who are appearing in Courts, then the corporate world will have another reason to accelerate their transition,” said Sparks.

Blaming Emissions On Customers

In April 2019, Milieudefensie joined with Greenpeace Netherlands, ActionAid Netherlands, and more than 17,000 individuals to sue Shell for violating a “duty of care” it owes the general public under Dutch law. The plaintiffs said Shell’s plans to produce more fossil fuels are inconsistent with the Paris Agreement’s target of net-zero emissions by 2050, pose a threat to human lives, and are a violation of human rights.

Dutch civil law states that unlawful acts include “an act or omission in violation of what is societally accepted according to unwritten law.” The plaintiffs argue the law requires the company to act in a manner best suited to concerns of the general public. This so-called “duty of care” is also enshrined in the European Convention on Human Rights.

Citing “serious threats and risks to the human rights of Dutch residents,” the court wrote that private companies “may also be required to take drastic measures and make financial sacrifices to limit CO2 emissions to prevent dangerous climate change.”

Ultimately, the court held Shell responsible for not doing its fair share to tackle the climate crisis, ordering the company to cut emissions from its global operations by 45 percent by 2030, compared to 2019 levels.

The judgment is considered a landmark for a number of reasons, most prominently because it imposed Paris Agreement-aligned emission targets on Shell. A recent report by the nonprofit activist group Oil Change International (OCI) found that current climate pledges by Shell and other major oil and gas companies like BP, Chevron, and ExxonMobil are not in line with Paris Agreement targets.

“This is definitely also the most controversial aspect of the case, and what the appeal will likely address — can a non-binding target, set by a State in compliance with a treaty obligation, then be transformed into a legal obligation on a multinational company operating within that State’s territory without domestic legislation?” said Sparks. “The Hague District Court said yes, and that’s revolutionary.”

The court made another largely unprecedented move: As part of meeting this emissions target, it required Shell to factor in so-called “Scope 3” emissions that result from the end use of Shell’s oil and gas products.

Fossil fuel companies are usually required to report only their so-called Scope 1 and Scope 2 emissions, which are generated from processes like oil extraction and electricity use in factories, but most firms don’t have to track Scope 3 emissions, which come from the combustion of their products and account for about 75 percent of fossil fuel emissions.

“It has been the strategy of the oil and gas companies to blame their customers for the majority of their emissions for a very long time,” Nine de Pater, a campaign leader for Milieudefensie, told The Lever.

But critics say Shell should be held responsible for the end use of its products because of its work to create demand for its fossil fuels. The company recently reported record profits; if previous trends hold, the bonanza will be reinvested substantially more in oil and gas than low-carbon technologies.

Climate activists also say Shell’s argument that consumers should be blamed for using their product is undercut by the company’s lobbying efforts to feed demand and extend the life of its oil and gas operations, as well as its lobbying groups attempting to undermine greenhouse gas regulations.

“It is true that there is demand for oil and gas,” said Golia at MPIL. “But it’s also true that, as economic actors, [fossil fuel companies] lobby with governments for subsidies.” Golia added that “corporate capture,” or the ability of private companies to manipulate lawmaking and regulatory processes to benefit their bottom lines, also creates more demand for fossil fuels.

That’s why holding Shell responsible for Scope 3 emissions could be transformational, noted Pater. “A big company such as Shell, with a lot of money, power and a lot of influence on the energy market can make a huge difference. Shell is one of the biggest oil majors in the world and therefore also has a great responsibility towards the products they provide.”

A Changing Atmosphere

In response to questions by The Lever about its appeal of the Dutch court ruling, Shell spokesperson Tara Lemay said that while Shell wants to be part of the solution to help decarbonize society and provide lower-carbon energy, “the judgment is ineffective and even counterproductive to these efforts.”

Lemay added that the company finds aspects of the judgment unreasonable because it asks the company to reduce emissions further and faster than even the most progressive energy scenarios and policy pathways, such as the EU’s “Fit for 55” policy package and the International Energy Agency’s (IEA) Net Zero Emissions scenario.

David Tong, a campaign manager at OCI, however, doesn’t buy Shell’s arguments that it’s trying to decarbonize. He said that if the company was taking green transition plans even “remotely seriously,” it would immediately stop searching for more oil and gas. Instead, Tong said that OCI research found that new projects planned by Shell between 2022 and 2025 could produce more than 1,000 megatons of carbon pollution — equal to the lifetime emissions of 10 new coal power plants.

Tong’s argument is supported by internal documents that Shell recently handed over to congressional investigators. These intra-company communications emphasize that achieving net-zero emissions is “not a Shell business plan” and has “nothing to do with our business plans.” Additionally, the documents call on employees to emphasize that net-zero emissions is “a collective ambition for the world” rather than a “Shell goal or target,” and urge workers to “not give the impression that Shell is willing to reduce carbon dioxide emissions to levels that do not make business sense.”

Lemay separately argued that if Shell stopped selling petroleum, the move would “shrink Shell’s customer base,” but it would not result in people buying less oil and gas.

Calling this “the drug dealer defense,” Pater at Milieudefensie countered that just because other companies are selling dangerous fossil fuels doesn’t make it acceptable for Shell to do so.

Pater said Shell’s appeal of the verdict and arguments for doing so reveal its true intentions: to continue to avoid taking meaningful action to cut its emissions, and push ahead with business as usual.

“They will continue to cause dangerous climate change and threaten human lives,” said Pater. “In the end, Shell has to reduce its emissions. And that is not happening right now.”

That’s why Milieudefensie is now going after the individuals behind the corporation’s decision-making. In its April letter to Shell board members, the organization called on the company’s CEO, Ben Van Beurden, “to voluntarily and immediately change its course” in line with the judgment of the district court.

As Pater noted, the move “fits into our bigger philosophy of polluters paying, even when they are persons.”

Milieudefensie plans to submit its arguments against Shell’s appeal of Dutch court decision by mid-October. In the meantime, the organization’s targeting of company board members is already bearing fruit.

At Shell’s annual general meeting in May, the Dutch case was mentioned by several shareholders. That same month, a London-based hedge fund manager with $70 million invested in Shell called on the oil giant to drop its appeal to slash emissions and instead ask for the ruling to be made applicable to the industry in general, in order “to create a level playing field.”

As Pater at Milieudefensie noted, the atmosphere has “definitely changed.”

Editor’s Note: This story was developed as part of a journalism residency program at Max Planck Institute for Comparative Public Law and International Law in Heidelberg, Germany