ESG issues, particularly decarbonisation and net zero targets, are already high up on board agendas. A recent landmark decision of the Dutch courts in a claim against Royal Dutch Shell has highlighted the risk of corporate climate change litigation. Do large emitters in the UK have cause for concern?

The Shell decision

In May, the District Court of The Hague ordered Royal Dutch Shell (RDS) to reduce the CO2 emissions of the entire Shell group by 45% by 2030, compared to 2019 levels. The Dutch court's decision marks the first time a court anywhere in the world has ordered a company to cut its CO2 emissions. RDS is going to appeal and, if the decision is upheld, it will have major consequences in both the Netherlands and internationally. Even if the decision does not survive an appeal, success to date will likely embolden environmental campaigners.

The Dutch court concluded that RDS's responsibility to reduce CO2 omissions arises from a standard of care set out in Dutch law's general tort statute, in particular a section providing protection against acts or omissions which breach a rule of unwritten law relating to proper social conduct. The court decided that, in interpreting this standard of care, it could look to "soft law" instruments endorsing corporate responsibility to respect human rights, such as the UN Guiding Principles on Business and Human Rights. These instruments were said to reflect what is now generally accepted as the required standard of corporate responsibility.

A precedent for the UK?

The key question for large emitters in the UK is whether a similar conclusion is likely to be reached by our courts?

The Dutch court's decision turns on a particular rule of Dutch law which is not replicated in English or Scots law. However, both English and Scots law impose a general duty of care, in certain situations, to avoid acts or omissions which cause foreseeable harm to others. Breach of this duty may entitle a claimant to an order requiring particular activities to cease, or payment of damages for harm caused. The courts also have the power to order performance of a specified act. That could, at least in theory, be the route to an order similar to the one made against RDS.

Based on our current legal framework, a significant degree of judicial innovation will be required for such a claim to succeed. A key battleground will be the need to show that the activities of a particular organisation will cause, or at least materially contribute to, a harmful situation. This is challenging when the number of CO2 emitters, both current and historic, are endlessly high. The Dutch court took a flexible approach to this question, stating that RDS had an "individual partial responsibility to contribute to the fight against climate change according to its ability".

Until we see the outcome of the RDS appeal and how other courts interpret the decision, we expect that the more established routes to climate change challenges will continue to prove attractive to activists. These include:

• Challenges by way of judicial review to approvals of major infrastructure and other carbon-intensive projects. Such challenges often lead to delay, disruption and public debate, even where the claimants are ultimately unsuccessful in the court case. A notable example is the Supreme Court's recent reversal of the Court of Appeal's decision that the intended expansion of Heathrow Airport was unlawful on climate change grounds.
• Allegations of "greenwashing", in the form of advertising complaints against companies that misstate the environmental benefits of their products or services.
• Investor action: on the same day as the Dutch court issued its decision against RDS, Chevron Corporation's shareholders voted in favour of a resolution to cut emissions, and a small activist hedge fund was successful in having two of its members elected to Exxon Mobil Corporation's board. Investors are also turning to court action in claims relating to corporate disclosure and reporting obligations, alleging failures to disclose material climate change risks to a company's activities.

Whatever the outcome of the RDS appeal, the court's analysis in the case and the encouragement it may give to others to pursue similar challenges present a rapidly evolving risk that should be a standing item on all corporate agendas.

Parent company liability

The Dutch case against RDS is one of an increasing number of attempts, in recent years, to impose liability on parent companies for the actions of their subsidiaries around the world. RDS's responsibility for the emissions of its subsidiaries, and also its supply partners, arose from the court's finding that RDS establishes the general policy for the Shell group, including on climate change issues.

The UK courts have similarly been willing to accept that there are circumstances in which a parent company owes a duty of care in respect of a subsidiary, as a result of its group-wide policies (see the Supreme Court's decisions in Okpabi v. Royal Dutch Shell Plc earlier this year and Lungowe v. Vedanta Resources plc in 2019).

Therefore, it should be expected that proceedings relating to ESG issues abroad, including emissions- related claims, will be brought in the UK against UK- headquartered multinationals. The UK may prove to be an attractive forum in which to litigate as a result of our commitments under the Paris Agreement and to achieve net zero by 2050 (or by 2045 in Scotland). These commitments may create an environment in which our courts are willing to sanction private entities whose operations may compromise the ability to meet them. For UK-headquartered multinationals, this reaffirms the need for care in devising and implementing effective group-wide policies.