Milieudefensie accused the management of Shell in a letter this week that the energy group did not comply with the judgment of the Hague court. Last year, the climate activist organization demanded that Shell cut its greenhouse gas emissions by 45 percent by 2030 in order to comply with the Paris Climate Agreement (2015). In May the court ruled in favor of Milieudefensie.
In a response to the letter, Shell points out that the court ruling has led to an acceleration of the strategy to reduce emissions. It claims to be taking the lead in the energy transition. The judge also leaves the way in which Shell implements the judgment free. In short, the company says that it is doing what the judge has asked.
“Well, that’s not exactly what Shell says,” corrects environmental lawyer Tim Bleeker, who obtained his doctorate last year on research into ‘environmental liability’ of executives. “They formulated it cleverly. Shell says our activities are in line with the Paris goals. They deliberately do not say: we comply with the verdict, because they also know that we do not.”
That verdict is very clear, according to Bleeker. According to the court, Shell must reduce CO by 45 percent2 emissions in 2030 for everything involved in the production of oil and gas and its processing – in economic terms: scope 1 and 2. Shell also has a serious best efforts obligation to reduce by 45 percent for products such as gasoline, which fall under scope 3.”
spark discussion
Shell itself sees sufficient scope for oil and gas extraction within the Paris targets. For example, if the world stops using coal more quickly and eventually more CO2 is stored underground. Shell will invest more in renewable resources, but has hardly any plans to reduce oil and gas production.
Bleeker: “Whether that is compatible with Paris can lead to an interesting substantive discussion, but the verdict is not about that. That simply says: 45 percent less in 2030. Perhaps a next judge will sweep that verdict off the table. But at the moment, that 45 percent is what Shell must do for scope 3 as well.”
If Shell does not do this, Milieudefensie writes, it is possible to hold not only the company itself (in legal terms the legal person) accountable, but also members of the Shell board. Is that partly intended to frighten the board?
“Yes, I think so,” says Bleeker. “Until now, the company has been approached as an abstraction, through the legal entity. This letter is sure to spark a discussion. Lawyers will give their views. There is a social debate about it. Does the board itself also have an obligation? How hard is it?”
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move on
These are exactly the questions Bleeker asked himself in his PhD research. He investigated the conditions under which a director can be held personally liable for an environmental violation by a company. “The standard is now: we send the fine or penalty payment to the legal person. But it can also have added value to hold a managerial officer liable.”
In corporate law, based on neoliberal ideas, the question has long been: how does a company add as much value as possible? Entrepreneurial freedom was of paramount importance. “For example, there has been a tendency to transfer all responsibility to the legal person and to only hold a manager liable in exceptional cases. That’s a misconception. There are also direct, personal obligations within a company.”
Apart from legal liability, Bleeker sees a shift towards more personal responsibility for company directors. “There is increasing pressure on entrepreneurs to stop focusing solely on profit maximization. They also more often have other obligations to society. This can be about inclusiveness policy, about addressing inequalities of opportunity, or about the sustainability of the products that a company makes.”
But that development fell outside Bleeker’s research, which is much more about how an entrepreneur uses his policy freedom. “You could say that my research starts where the freedom of policy ends: with the legal obligations. What I’m saying is: a driver must abide by the law. That is not so groundbreaking, but due to a combination of misunderstandings, directors’ liability is treated very cautiously.”
legal inequality
After four years of research, Bleeker comes to the conclusion that there is often no good legal basis for this. “The exceptional position granted to directors creates legal inequality. And it can also turn out to be very undesirable. In this way, responsibility evaporates, and the victims are left with the damage.”
Bleeker therefore concludes that holding directors personally liable is possible and desirable more often than previously thought. “The legislator has deliberately made those with an influence on environmentally relevant activities within a company jointly responsible for compliance with the rules that apply to them. In a constitutional state, those personal obligations are meaningless if you can violate them without legal consequences.”
But isn’t too much personal liability at the expense of business operations? Do entrepreneurs still dare to do business for fear of persecution? “Not everything is acceptable for profit maximization,” says Bleeker. “A taxi company can transport more people if the drivers are instructed to run a red light from now on. But even if that turns out to be lucrative for the company, as a board you are not allowed to make policy that leads to violations of the law. First you have to comply with the law, then you have business space.”
This also applies in environmental law, for example in compliance with permit conditions. “Establishing a legal person does not mean that you suddenly can do everything as a director without personal consequences,” says Bleeker. “And if that would lead to a little extra caution, to take out extra insurance or to seek expert advice more often, is that really so undesirable? We don’t want a director to lightly push the limits when it comes to the environmental or climate impact of the company, do we?”
A version of this article also appeared in the newspaper of April 30, 2022