Dutch court issues warning to companies with global implications for directors

Overnight a Dutch court has ordered that Royal Dutch Shell cut its greenhouse gas emissions by 45% by 2030, requiring that companies carry some of the burden in fighting climate change.

The Paris Agreement places obligations on state signatories to achieve reductions in greenhouse gas emissions by 2050. Traditionally, countries have been responsible for their obligations under treaties and may only pass on their obligations to companies and other parties via specific legislation or regulations. However, the decision means companies may also have a more active role in complying with international obligations.

Judge Alwin stated in her ruling that “companies have an independent responsibility, aside from what states do” and that it is the shared burden of companies to help states achieve their international environmental obligations. As domestic and international policies shift on climate change and the responsibilities of polluters, this decision will likely have growing relevance to directors and the companies they manage.

How will directors’ duties be affected by the decision?

The decision in the Netherlands marks a watershed moment by placing the blame for climate change and the associated solutions on corporations. Directors will need to take heed that corporate inaction on climate change is not going to fly as we make the journey towards 2050.

Relevantly, directors across the Pacific and in Australia have a duty to act in a way that a director believes is in the best interests of the company. While in Fiji, directors are under a further obligation to promote the success of the company. This statutory duty lacks additional guidance in Fiji, but principles espoused from the United Kingdom provide that success is usually defined by having regard to a long-term increase in value. It will be unlikely for companies to achieve long term increases in value if their operations do not comply with emerging international standards or businesses are hampered by avoidable climate litigation.

Together, these duties place positive obligations on directors to do more than just attend meetings and vote on corporate actions. Directors are required to consider issues that their companies face, and act as leaders by exercising good management and judgment to put their company first (i.e. act in the best interests of the company). By ignoring the realities of climate change or failing to consider the impact shifting judicial opinions will have on the way business is carried out, directors may be falling short.