Interactive Investor

Dutch court orders Shell to make bigger carbon cuts

27th May 2021 10:28

Lee Wild from interactive investor

A plan for Shell to go greener had already be agreed, but now the legal system wants it to go further.

In a landmark case, a Dutch court has ruled that oil major Royal Dutch Shell (LSE:RDSB) must make significant cuts to its carbon emissions by 2030. 

The climate change case, heard by the District Court in The Hague, has ordered Shell to reduce CO2 emissions by 45% compared to 2019 levels.

In a civil suit against Shell led by Milieudefensie, the Dutch arm of Friends of the Earth, the court decided Shell is responsible not only for its own emissions but those of its suppliers too.  

Roger Cox, lawyer for Friends of the Earth Netherlands, said: "This is a turning point in history. This case is unique because it is the first time a judge has ordered a large polluting company to comply with the Paris Climate Agreement. This ruling may also have major consequences for other big polluters." 
The decision comes little more than a week after Shell's Energy Transition Strategy, part of its plan to become a net-zero emissions energy business by 2050, was approved at its AGM by over 88% of shareholders. Shell had targeted a 20% cut in carbon intensity (not emissions) versus 2016 by 2030 and a 45% cut by 2035. The second target includes Shell and its customers. 

Shell, which will appeal the decision, had warned when this case was first brought in 2019, that there could be a possible impact on its future operations, earnings and cashflows. 

However, analysts at UBS believe this could be easily solved. “Shell merely rations oil and gas supply to Dutch consumers in 2030,” it wrote in a note to clients this morning. “Shell's Gasunie [joint venture] is due to shut down Groningen gas field in the next two years and is also developing the Porthos CCUS [carbon capture utilisation and storage] project and associated hydrogen manufacturing in Rotterdam.”

Shell shares retreated Thursday morning to a level of price support at around 1,280p, but UBS still rates them a ‘buy’ and sticks with its 1,860p price target.

Shell and many other oil majors know which way the wind is blowing and are investing billions of dollars in acquiring and developing alternative energy sources. And there has been significant progress made in tackling fossil fuel use since the case was first brought. Governments are throwing their weight behind the electric vehicle revolution, and wind and solar farms are springing up everywhere. But we can always do more, and an increasing number of climate change resolutions are being put to the vote at company AGMs, most recently at Unilever and HSBC. Clearly, the pressure will remain on big oil companies to improve and increase the pace of change. The public, and the courts, have demonstrated a willingness to act if they believe they’re not pulling their weight. 

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