A big week for the fossil fuel sector: climate activism hits global courts and boardrooms

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Written by Daisy Mallett and Sati Nagra with contributions from Will Heath, Erin Eckhoff, Tom Crompton and Emma Newnham

Climate change litigation and shareholder activism in Australia and overseas has sent shockwaves across the fossil fuel sector over this past week, with three significant judgments being handed down and two transnational oil corporations stepping up their commitments to shareholders. These developments will reverberate globally.

A judgment in the Netherlands against Royal Dutch Shell marked a significant precedent that companies, not just countries, can be compelled to reduce their greenhouse gas emissions in line with the Paris Agreement. In the USA, shareholder activism resulted in ExxonMobil losing several board members and Chevron passing a majority resolution to further reduce its greenhouse gas emissions.

In Australia, Whitehaven Coal's Vickery Extension Project in New South Wales remains on hold as the Federal Court found that the Minister for the Environment owes Australian children a duty of care when considering whether to approve the project. In another Australian case, the Federal Court granted a judicial review of a government approval for proposed water use at the Carmichael coal mine owned by Bravus Mining & Resources (formerly Adani) in Queensland.

These recent events result from coordinated action by climate and environmental NGOs, activist shareholders and institutional investors, and have far-reaching implications for explorers, operators and investors in the oil, gas and coal sectors, as well as for government agencies assessing fossil fuel project proposals.

Latest developments overseas

(a)  The case against Shell[1]

In a landmark judgment, the Hague District Court ordered Royal Dutch Shell (Shell) to drastically reduce its carbon dioxide emissions by 45% (compared to 2019 levels) by 2030. The reduction applies throughout Shell's global energy portfolio and across Scope 1, 2 and 3 emissions - covering emissions from Shell's own operations, its suppliers and customers. Shell was ordered to implement this reduction target with immediate effect, irrespective of any appeal. This class action was brought against Shell by environmental groups and supported by over 17,000 individuals.

(b) Shareholder activism against ExxonMobil and Chevron

In ExxonMobil's recent annual shareholder meeting, institutional investors voted off at least two existing board members in favour of nominees proposed by the climate activist hedge fund, Engine No.1. They also approved measures calling for annual reports on the company's climate lobbying efforts, including whether they are misaligned with the goals of the Paris Agreement temperature goals. Meanwhile, 60.7% of Chevron shareholders voted to pass a resolution proposed by activist group Follow This, to reduce Chevron's Scope 3 emissions. A resolution to report on the impacts of a net zero 2050 scenario was narrowly defeated.

Latest developments in Australia

(a)  The case against the Minister for the Environment and Vickery Coal[2]  

As we previously reported, this class action was brought by eight young Australians, to prevent the Federal Minister for the Environment (Minister) from approving Whitehaven Coal's Vickery Extension Project in New South Wales (Extension Project). The youths sought an injunction to prevent the Minister approving the Extension Project and argued that the Minister owes Australian children a duty of care when considering whether to approve the Extension Project, as it would exacerbate climate change and cause them serious future harm.

In a milestone judgment, the Australian Federal Court ruled that a novel duty of care existed, which is the first step in a claim of negligence. The Court found that the Minister has a duty of care to avoid causing harm to Australia's children when deciding whether to approve the Extension Project. The Court did not however grant an injunction against the Minister.

(b)  The case against the Minister for the Environment and Adani Infrastructure[3]

The Australian Conservation Foundation (ACF) challenged the Minister's decision not to apply water trigger controlling provisions under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) to its assessment of Adani's North Galilee Water Scheme (NGWS). These controlling provisions require a person taking certain 'action' to refer that action to the Minister, for assessment of the water resource impacts of large coal mining and coal seam gas development proposals.

The NGWS proposed to take water for activities associated with coal mining (such as for potable water, coal washing and cooling mining equipment) but not for the direct physical process of extracting coal. On this basis the Minister concluded the water trigger controlling provisions did not apply to the NGWS as this use of water did not 'involve' a 'large coal mining development'.

The Federal Court granted ACF a judicial review of the Minister's decision, finding that the Minister had fallen into legal error as the water trigger controlling provisions should apply to action that is 'so closely associated with coal mining as to be integral to it', and not just activities which form part of the direct physical process of extracting coal.  

What are the implications for Australian businesses?

As we noted previously, Australia is the second most active jurisdiction for climate change litigation, with a particularly fertile testing ground for public interest litigation on climate change, and the ASX50 has recently seen higher levels of support for climate change resolutions by shareholders.

This legal landscape makes recent developments particularly relevant in Australia, as follows:

  • The case against Shell: this judgment has reverberated globally and will likely increase the growing trend of activist litigation against fossil fuel producers. This case relied on the Dutch Civil Code and could not therefore be easily brought in Australia. However, plaintiffs will likely seek similar outcomes and are increasingly creative with their litigation strategy, as seen in the case against Vickery Coal.[4] The judgment also reflects a growing trend seen in Australian climate change litigation, where plaintiffs aim to influence corporate behaviour and governance, rather than seeking damages.[5]

    Notably, Shell had already committed to net-zero emissions by 2050. The Hague District Court considered those plans as inadequate, noting the significance of Shell's contribution to global emissions. The ruling marks that the largest greenhouse gas emitters are expected to bear a commensurately greater burden in taking action, irrespective of how challenging that might be for business models established upon carbon heavy industry.

    Australian listed entities should however implement appropriate compliance processes regarding climate change disclosures and refrain from making hasty net-zero commitments without reasonable grounds and a proper commitment of resources. As we have written elsewhere, under Australian law, directors and companies face a real litigation risk where net-zero commitments are made without reasonable grounds and effectively constitute 'greenwashing'. This litigation risk should be balanced against a growing consensus around directors' duties to consider, disclose and respond to the foreseeable risks of climate change.

  • The case against the Minister for the Environment and Vickery Coal: the Federal Court will hear more submissions on whether the Minister's duty of care to Australian children extends beyond the specific circumstances of the Extension Project to the general extraction of coal in Australia. If successful, this could have significant implications for securing certain project approvals under the EPBC Act and will impact the Australian resources sector, especially businesses involved in coal mining.

    While we expect this judgment will be appealed, it marks a novel development in the law of negligence and potentially opens a door to damages claims against government for the impacts of climate change - especially as the Court found the future prospects of physical harm from climate change to be real, catastrophic and reasonably foreseeable. This increased litigation risk will likely influence government project approvals and conditions for future coal mining projects.

  • The case against the Minister for the Environment and Adani Infrastructure: this judgment has specific implications for water scheme approvals for coal mining and coal seam gas development proposals in Australia. We expect Australian courts will apply the water trigger controlling provisions more broadly to actions that supply an input (such as water) to such operations, and not just activities that form part of the extraction process.

  • Shareholder activism against ExxonMobil and Chevron: the shareholder activism in the USA reflects a shift in investor sentiment that is also evident in Australia. As we previously reported, there were higher levels of support for climate change resolutions at ASX50 AGMs in 2020 and in an Australia first, two shareholder-requisitioned climate change-related resolutions passed at Rio Tinto's AGM in May 2021. This trend can be expected to continue, especially in businesses exposed to the fossil fuel sector via direct operations or indirect investment.


[1] Mileudefensie et al v Royal Dutch Shell Plc, Hague District Court C/09/571932/HA ZA 19-379 (English) (26 May 2021)

[2] Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment & Ors l [2021] FCA 560

[3] Australian Conservation Foundation Incorporated v Minister for the Environment & Ors [2021] FCA 550

[4] Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment et al [2021] FCA 560

[5] See, e.g. McVeigh v Retail Employees Superannuation Pty Ltd (Federal Court, NSD1333/2018); Abrahams v Commonwealth Bank of Australia (VID879/2017); Friends of the Earth Australia & Ors v Australia and New Zealand Banking Group (Complaint to the Australian National Contact Point, 30 January 2020).