Climate Law Week 6B

How are Greenhouse Gas (GHG) emissions categorized across a company's value chain?

Emissions are divided into three scopes:

1. Scope 1 consists of direct emissions from company facilities and vehicles;

2. Scope 2 covers indirect emissions from purchased electricity, steam, heating, and cooling; and

3. Scope 3 encompasses all other indirect emissions in the value chain, including upstream (e.g., purchased goods, business travel) and downstream (e.g., use of sold products, investments)

What was the legal basis for the landmark Shell judgment regarding corporate climate obligations?

• The obligation was based on the unwritten standard of due care, which is "filled in" by soft law instruments and human rights, specifically Articles 2 and 8 of the European Convention on Human Rights (ECHR)

• This represents a "horizontal" application of the Urgenda judgment, which originally applied to the Dutch State

What were the key findings of the Court of Appeal of The Hague (November 2024) regarding Shell’s reduction obligations?

• : While the Court ruled that human rights fill in the standard of due care and Shell has a duty to reduce emissions, it rejected an injunction for Scope 1, 2, and 3 emissions.

• Specifically for Scope 3, the court cited a lack of consensus on how global reduction requirements apply to an individual company and uncertainty regarding whether such an injunction would be effective

What is "Double Materiality" in the context of the Corporate Sustainability Reporting Directive (CSRD)

It is a reporting principle requiring companies to disclose information based on:

1. Impact Materiality: The "inside-out" impact of the company on society and the environment.

2. Financial Materiality: The "outside-in" impact of external sustainability factors on the company's financial position

Following the "Omnibus" changes, which companies fall under the scope of the Corporate Sustainability Due Diligence Directive (CSDDD)?

The CSDDD applies to large companies with more than 5,000 employees and a net annual turnover of more than €1.5 billion.

What are the core obligations for companies under the CSDDD?

• Companies must establish a due diligence process to identify, assess, cease, and mitigate adverse impacts on human rights and the environment within their operations and value chains

• While originally required to adopt a climate transition plan, the "Omnibus" version reportedly deleted the obligation for large companies to adopt such a plan, though they must still ensure business models are compatible with the 1.5 °C goal of the Paris Agreement

What must a climate transition plan include according to the European Sustainability Reporting Standards (ESRS E1)?

• A transition plan must provide an overview of Scope 1, 2, and 3 emissions, specific reduction targets, planned reduction measures (including their financing), and an explanation of how the plan aligns with the company's overall strategy and board-level approva

What is a major litigation risk associated with the CSRD and sustainability reporting?

• The sustainability report is intended to give stakeholders an accurate picture of environmental impact; therefore, "painting too rosy a picture" (greenwashing) of climate policies and targets creates significant legal risks

• Transition plans are considered sensitive documents that can be used as evidence in such litigation

What are the primary reporting principles under the CSRD?

• Reported information must be relevant, complete, and offer a faithful representation

• Under ESRS 2, companies must comply with general disclosure requirements regarding internal governance, board oversight, and policies, regardless of their materiality assessment