As world leaders gather in Baku for the annual UN climate conference, global efforts to fix one of the most intractable problems are falling short. During what may become the hottest year on record, Donald Trump’s return to the White House chills confidence in countries’ ability to make progress on tackling climate change.Hopes that courts might step in to fill gaps left by inadequate climate policies took a blow on Tuesday when a Dutch court overturned a world-first injunction that would have forced Shell to reduce emissions by 45% by 2030 relative to 2019 levels. But gloomy headlines obscure the reality: Shell’s win in the courts was welcomed by its CEO—but it may turn out to be a Pyrrhic victory that lays the legal foundation for tightened corporate accountability.In 2018, the NGO Milieudefensie, the Dutch wing of Friends of the Earth, argued in court that Shell’s human rights obligations required it to cut its carbon emissions by 45% by 2030 relative to 2019. The District Court of the Hague agreed and ordered Shell to reduce its emissions accordingly, despite acknowledging that this would have “far-reaching consequences” for the then Anglo-Dutch company. The ruling extended to Scope 3 emissions—those produced by burning oil and gas—under a “best efforts” obligation. Taking inspiration from this groundbreaking judgment, similar cases have been filed in France, Germany, Switzerland, Italy, and New Zealand. Shell appealed the ruling.On Tuesday, the Court of Appeal accepted Shell’s appeal and overturned the initial ruling. The Court found that it could not order Shell to reduce its emissions by 45% by 2030—what is required globally to keep the Paris Agreement temperature goal in sight. The court ruled that this target cannot be directly applied to any individual company. It also questioned the effectiveness of such an obligation on Shell, since Shell could meet the target by exiting business lines (e.g. by no longer buying and selling oil and other fossil fuels, in addition to its own production) that other companies would take over, so the net result would not benefit the climate.While this ruling is a blow to climate campaigners who had hoped for immediate enforcement, it offers at least three areas of real hope for corporate climate accountability.First, the Court of Appeal stated unequivocally that protection from climate change is a human right, and this creates obligations on companies to contribute to reducing emissions. It also noted that it could, in principle, order absolute emission reductions for Shell, or any other large emitter.Second, the court appeared open to more specific challenges to a firm’s emission-reduction strategy, indicating for example that Shell’s planned investments in new oil and gas fields may conflict with its duty to reduce emissions. That could force Shell to cut supply over time. The court’s observation may sow the seeds for future, project-specific litigation.Third, the case has already spurred the creation of regulatory obligations to reduce emissions. Following the 2021 ruling of the District Court, several high-emission firms supported the adoption of this rule to avoid legal uncertainty over their transition obligations. It galvanized support for the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which requires Shell and other large companies to develop and implement Paris-aligned transition plans. Oxford University’s Climate Policy Monitor, which launched at COP29, highlights the catalytic role that such European initiatives have on the global development of similar obligations.The latest ruling has articulated a robust legal framework for corporate climate accountability, with more clarity than ever before. The challenges it highlighted in applying that framework to individual companies, such as the need to articulate sector and firm-level transition pathways, are likely to be met over the coming years. Scientists, NGOs, and policymakers are already developing detailed sector-specific pathways. Under the CSDDD, policymakers will need to articulate such pathways for the EU. Their coverage will be broad, applying to all firms within the CSDDD’s scope—including financial institutions. It is only a matter of time before such plans will be actionable by courts.Companies are anything but off the hook. A prudent, forward-looking analysis of corporate strategy should, after Tuesday’s ruling, be premised on a similarly stringent, secular trend towards more corporate emission-reduction obligations. Beneath the headlines, this is the legal and moral message the Court of Appeal pronounced on Tuesday, and it lays the foundation for real and sustained progress on tackling climate change going forward.More must-read commentary published by Fortune:The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.How many degrees of separation are you from the globe's most powerful business leaders? Explore who made our brand-new list of the 100 Most Powerful People in Business. Plus, learn about the metrics we used to make it.
