Climate case against ING: what does it mean for monetary policy?

 

Annelieke Mooij, Assistant Professor, Tilburg University

Photo credit: Sandro Halank, via Wikimedia Commons

The Dutch climate organization “milieudefensie” had threatened to start a case against the Dutch ING bank. The 14th of February 2024 the ING has responded that it will not give in into the demands of the climate organization. Hence making it highly likely that the climate policy of the ING will face legal challenges. Prima facie the case seems without EU relevance as it concerns a national climate organization suing a national bank. Though the case may seem to lack European relevance, the opposite is true. The decision by the Dutch judiciary may have serious European consequences. In particular for the Monetary Union and may even bypass the independence of the ECB.

Milieudefensie v. ING

The climate organization (plaintiff) asks the court to order the ING to take four concrete steps. The first is to align its climate policy with the target of 1.5C as stipulated by the Paris Agreement. The second demand is that the ING reduces its own emissions by 48%CO2 and 42% CO2e by 2030. Third that it stops financing large corporate clients who have adverse climate impacts. The fourth and final demand is that ING engages in discussion with the plaintiff about how to substantiate these demands. The demands made by the plaintiff are serious claims. Raising the question of the likelihood these demands are met by the Dutch court.

Whilst the court summons is not yet finalized it is likely that the plaintiff will refer to two earlier cases. The first is to an earlier case won against the Dutch state. In the Urgenda case the Dutch Supreme Court ruled that the state had to reduce its emissions in accordance with the Paris Agreement. The Supreme Court did not state how the state had to comply, simply that it had to comply. The case gave a strong message to the state that it had the obligation to meet the climate agreements. Urgenda provided the foundation for the second case.

The second case that the plaintiff will likely reference is that of Milieudefensie v. Shell. This case still has an appeal pending. The case concerned the climate responsibilities of Dutch oil concern Shell. The judiciary decided that Royal Dutch Shell (RDS) was responsible for the emission reductions of the global shell activities. In this capacity it had to reduce its global emissions by 45% by 2030 in comparison to 2019 levels. This was considered a revolutionary case as it is one of the first where the judiciary recognized climate duties against a legal person.  The legal foundation was article 6:162 of the Dutch Civil Code, this article is a form of tort law. The court considered that the emission reduction plans of Shell were not concrete enough. Shell thereby violated an unwritten duty of care. Prima facie the case against ING therefore looks strong. There are, however, two obstacles to overcome.

The first minor challenge is that of the impact of ING’s financial products on their clients. In the case against Shell the court considered that the mother company RDS determined the policy of the entire group (paraf. 4.4.4). It therefore had the influence to change the companies’ policies and directions. Arguably a bank can have a similar steering influence upon the direction of its clients. In particular the ING may refuse loans intended to buy polluting machines. On the other hand banks can approve loans for investment in greener operations. Loans can thereby have a powerful impact upon the direction of a consumer. Operating credit on the other hand will have a less likely impact on the course of a business. To demand that all financing is discontinued to corporate clients who do not have a climate plan provides a broad interpretation to the duty of care of the banking sector. In particular, as the Dutch judge will have to weigh the right to a clean environment against the right to operate a business.

The second difficulty is that unlike RDS, ING’s emissions (in)directly result from a varied investment portfolio. As stated by the response of ING measuring merely the emissions can lead to a negative climate result. An increased investment in heat pumps, increases the emission portfolio of ING but can decrease global emissions. The emissions in the Shell case were the direct result of the company’s own activities. Redirecting its efforts from fossil fuels to sustainable energy will have a positive impact upon the fight against climate change. In length of this argument Ferrari and Landi argue with regard to central banks that investments should be made not by simply investing in the lowest emitters.  Instead of this so-called “best-in-universe” approach, banks should invest in companies that do well within their substitute production group. The so-called best-in-class method of investment. Through this approach global demand can be shifted to green products. Therefore unlike the Shell case the court will have to decide between a blanket reduction of emissions which may have a negative environmental impact, or a best-in-class approach. The difficulty is that the court will then have to provide instructions not on what goals to achieve but rather on how to achieve emission reductions. The methods of achievement has been something the court has refrained from doing in both Shell and Urgenda. The decision on methodology may have a large impact on the future European Central Bank’s purchasing programmes.

 

Impact on the Monetary Union

The right to (private) life codified in the European Convention for Human Rights (ECHR) played a significant role in these cases. Article 52(3) of the EU Charter states that the ECHR provides a minimum level of protection. The CJEU may therefore award a higher level of protection but not lower than the ECHR. The interpretation of the ECHR therefore has a large influence on the fundamental rights protected within the EU Charter of Fundamental Rights.

The judgements of national judges are not binding for the European Court on the Convention of Human Rights (ECtHR). However, when there appears to be a consensus among the majority of members the ECtHR considers there is common ground. The existence of common ground decreases the margin of appreciation for the member states. The case of Urgenda directly involved an appeal to human rights against the state, specifically the right to life (article 2) and private life (article 8). Similar cases have been successfully tried in Ireland and France. The ECtHR is yet to rule on the climate change cases that are pending. There however seems a likelihood of a positive outcome for the plaintiffs. The CJEU will have to consider the scope of these cases and can decide on the same or a higher standard of protection. There is, however, a difference with the case of ING.

The cases against the states directly invoked human rights. In the Shell case the Dutch judge only indirectly applied the fundamental rights when interpreting the duty of care. It will likely do the same in the case of ING. This provides a less strong signal about common ground to the ECtHR that the right to a clean environment includes specific obligations for banks and other legal persons. It will take more national judges to reach similar judgements to provide the ECtHR with to conviction that there is common ground. The court in the Shell case, however, included the in its considerations the UN Guiding principles. These principles create a large common understanding throughout the ECHR members. The states obligation to enforce direct obligations for legal persons through its courts are likely to be accepted by the ECtHR.   If so it cannot be ignored especially by the largest bank in the EU; the European Central Bank (ECB).

The ECB has a tiered mandate. Its primary objective is to obtain price stability which has been defined as keeping inflation under but close to two percent on the medium term. To achieve this goal the Treaty on the Functioning of the European Union (TFEU) has granted the ECB with a high level of independence. This means that neither the EU or national legislators cannot determine or influence how the ECB executes its monetary policy. The ECB is therefore likely to argue that it cannot be influenced as to how it conducts is monetary policy even with regard to climate change. The ECB, however, is not immune from other primary or secondary legislation. In the Olaf case the CJEU considered that the ECB falls within the EU legal framework. Its independence only protects the ECB against political influence when it conducts monetary policy.

In addition to its primary mandate the ECB has a secondary mandate to abide by. This mandate includes “[…]the sustainable development of the Earth”. The ECB has to comply with its secondary mandate if it does not violate its primary mandate. Currently this is interpreted by the ECB to mean that when the ECB has a choice in how to achieve its price stability objectives, the secondary mandate is guiding. The secondary mandate, however, has various goals. Some of these goals can be achieved simultaneously but some are independent or even substitute goals. This makes it currently difficult to pinpoint to the legal obligations of the ECB from the secondary mandate. When it comes to climate change, however, the ECB considers itself bound by the Paris Agreement. In addition the ECB has to abide by the EU Charter of Fundamental Rights. It is however unclear what precise duties these treaties bring to the ECB when it carries out its private sector funding programmes. The ECB states that it is trying to decarbonize its corporate sector portfolio’s by using a method called tilting. The green bonds in the sector are given preference to the brown bonds. The difficulty is that when green bonds run out the ECB will continue by purchasing brown bonds if it considers this necessary for its monetary aim. The case of Milieudefensie v. ING, can provide clear guidance with regard to the ECB’s fundamental right climate responsibilities in its corporate sector programmes.  The Dutch court’s reasoning can provide the balance between a bank’s obligations to climate against the right to operate a business. This reasoning can be incorporated by the ECB.

The ECB makes choices with regard to how (intense) to pursue price stability. These choices should be guided by human rights such as climate change and economic needs. The ING decision can create a guiding framework on how to balance these different interests. However before such guidelines can be considered binding more national cases need to be tried, or the ING case would have to reach the ECtHR. Still quite a road to be travelled.