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Governance is about management, responsibility and control, and about supervision and accountability. And, above all, about long-term value creation. In the Dutch Corporate Governance Code updated on 20 December 2022, the word ‘sustainable’ was added to this term. The Code also expressly requires a policy on diversity and inclusion for the entire company. “The new Code reflects the evolving insights in what socially desirable behaviour and good governance should be like.”

NautaDutilh Partner Geert Raaijmakers has been focusing on corporate governance for more than 25 years, and advised the Monitoring Committee on the changes in the Code’s best practices. “Originally, corporate governance focused primarily on the division of tasks and powers, strategy, policy, processes, and internal control functions. Gradually, this was expanded to the culture and behaviour within the company. Initially, this met with resistance. It is now seen as self-evident that directors and supervisory board members ensure that the topics of culture and the promotion of good behaviour are high on the agenda, and that they lead by example. The same is now happening with sustainability.”

Strictly speaking, the Code only applies to listed companies, but the scope is broader. “In case law, the Dutch Supreme Court has already indicated on several occasions that it considers the standards contained therein to reflect the general interpretation of the law prevailing in the Netherlands. If a court has to decide on the question of whether a company is properly managed, it will consult the Code. Has this been complied with? As a result, the Code also inspires many other companies to make long-term value creation more explicit in their mission, vision and strategy and as an addition to corporate governance.”

Clear warning
“The national and international guidelines for sustainability were long seen as soft law without mandatory effect. The decision in the Shell case of 2021 made it absolutely clear that they are not so non-committal. In its judgment, the District Court required Shell to reduce its global CO2 emissions by 45% by 2030 compared to 2019. Inspired by this success, NGOs will undoubtedly keep knocking at the doors of large enterprises. Moreover, this judgment boosted the discussion on legal liability. To what extent are directors and supervisory board members personally liable for failing to meet the climate targets?

Increasing intertwining
“The new European and national regulations illustrate the increasing intertwining of sustainability and governance, and the legal relevance of ESG. Obviously, these developments also have an impact on the performance of directors and the requirements imposed on the policies they develop and implement. They must carefully assess the negative impact of their business and value chain on society and the environment and how they can tackle them. From 2024 onwards, ESG must be integrated into the strategy and the supervisory responsibilities. Directors must also take a positive view of possible contributions to improvements for their own people and stakeholders, and make efforts to tap into new sources of value creation.”

The question is no longer whether companies feel their social responsibility, but how they shape this responsibility.

The question is no longer whether companies feel their social responsibility, but how they shape this responsibility,” Geert emphasises. “New legislation, such as the European Corporate Sustainability Due Diligence Directive, goes a step further in this respect. This directive obliges companies to identify and mitigate risks to people and the environment in their supply chains. The draft CSDDD now states that companies can be held liable under civil law if they fail to comply with the obligations and, as a result, a violation has occurred which resulted in damage that should have been prevented, terminated or minimised.”

Obligation to achieve a result?
According to Geert, there is friction with one of the important principles in Dutch law: legal certainty. “Directors naturally want to know what their actions can be tested against. This is not yet clear, because the standards are formulated fairly generally. As a result, they struggle with questions such as: are we able to meet the standard? Do we know what we are going to be tested for, and can we properly coordinate our policy accordingly? What can our company be blamed for if something turns out to be wrong somewhere in that chain? That is a great source of concern for many directors.

Another important issue is the policy on achieving the international environmental targets. How hard do you have to try to actually achieve them? Is this a best-efforts obligation, or is it more of an obligation to achieve a result? These are shifting panels, leading to a lack of clarity and a lot of uncertainty. Directors and supervisory board members must jointly address these social, ethical and ecological issues. In our Sustainable Business & Climate Change team, representatives of several practice groups work together to advise them on these issues. As a result, we can always approach the challenges from all relevant perspectives.”

Sharing knowledge
Geert explains that his team closely monitors and analyses developments and advises clients on the legally important points for attention, potential vulnerabilities, and risks. “We help them develop a policy to implement their ESG responsibility and draw their attention to relevant changes in the regulatory landscape. To this end, we share a lot of knowledge. In this fast developing area of law, it is very important to learn from each other and to exchange sector-specific best practices. For both governance and ESG, we are always ready to update our clients on what they will be faced with. To this end, we regularly organise round table discussions. We also provide a Corporate Governance update for our clients every six months. Because of the great importance of this topic, we have added a semiannual ESG update.”

The new European and national regulations illustrate the increasing intertwining of sustainability and governance, and the legal relevance of ESG.

Inclusion & Diversity policy
Finally, he refers to the second major innovation in the new Corporate Governance Code: listed companies must have a diversity and inclusion policy in place. This is a topic that is very close to his heart. That is why he works as an inclusion partner within NautaDutilh to achieve a diverse working environment where everyone is considered a valuable addition and can be themselves. “An I&D policy contributes greatly to long-term value creation, and can be an accelerator of the ESG transformation. I know that the market sees NautaDutilh as a firm that is already doing relatively much about this, but that is no reason to rest on our laurels. Diversity without inclusion means nothing. To this end, we want to set ourselves more demanding goals and take concrete action to achieve them.”

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