We are witnessing a fundamental shift of values that is here to stay. Ensuring responsible and sustainable business conduct that meets societal ESG demands has definitively moved from the reputational and stakeholder management area to legal.
In a shifting landscape, NautaDutilh’s Sustainable Business & Climate Change team identifies the risks and opportunities, working with clients on future-proof solutions for the complex and interconnected challenges of responsible business conduct. We help our clients by joining forces with all stakeholders. And by proactively bringing our extensive knowledge and cross-sectoral experience to the table. We discuss not only the dot on the horizon, but also what may be found round corners. Areas of expertise include ESG risks and opportunities, climate change litigation, sustainable finance, and business human rights law.
We regularly discuss recent developments in this field with clients in roundtable settings and organise client events on a wide range of topics relating to sustainable business and climate change.
It may be legal, but is it right? As companies feel increasing pressure from all stakeholders to act responsibly, responsible business conduct has firmly established itself as a top priority for boards and management. We believe that its importance as differentiator that adds value to brands, increases long-term profitability and mitigates financial, legal and reputational risks will grow in the years to come. Businesses will find that their social license to operate will increasingly depend not only on what they do, but also on how and why they do it.
Responsible business conduct permeates all business operations. But it begins with the integration of ESG principles and corporate governance because the tone at the top is of consequence. The role of in-house legal counsel will grow as soft law frameworks and human rights will increasingly yield ‘hard law’ by which corporates and their boards will be held accountable. Transparency in communication, product information and reporting matters.
Ultimately, responsible business conduct strengthens shareholder value. Responsible business conduct is the best measure to maintain access to capital from institutional investors and financial institutions, who apply increasingly rigorous vetting of companies on non-financial criteria.
In order to help clients gain insight into how ESG principles benefit the company, our team of experts speaks with the board and other stakeholders throughout businesses to discuss possible long-term scenarios, assess ESG related business risks and provide recommendations to mitigate these risks. We have developed an ESG Opportunity Audit through which we are able to assess how ESG policies can help clients to capture commercial opportunities and positively distinguish themselves from their competitors.
Climate change, the energy transition, the huge mitigation and adaption efforts that will be required to combat the worst-case scenarios in the course of this century and the resulting resource scarcity are going to reshape our world. For many companies, climate action has become a business imperative. It requires multinationals and financial institutions to reimagine business models and reinvent their interaction with employees, shareholders, suppliers and customers.
Legal issues around climate change go beyond compliance and risk mitigation. For those companies that want to be part of the solution, climate change is also about opportunity. Our firm wants to be active on the frontlines in the fight against climate change. The law can be an instrument for change.
In the financial sector, regulators are increasingly outspoken with respect to the climate risk responsibilities and reporting obligations of financial institutions. Clients benefit from our firm’s unparalleled experience in regulated markets. Our financial law team regularly advises financial institutions on the regulatory aspects of climate change. Our loan finance team is helping lenders and borrowers to structure green finance deals. They have extensive experience on getting banks comfortable with regulatory uncertainty, specific business risks associated with decentralised renewable energy projects and forging the security packages that fit such projects.
Our dispute resolution team are considered trailblazers in climate litigation, setting legal precedents for government accountability for climate change. We successfully represented (together with Höcker Advocaten) the Dutch NGO Urgenda before the Dutch Supreme Court in the landmark case against the Dutch government. The Supreme Court confirmed that the Dutch government has a binding legal obligation, based on international human rights law, to take measures to reduce carbon emissions. In her reaction to the Urgenda judgment, United Nations High Commissioner for Human Rights Michelle Bachelet commented, “this landmark ruling provides a clear path forward for concerned individuals in Europe – and around the world – to undertake climate litigation in order to protect human rights”.
Responsible business conduct entails that companies view adherence to human rights throughout their business value chain as a key element of their governance. Not respecting human rights is not only a severe reputational risk. Adverse human rights impacts can also lead to extensive legal liability. It requires businesses to implement policies aimed at mitigating human rights compliance and litigation risks into their daily operations. The legal dimension can include supply chain issues, contractual obligations, regulatory requirements and reporting guidelines. In the context of an M&A transaction, an ESG due diligence can be an important means to assess risks and opportunities. Our multidisciplinary team oversees the full field of work and works with our clients not only to do things right, but also to do the right thing.
We regularly advise financial institutions, corporate clients and NGOs in the field of sustainable business, ESG and climate change. If needed, we litigate on behalf of our clients before domestic and European courts. We also work together with various governmental authorities, regulators and network organisations, including the Dutch Association of Banks (NVB) and the Dutch Private Equity and Venture Capital Association (NVP).
Increasingly, businesses are expected to act as responsible corporate citizens. On the basis of prospective EU legislation, companies will be required to identify, address and report in relation to the impact of their business’ activities on, for example, the environment and on human rights. Ahead of ESG due diligence becoming a mandatory obligation, it is evolving into a market wide best practice.
ESG performance is becoming a point of focus in the selection of business partners - in the context of an investment, a transaction or an important contract. Performing a legal ESG due diligence on a target company or potential business partner can be of key value. It is equally important to be aware of your own ESG performance and to understand the ESG performance of your value chain.
Businesses are faced with increasing challenges, implications and opportunities presented by the need to prioritise ESG factors that are driving the energy transition. We counsel clients on energy-transition related transactions, projects, financing, disputes and regulations that impact their business and strategy.
We have earmarked the following topics: transition in the energy sector, taxation, hydrogen and real estate.
ESG engagement is often achieved through sustainable finance projects. The energy transition requires extensive funding, as does technical innovation to support the deeply required change. Many market parties and institutional investors are interested to provide sustainable financing. Mainstream finance is also rapidly incorporating changing requirements that take into account these funding needs while at the same time contributing to sustainability goals. New sustainability-linked forms of finance are on the rise.
ESG litigation is on the rise. Stakeholder groups are using litigation – and the threat thereof – to impact an organisation’s ESG strategy and communications. There have been a number of successes, notably related to the subject of climate change (e.g. the case against Royal Dutch Shell in first instance). At the same time, investors, regulators and society are closely scrutinising organisations’ sustainability policy and targets, and are monitoring the action they undertake – or fail to undertake – to achieve these targets.
The European financial sector was the first to implement hard and fast rules in respect of ESG, with the introduction of the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. For financial institutions, specific requirements therefore apply in addition to the general ESG topics. ESG transparency requirements will continue to develop and are there to stay. SFDR and Taxonomy will become core to documentation for financial products.
It is not only transparence. The EU, Dutch and Belgian financial regulators have put climate risk related supervision at the top of their agenda, also leading to the inclusion of ESG and climate risk topics in ongoing, governance and prudential supervision.