ESG factors have become part and parcel of legislation at EU and national level, especially with respect to corporate governance and disclosure requirements. Investors, regulators and society closely scrutinise organisations sustainability policies and targets and monitor the action taken by businesses to achieve these targets. Climate litigation is on the rise, focussing on parties that may fail to take action. Greenwashing claims can not only damage reputations, but may also potentially lead to litigation.
The 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. In 2022, clients in the financial markets came under increasing scrutiny by regulators, who have put ESG and climate risk related supervision at the top of their agendas. Regulators urge for swift improvements in the translation of their ESG strategy into their actual business operations. Failing clear results, the regulators will be likely to resort to more formal regulatory actions against banks, insurers, and pension funds.
More in general, the adoption of the Corporate Sustainability Reporting Directive (CSRD) by the EU in 2022 is but one example. The introduction of the Dutch Corporate Governance Code at the end of 2022 opens the door for accountability of board members for sustainable long-term value creation. The proposed EU Corporate Sustainability Due Diligence Directive (CSDDD) turns soft law requirements with respect to human rights in the value chain into hard law. Prior to ESG due diligence becoming a mandatory obligation, it is evolving into a market-wide best practice.
NGOs continued to use litigation as a means of influencing the climate ambitions and results of both governments and companies. NGOs submitted greenwashing claims against pension funds and banks, required high-emitting companies to publish climate plans (under threat of litigation), and held their directors personally liable for failing to properly prepare for net zero.
The next topic on the regulation and litigation agenda is biodiversity. One example is the nitrogen crisis in the Netherlands and increasingly in Belgium. This has a significant impact on the agricultural and construction sectors. In 2022, the Porthos ruling of the highest administrative court in the Netherlands put an end to the construction exemption related to nitrogen. As a result, every single construction project requires an individual assessment of the nitrogen effects in the construction phase.
Expanding our ESG work
We believe that, as a firm, we have a responsibility to play our part in the transition towards a more sustainable economy. Our clients ask us to help them navigate the ESG developments, implement their ESG goals, assess the risks, and adapt to what lies ahead.
In addition to our core legal work, we serve our clients in various ways:
- Bring corporate law, financial law, regulatory, energy law, real estate law, tax and corporate governance experts from across all our offices together in our Benelux Sustainable Business & Climate Change team to exchange insights in a cross-sectoral and cross-expertise way to address the often complex and multidisciplinary issues.
- Share our knowledge, for instance through our semi-annual ESG webinars, client round tables, and participation in domestic and international (panel) discussions. This includes panel positions at conferences such as the Peace Palace conference on climate change and international law in The Hague and the IBA ESG conference in New York.
- Enter into ESG-related partnerships to help bring about positive change and actively contribute to these partnerships, for instance through events and panels. This includes working together with MVO Nederland, the Dutch network organisation for sustainable entrepreneurs, and participating in the Climate Tables of Jurist Doet WAT, the Dutch sustainability initiative for lawyers.
ESG and sustainability are no longer periphery issues, if they ever were. They are increasingly becoming a key topic for every company, in every sector. In 2022, practice groups throughout NautaDutilh therefore accelerated their focus on ESG. We undertook several actions to further drive this development:
- Streamline our focus on (1) hydrogen as a means for greening the economy and (2) environmentally highly regulated sectors (such as the chemicals sector) in dedicated teams.
- Organise bi-weekly ESG Talks for all colleagues to make the knowledge and insights gained in this field more easily accessible for everyone.
A multidisciplinary approach
In 2022, non-committal conversations on ESG issues increasingly shifted to advisory work. 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. In addition, against the background of an increasingly litigious ESG landscape, it is important for clients to understand their ESG-related liability and litigation risks. In this chapter, we highlight some of the work we did across sectors and areas of law.
Financial sector
- Our advisory work included translating the continuously changing regulatory landscape to our clients’ practice and products and advising on how to prepare for and implement upcoming regulations. For instance, we advised on SFDR-related ESG disclosures, the implementation of the Taxonomy Regulation, and the assessment of real estate portfolios in that context.
- We advised leading banks and insurance companies regarding their ESG strategy.
- We assisted our investment fund, asset management and pension fund clients in their positioning in the ESG spectrum and the mandatory and voluntary ESG-related disclosures.
- We assisted the NVB, the Dutch Association of Banks, in preparing their response to the CSDDD consultation.
Litigation
- We assisted clients in preventive assessments on ESG-related liability and litigation risks, including directors’ liability.
- We assisted several clients, including a Dutch pension fund and a large company in the agrifood sector, in drafting their climate policy and advised them on climate liability issues. Such advice may include the assessment of existing fossil fuel portfolios or climate targets and reduction pathways (including scope 3 emissions).
- Our Dispute Resolution team is among the leading ESG litigation experts in the Benelux.
Corporate law and M&A
- We developed an ESG audit, in which we advise our clients on risks and opportunities relating to ESG regulation that is relevant to their business. This helps businesses to become aware of their own ESG performance and understand the ESG performance of their value chain.
- In M&A transactions, we offered ESG due diligence as an add-on to the regular legal due diligence of the acquisition target. It assesses the target’s ESG performance in relation to the applicable legal framework, including future regulation and soft law.
Energy sector
- We provided comprehensive multidisciplinary advice to clients in the transition to a low carbon economy, taking into account energy law, regulatory (e.g. EU ETS, health and safety requirements and environmental regulations), real estate law and project finance law aspects, for instance:
- on the use of the carbon takeback obligation instrument;
- on the implications of the Dutch carbon tax bill; and
- on renewable jet fuel and wastewater treatment projects.
- To further the development of a hydrogen economy in the Netherlands and Belgium, we brought together stakeholders from across the value chain, for instance during informal get-togethers and round tables aimed at the exchange of expertise and experience.
Moving forward
Our main focus for 2023 is to expand our ESG advisory and litigation practices. We believe that the acceleration we are witnessing in the field of ESG legislation and litigation offers opportunities, but also increases businesses’ potential liabilities and reputational risks. We believe that cooperation, within and outside the firm, is key to help drive the transition. Therefore, we will continue to share our insights and reflections through seminars, round tables and updates, further expand the ESG expertise within all of our practice groups, and proactively include ESG-related advice in our client work.