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ESG: Environmental, Social & Governance. What does this mean for your company?

Themes such as sustainability, climate change and social responsibility have taken on an increasingly important role within our society in recent years. It is also becoming increasingly important for companies to contribute to the impact on the environment and the climate and to account for this to its stakeholders. In addition, there is increasing pressure for companies to create a safe, diverse and open working atmosphere. These themes can be taken together in the doctrine of ESG (Environmental, Social & Governance) by which a company’s sustainability can be measured.

Not only within society, but also within the law, ESG topics are taking an increasingly prominent place. In November 2022, for instance, the European Union adopted the Corporate Sustainability Reporting Directive (the “CSRD Directive”), which requires more and more companies to report on the impact of their activities on people and the environment from January 2024. More often now, an issue concerning ESG also reaches the court and jduges need to form an opinion on it. In this series of articles, we will discuss a number of rulings in which courts have taken a position on various ESG issues. First, we will discuss a now well-known ruling from 2021: the “Shell ruling”

The Shell ruling

The 2021 “Shell ruling” of the District Court of The Hague is one of the groundbreaking rulings in which the court made a clear statement on Shell’s role and responsibility in climate issues. In this ruling, the court ruled that Royal Dutch Shell (the head of the Shell group) is obliged to ensure a reduction in CO2 emissions at the Shell group, its suppliers and customers through Shell’s group policy. The court reached this judgment by interpreting the unwritten standard of care of Section 6:162 of the Dutch Civil Code (the article concerning wrongful actions) on the basis of, among other things, the available science on climate change, the international consensus that people should be protected from the consequences of climate change and that companies should respect these human rights.

The court took the position that the responsibility of companies to respect human rights applies to all companies, regardless of size, sector, operational context, ownership and structure. According to the court, companies can be expected to identify and assess all actual and potential negative human rights impacts in which they might have a stake through their own activities or their business relationships. Based on these assessments and findings, companies should take appropriate action. The court ruled that Royal Dutch Shell’s adopted policy did not sufficiently acknowledge its own responsibility, namely to actively implement its reduction obligation through the Shell group’s corporate policy. The court ruled that there is an imminent breach of the Shell group’s reduction obligation and therefore ordered Royal Dutch Shell to reduce the CO2 emissions of the group, its suppliers and customers to a net 45% by the end of 2030 compared to 2019 levels through the Shell group’s group policy.

Roundtable ESG regulations

If you want to know more about ESG, its impact on your company and any (future) obligations you need to start taking into account, sign up for our roundtable ‘The impact of ESG regulations on (large) SMEs’, on 14 June at 15.00.

If you already have questions about ESG regulations, please contact the lawyers of our corporate law section.

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