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Freshfields Sustainability

| 4 minutes read
Reposted from Freshfields Risk & Compliance

ESG – a fertile field for class actions in the Netherlands

ESG is a growing area for class actions in the Netherlands. This is against a backdrop of a jurisdiction that already champions consumer redress generally through implementation of the Representative Actions Directive (see our first blog in this series).

So, what types of ESG-class actions are there? They include climate change cases, greenwashing and human rights claims.

Climate change

In 2019, the landmark Urgenda class action set a precedent when the Dutch Supreme Court ruled in favour of Dutch NGO Urgenda, ordering the Dutch state to reduce carbon emissions. The ruling in Urgenda was based on “open standards” of Dutch tort law and articles 2 and 8 of the European Convention on Human Rights. NGOs may have felt emboldened by the ruling resulting in, for instance, Friends of the Earth Netherlands and other NGOs collectively taking Shell to court over its CO2 emissions. In  2021, the verdict from The Hague District Court was that Shell had to reduce its emissions by 45% by 2030. Appeal proceedings are pending.

Greenwashing and human rights

In 2022, NGO Fossil Free brought a class action against Dutch airline KLM to ban greenwashing relating to KLM’s ‘Fly Responsibly’ advertisements and ‘CO2 compensation’ products. An interesting aspect is that Fossil Free brought this action under the public interest regime of WAMCA. The WAMCA (Wet Afwikkeling Massaschade in een Collectieve Actie), effective as of 1 January 2020, explicitly allows for cases which are in the “public interest”. These are claims with a principled purpose (ideëel doel) where there may be no recovery of damages. In these circumstances, the court may waive some of the usual admissibility requirements. On 7 June 2023, the Amsterdam District Court allowed the admissibility of the claims against KLM. Its merits will be debated later this year.

Another example of a class action brought under the public interest regime of WAMCA, is the case of the Dutch NGO Defence for Children seeking a declaration and injunction in relation to access to free tap water for children. Also, numerous human rights cases have been brought against the Dutch state since January 2020 for alleged infringements during Covid.

Corporate accountability and duty of care

Based on what we have seen so far, we expect that one of the most significant groups of greenwashing cases to emerge in coming years will be cases on corporate climate commitments and the alleged overstating of investments in support for climate action. An example can be found in Global Witness’s complaint against Shell filed with the SEC alleging that Shell misled investors by overstating its investments in renewable energy. The growth in greenwashing cases reflects broader debates on corporate accountability for climate pledges along with ongoing discussions about the role of companies in climate decision making.  It will be interesting to see what impact the European Corporate Sustainability Directive, including the European Sustainability Reporting Standards), and the recently published standards of the International Sustainability Standards Board  will have on this.

Another legal avenue which is likely to be tested in the future is the possible assumption of a duty of care owed by the board of directors’ of a company in relation to climate pledges. The first principle of the recently (2022) updated Dutch Corporate Governance Code is  interesting.  It explicitly states that “[t]he management board is responsible for the continuity of the company and its affiliated enterprise and for sustainable long-term value creation by the company and its affiliated enterprise. The management board takes into account the impact the actions of the company and its affiliated enterprise have on people and the environment and to that end weighs the stakeholder interests that are relevant in this context”. However, the recent dismissal by the English High Court of the derivative action ClientEarth filed against Shell's board of directors shows this is not an easy route to travel (albeit that the case is still the subject of a potential appeal).

What will the future bring?

For large corporates the future seems challenging as it is filled with an increased exposure to ESG-litigation.  A potentially significant development is the update to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD, 2023), which underlines the importance of information accuracy and transparency. Even before this update, we have seen greenwashing and human rights complaints submitted to OECD national contact points (NCPs).

Several other laws and standards could also give rise to ESG-litigation. For example, in the European context, in March 2023 the Commission adopted a proposal for a Directive on Green Claims. The formal adoption of the Corporate Sustainability Due Diligence Directive (CSDDD) is expected in 2024. The CSDDD includes a system of public law supervision and enforcement (in short: the requirement for Member States to appoint a supervisory authority and grant investigative and enforcement powers to such supervisory authority). In addition, the CSDDD allows for private enforcement. The CSDDD introduces best-effort obligations for companies potentially resulting in civil liability of the company and its subsidiaries in case of infringement of any of these obligations and prescribes that national laws must provide for civil liability exposure for damages caused by breaches of the CSDDD.

How to mitigate liability and litigation risks?

Liability and litigation risks can be mitigated by adopting some of the strategies below:

  • Monitoring current developments in national and international ESG-legislation and case law and proactively implementing necessary changes before mandatory changes are required by regulators or courts.
  • Implementing adequatecompliance mechanisms that allow checking the ESG-conformity and prevent greenwashing.
  • Documentation of all steps that have been taken to continuously verify and monitor the ESG-conformity of products and statements.
  • Implementing a communication strategy that allows for a quick and comprehensive corporate response in case of any public allegations regarding greenwashing or another type of wrongdoing.