Climate change is a global problem which is caused by each and every one of us: the tragedy of the commons”, says Stijn Franken. He is a partner in NautaDutilh’s Dispute Resolution practice in Amsterdam and specialises in, among other things, legal aspects surrounding climate damage. “Everyone agrees that it is important to limit the consequences of climate change. But there is a huge gap between good intentions and actual behaviour. Real mitigation requires a level of self-understanding or altruism that few people or organisations have. We need to be honest about this. Ideally, a supranational organisation such as the European Union or national politics should provide guidance on the necessary social developments, and the national government should implement the agreements. If it fails to do so, the court may intervene.”
Judicial review and policy making
This happened, for example, in 2019 in the Urgenda case against the Dutch state, in which the Supreme Court of the Netherlands upheld the court of appeal’s order to the government to ensure that greenhouse gas emissions are reduced by at least 25 per cent by the end of 2020. In the Belgian Climate Case, the Brussels court of appeal held three governments liable in November 2023 for their flawed climate policies. Is this a democratic deficit? “It’s up to politics to make policy”, says Stan Brijs, a partner at NautaDutilh Brussels specialising in national and international litigation. “With this carefully reasoned ruling and a potential penalty in the future for non-compliance as a big stick, the court makes it clear to these governments that there must be a rapid change in the way they conduct this policy.”
“Since the NGO Milieudefensie initiated climate proceedings against Shell in the Netherlands in 2019, companies are also increasingly questioned about their reduction obligations in climate cases”, Stijn explains. “In this case, the court ruled that Shell must reduce its emissions by 45% by 2030. Various companies, such as financial institutions in the Netherlands are currently targeted for contributing to climate change or financing fossil fuel companies. These are all examples of systemic or strategic litigation where the court, using human rights or liability law, may take further steps in identifying climate change best practices.”
Greenwashing
“Strategic climate litigation targets an individual company, as part of a strategy to promote broader change, raise awareness and change policies and practices”, says Stan. “Another way in which stakeholders can influence an organisation’s ESG policy is through greenwashing litigation, where misleading sustainability claims are made. This can be at the level of products, services and financial instruments, as well as at the level of entities. Now that investors and the European regulations are demanding more accountability for sustainability performance and more reporting, greenwashing is coming to light earlier. Attention to the risks of greenwashing has also increased, making it an issue that no organisation making green statements or promises can ignore.”
“ESG is not a tick-the-box exercise in the context of increasing reporting requirements”, Stijn notes. “It is about integrating the ESG factors into the corporate strategy, risk management and investment policy. Many companies are doing a good job, recognising that lagging behind is not an option. For companies in markets which are not highly regulated, it is equally important to manage the ongoing uncertainties around ESG. Directors must continue to identify proactively where the company stands when it comes to the climate and energy transition, what contribution they want to make, and how they account for their policies. In effect, this means constantly thinking and working ahead to future-proof the organisation. By making the ambitions, intentions and constraints concrete and by recording them, you can better defend yourself when the company is called to account for its climate policy.”
Distribution of contributions
Stijn: “The stakes are very high and everyone knows that we have to change quickly. Companies that come up with effective solutions in good time may be among the leaders in their market in ten years’ time.” According to Stan, communication is also essential. “You have to be careful about what you communicate and how you phrase it. How are we doing, what are we willing to do, what are the limitations? Compliance with the Corporate Sustainability Due Diligence Directive also requires ESG information from partners in the value chain. These data are often far from consistent, comparable or reliable. You need to be clear about this. It is also important to back up sustainability claims with facts and keep these up to date. By making the uncertainties, challenges and dilemmas transparent, you also enable other parties to relate to them. In this way, parties can find and strengthen each other. What is uncertainty to one, is a solution or an opportunity to another. Accountability is extremely important.”
Stijn says that the effects of climate damage are already felt acutely by reinsurers. These are the companies where direct insurers place the risk that they cannot or do not want to take on their own books with other insurers, as a global safety net of contractual risk sharing. “Reinsurers are forced to scale back their exposure to risks such as natural catastrophes by significantly increasing insurance premiums and tightening their terms and conditions. As a result, policyholders are forced to pay the necessary price to cover for such risks and to meet conditions to keep them manageable. Parties are forced to pay their fair share of the costs of climate change. This is also a form of distribution of contributions. Not through the legislature or the court, but through the free market.”
Foreseeability criterion
“You cannot make an omelette without breaking a few eggs”, says Stan. “A key factor is continuity: can the business continue to thrive given its market outlook and long-term strategy? Additional pressure from climate change policies can go either way: forcing companies to invest heavily in innovation or adaptation, or to divest. It can also lead to liability claims from companies that are disrupted. Companies facing stranded assets caused by climate regulation will try to recover their individual losses from the state, which in turn is a form of distributing the contribution.”
As an example, he cites a case concerning the Dutch Coal-fired Power Generation (Prohibition) Act, in which the District Court of The Hague issued a ruling in November 2022. “Three coal-fired power plants claimed financial compensation because they were no longer allowed to use coal as a fuel for electricity generation. Their claim was rejected because the ban was foreseeable at the time of their investment. However, as the transition proceeds more rapidly and is accompanied by greater shocks, the foreseeability criterion may carry less weight.”
The teams at NautaDutilh are used to looking at the overall ESG picture and considering the liability and litigation risks. According to Stan, this makes the firm an excellent sparring partner to inform and advise clients on how to address ESG uncertainties and open standards. “We work with clients in thinking about a safe way to implement ESG guidelines and to anticipate new regulations without engaging in greenwashing, and help companies to develop best practices. Other examples of what we do are ESG audits and ESG due diligence on M&A transactions or investments. I believe that our experience and multidisciplinary teams can make a big difference for our clients.” Stijn concludes: “I think that’s the way it should be, as there is a pressing need to pay even more attention to ESG opportunities and risks in the coming years, in order to make a stronger contribution to the challenge of global climate change.”
Embedding ESG
Read our latest annual Sustainability & CSR Report
