Many companies are still not fully aware of the impact that European sustainability legislation will have, even as time is running out. Brussels aims to drastically reduce corporate CO2 emissions in the coming years through various measures. Additionally, more far-reaching directives are in the pipeline, many of which focus on sustainability.
New laws and regulations are making corporate social responsibility no longer a choice, but a requirement. The central theme is a focus on ‘broad prosperity’; companies must not only be financially healthy but also play a meaningful societal role.
Amid the daily hustle and bustle, this message hasn’t reached everyone yet. And even when companies take the first step toward awareness, practical obstacles arise every day, pushing upcoming regulations to tomorrow’s to-do list. However, burying your head in the sand carries serious consequences.
A new European directive is making corporate social responsibility less optional. The Corporate Social Responsibility Directive (CSRD) requires large companies to report not only on their financial performance in their annual reports but also to provide insight into their environmental, climate, and human rights performance.
The CSRD directive will be translated into national legislation. Initially, the regulations will apply only to large companies, but the number of companies affected will increase over the years. Smaller businesses may face these regulations sooner than expected, as publicly listed multinationals will increasingly impose sustainability requirements on their suppliers. This means that CSRD, through a domino effect, will drive sustainability across the entire business sector.
For small and medium-sized enterprises (SMEs), this can have serious consequences, as clients aiming to become more sustainable will seek agreements on the provision of information for CSRD reporting. As companies adopt more sustainable practices, clients will often demand guarantees regarding product quality. This shift will alter commercial contracts and financing documentation.
‘I HAVE EXPERIENCED THE GROWING IMPORTANCE OF ESG IN DAILY OPERATIONS FIRST-HAND IN MY ROLE AS LEGAL COUNSEL AND LAWYER AT HEIDELBERG MATERIALS BENELUX.’
• Silvia Vinken, Lawyer
CSRD focuses solely on sustainable reporting obligations, not sustainable performance. However, transparency is expected to lead to action. Increasingly, companies want to substantiate how sustainable they are—not just to comply with regulations but to evolve into socially responsible enterprises.
Additionally, the Corporate Sustainability Due Diligence Directive (CSDDD) is on the horizon. Although the directive has been delayed and softened, it is still expected to come into effect in 2024. CSDDD compels companies to take action against human rights and environmental abuses in their supply chains, even abroad. The directive is also referred to as the ‘anti-turning-a-blind-eye law,’ as it requires companies to prevent human rights violations in, for example, garment factories in Bangladesh if they source goods from there. Initially, Brussels aimed to impose a results-based obligation, but since it is not always possible for companies to enforce better human rights practices in Asia or Africa, it has been reframed as an effort-based obligation.
‘THE GROWING DEMAND FOR SUSTAINABILITY INFORMATION WILL CHANGE THE LANDSCAPE OF CONTRACTING.’
• Daan Pollaert, Lawyer
It’s not just Brussels that is stepping in. The Dutch regulatory authority ACM (Authority for Consumers and Markets) has announced stricter enforcement against companies guilty of greenwashing. For example, the ACM found that Booking.com presented itself as more sustainable than it actually was, leading the company to remove its ‘Travel Sustainable’ program from its website. Companies with green ambitions that fail to meet them risk exposure by the ACM.
The financial consequences are significant. CSRD reports that fail to receive approval from auditors negatively impact a company’s value. Securing financing also becomes more challenging for companies that do not prioritize sustainability. Banks and investors increasingly assess how companies perform against ESG (environmental, social, governance) criteria. ESG aspects are now frequently part of due diligence procedures.
‘LAWYERS ARE ALSO QUESTIONING HOW THIS LEGISLATION WILL AFFECT THEM. AS A MEMBER OF THE CSR (CORPORATE SOCIAL RESPONSIBILITY) WORKING GROUP AT NOVA, I AM CONDUCTING RESEARCH INTO THIS AREA.’
• Robbert van Roij, Lawyer
But many questions remain. Where do you start? What exactly is expected of you? How do you interpret open standards? Which management criteria should you prioritize? What are you legally allowed to request from your suppliers? What clauses should you include in contracts? What risks do you face if you fail to comply with the regulations? What penalties are involved?
Sustainability begins with good governance. Boels Zanders can play a role in this process. Sustainability touches everything and transcends traditional legal fields. This requires an integrated approach. That is why we combine internal knowledge and experience in ESG across multidisciplinary teams. This enables us to guide companies through the complex landscape of European directives and national legislation, allowing them to focus on entrepreneurship during their transition to sustainable operations.
