Different types of laws and regulations
As touched upon in my previous blog post on ESG legislation, there is ESG-related legislation all companies must comply with (no environmental pollution, no labour exploitation, no discrimination), and there is (chain of custody) legislation in the pipeline, both at European and national level, which will only apply to large companies (with different thresholds applying in each case, which I will not discuss further given the nature and scope of this blog post). Moreover, there is a lot of ESG-related soft law, such as codes of conduct, covenants, guidelines and guiding principles. Soft law involves self-regulation, i.e. companies or states bind themselves and each other to certain rules that are in principle not legally enforceable. Such codes of conduct are often sector-specific and are therefore not only entered into by large companies. There are codes of conduct that aim to protect the interests of third parties, such as the Fair Wear Code of Conduct and Code of Conduct on the Protection of Nature Act for drinking water companies (Gedragscode wet natuurbescherming voor drinkwaterbedrjiven), and codes of conduct that deal with internal relations within companies, such as the Dutch Corporate Governance Code and the Code of Conduct for Health Care Providers (Gedragscode Zorgverleners).
Supply chain legislation also affects medium and small businesses
Supply chain legislation, such as the draft Corporate Sustainability Due Diligence Directive and the proposed Child Labour Duty of Care Act (Wet zorgplicht kinderarbeid), envisages that companies investigate wrongdoing both at their own company and at other companies in the value (or supply) chain. This will result in companies that fall under the scope of the relevant directive or law to seek assurances from other companies in the value or supply chain that no environmental or human rights violations take place. In order to issue these guarantees, these perhaps smaller companies will also have to carry out some degree of investigation into whether environmental or human rights are indeed not violated. Therefore, medium-sized and small companies will also have to deal with the upcoming supply chain legislation.
Interpretation private law open standards also affects medium and small businesses
In addition, all companies (including small and medium-sized enterprises) should be aware that the soft law referred to in the first paragraph is increasingly filtering through into ‘hard’ (i.e. legally enforceable) laws and regulations, as judges use it to interpretate open norms. The norms developed as soft law may classify as ‘common law’ (gewoonterecht) and thus work through via the complementary effect of reasonableness and fairness (“A contract has not only the legal effects agreed by the parties but also those which, according to the nature of the contract, arise from law, custom or the requirements of reasonableness and fairness”). They may also qualify as ‘standards of social decency’ (maatschappelijke betamelijkheidsnorm) and thus carry over into tort law (“An infringement of a right and an act or omission contrary to a statutory duty or to what is socially decent according to unwritten law shall be considered a tort”). And so our private law has even more open norms. Incidentally, this does not always require a company to have committed to the relevant code of conduct. If the majority of an industry adheres to a particular code, that may be enough.
NGOs are increasingly filing lawsuits against companies because of, for instance, environmental or human rights violations. Not only does this cause reputational damage to the companies concerned, but given the above, it is possible that NGO’s can successfully claim damages (depending on the specific circumstances of the case). Although NGOs generally target larger companies, they can of course also set their sights on small or medium-sized companies that have a negative impact on people or nature. Moreover, of course, it is not only NGOs that can bring proceedings against companies, but also individuals involved with a (small or medium-sized) company who believe that a tort is being committed against them, for example, such as people living in the vicinity of a factory or data centre.
In short, ESG is also relevant for small and medium-sized companies. Of course, the relevance of ESG and the applicable laws and regulations vary from company to company. So, if you would like to know more or have any questions about ESG and your company, please, feel free to contact Stephanie ter Brake.
Or click here for the previous blog or visit our ESG theme page on our website for more information on this topic.
