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Legislative proposal to implement ESG policy for Dutch companies trading internationally

On 1 November 2022, a legislative proposal regarding the implementation of ESG-policies in national legislation (Wet verantwoord en duurzaam internationaal ondernemen) was formally submitted to the Dutch House of Representatives.

This proposal aims to counter human rights violations and environmental damages in the value chain of Dutch companies trading internationally. Underlying this legislation are the long-standing international standards for business and human rights: the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises. With this proposal, the Netherlands will be one of the leading countries in implementing the Corporate Sustainability Due Diligence Directive, published by the European Commission in February 2022. This proposal requires companies larger than 250 employees to carry out due diligence in line with the OECD Guidelines. For aggrieved parties, the situation will greatly improve: companies that cause or contribute to negative impacts, will be required to provide for or cooperate in remediation. The proposal covers all different types of human rights violations, environmental damage and climate damage throughout the value chain.

Duty of care regarding ESG policy in the value chain

This proposal seeks to implement a duty of care in Dutch legislation that applies to all Dutch companies engaged in foreign trade. A company that knows or can reasonably suspect that its own activity or that of its business relations may have an adverse impact on human rights or the environment abroad, will be required to take measures. In such a case, a company must reasonably prevent these adverse impacts and, to the extent that this is not possible, mitigate, undo and, if necessary, ensure remediation. If the adverse impacts cannot be sufficiently mitigated, a company must, to the extent that can be reasonably expected, refrain from such activity or terminate the relationship.

The proposal applies not only to Dutch companies engaged in foreign trade, but also to large foreign companies operating in the Netherlands; that is, companies that conductan activity in the Netherlands or sell a product on the Dutch market.

The proposal includes a non-exhaustive list of activities in the value chain with adverse impacts on human rights or the environment, being: restrictions on freedom of association and collective bargaining, discrimination, forced labour, child labour, climate change, environmental damage, unsafe working conditions, violation of animal welfare regulations, slavery, or exploitation.

Large Dutch companies engaged in foreign trade are additionally required to exercise due diligence in their value chains. The six steps of due diligence from the OECD Guidelines are laid down in several articles of this proposal and will therefore be directly applicable to large Dutch companies. 

These include:

  1. embed responsible business conduct into policies;
  2. identify adverse impacts;
  3. cease, prevent or mitigate adverse impacts;
  4. track implementation and results;
  5. communicate how impacts are addressed; and
  6. provide for or cooperate in remediation when appropriate.

Large companies are considered companies that exceed at least two of the three following criteria: a balance sheet total of EUR 20 million, a net turnover of EUR 40 million and an average number of employees during the financial year of 250 (including part-time and temporary workers).

Enforcement by the ACM and private law enforcement

The Dutch Authority for Consumers & Markets (ACM) is the regulatory authority responsible for monitoring compliance with this proposed legislation and may in this regard cooperate with other regulators within the Netherlands and the European Union. As regulatory authority, the ACM is also responsible for enforcement, whereby it can impose an administrative penalty, or an order subject to an incremental penalty. If administrative enforcement does not lead to termination of the adverse activity or remediation, criminal enforcement can take place on the basis of the Economic Offenses Act (Wet op de economische delicten).

Finally, this law explicitly lays down the possibility of civil enforcement (based on tort law). Not only those who are harmed by the adverse impacts on human rights or the environment can initiate legal proceedings, but also interest groups can bring collective actions.

A proactive ESG policy is the way forward!

This legislative proposal shows the current development that ESG is becoming increasingly relevant. Not only legislators, but also businesses and society as a whole are more focussed on ESG. In view of this development, a proactive ESG policy is becoming increasingly important, especially for companies trading internationally.

Authors

Portrait ofBart-Adriaan Ruijter
Bart-Adriaan de Ruijter
Partner
Amsterdam
Portrait ofElmer Veenman
Elmer Veenman
Partner
Amsterdam
Portrait ofMaurits Rabbie
Maurits Rabbie
Advocaat
Amsterdam