Legal considerations when implementing the CSRD
Together with sustainability experts from Grant Thornton, we held the first of a series of roundtable discussions on the implementation of the Corporate Sustainability Reporting Directive (CSRD) on March 6 and March 28. With clients from multiple sectors (banks, insurers, telecoms, IT, manufacturing, energy, transport), we discussed what needs to be done substantively for the implementation and what the legal risks and challenges are.
The legal landscape of sustainability policy: risk management and impact analysis
In terms of content, Grant Thornton explained what is involved in an impact analysis. How do you determine what your material themes are and how do they serve as the basis for policies, objectives and measures to be formulated. From a legal perspective, we went through the risks involved in the choices a company has to make, based on a number of propositions.
- Is having an ambitious policy risky if there is a chance you might not or will not not achieve the objectives?
- On the contrary, does having low ambition involve the risk of actions or repercussions from civil society organisations? Such as environmental organisations and for the social domain, trade unions and governance of investors?
We looked at the scope of the Shell/Environmental Defence ruling and the responsibility for the entire value chain, both as a result of the reporting obligations under the CSRD and as a concrete obligation under the, yet to be adopted, Corporate Sustainability Due Diligence Directive (CSDDD). Last but not least, what does this entail for the risks directors are facing?
The importance of transparency and binding commitments in CSRD, and CSDDD
The joint, intermediate, conclusion is that risks are lowest if the company follows the rationale behind the CSRD (and CSDDD). Transparency about all impacts and risks, combined with policies and objectives that are appropriate to the nature and extent of the impacts and risks and, above all, achievable. Not only for the organisation itself, but also taken into account good, binding agreements with partners in the value chain.
Involving the (supply)chain in CSRD: From code of Conduct to concrete ESG policy
How the chain should be involved in reporting requirements and the company's ESG policy and objectives is an important part of implementing the CSRD. Partners in the chain will first have to provide insight into the impact of their activities and the sustainability risks they foresee. Following, the partners may also need to be involved in taking measures necessary for the company to realise its ESG policy. The round table discussion zoomed in on whether enforcing a Code of Conduct is sufficient. As described elsewhere in this article, we see added value in more concrete contractual obligations. If it is not easy or practical to amend existing agreements on this point, the obvious solution is to conclude a separate ESG agreement. This should also entail that the direct supply chain partner, passes on the ESG-obligations to its own partners.
Conclusion: challenges and insights
The sessions ended with the conclusion that implementing the CSRD will not be easy and requires a lot from the organisation and not the least from (corporate) lawyers. In the coming months, we will share more insights and experiences with clients on this topic. The next round table is scheduled for early July.