ESG Global Vision

Corporate Governance

The CS3D was published in the Official Journal on 5 July 2024 and entered into force on 25 July 2024.

It will apply to in-scope companies on a staggered basis, and Member States have until 26 July 2026 to transpose  it into national law. 

The CS3D will apply to large EU and non-EU companies and parent companies doing business in the EU on a staggered basis, allowing smaller companies more time to make any necessary changes to allow them to properly adhere to the requirements. 

The requirements will come into force on the following timescale:

26 July 2027:

• EU companies with a global turnover of greater than EUR 1,500 million and more than 5,000 employees.
• Non-EU companies with an EU turnover of greater than EUR 1,500 million

26 July 2028:

• EU companies with a global turnover of greater than EUR 900 million and more than 3,000 employees
• Non-EU companies with an EU turnover of greater than EUR 900 million

26 July 2029:

• All other companies in scope:
  • EU companies with a global turnover of greater than EUR 450 million and more than 1,000 employees
  • Non-EU companies with an EU turnover of greater than EUR 450 million
  • EU companies / EU ultimate parent companies of a group with a net worldwide turnover in excess of EUR 80 million and a franchise or licence business model in the EU with royalties amounting to more than EUR 22.5 million
  • Non-EU companies / non-EU ultimate parent companies of a group with a net EU turnover in excess of EUR 80 million AND a franchise or licence business model in the EU with royalties amounting to more than EUR 22.5 million 

The CS3D will only apply to companies who remain in scope for two consecutive financial years. 

Under Article 2 of CSDDD, an ultimate parent company whose main activity is holding shares in operational subsidiaries may apply for an exemption from its CS3D obligations, provided that (i) it does not engage in taking management, operational or financial decisions affecting the group or its operational subsidiaries; and (ii) one of its EU subsidiaries is designated to comply with the CS3D requirements on its behalf. The parent and subsidiary will be jointly liable for compliance. 

Small and medium-sized companies are not covered by the CS3D but may be indirectly affected as business partners in value chains.

The CS3D is a flagship piece of EU legislation, aimed at ensuring companies operating in the EU are performing detailed and comprehensive corporate due diligence across their own operations, those of their subsidiaries, and across their “chain(s) of activities” in a consistent and verifiable manner.

Duties and obligations under the CS3D

The Directive sets out a “duty of due diligence”,  requiring in-scope companies to undertake due diligence for actual or potential adverse human rights and environmental impacts in their own operations, those of their subsidiaries and in their chains of activities (direct and indirect established business relationships). There are a number of ‘core’ obligations that in-scope companies must meet as laid down in Articles 7-16 of the Directive:

• Integrating due diligence into their policies and risk management systems.
• Identifying and assessing actual or potential adverse impacts and, where necessary, prioritising actual and potential adverse impacts.
• Preventing and mitigating potential adverse impacts, and bringing actual adverse impacts to an end and minimising their extent.
• Providing remediation for actual adverse impacts.
• Carrying out meaningful engagement with stakeholders. 
• Establishing and maintaining a notification mechanism and a complaints procedure.
• Monitoring the effectiveness of their due diligence policy and measures.
• Publicly communicating on due diligence. 

The obligations and requirements set out above are expanded upon within the text of the Articles, and qualified and explained by the later Articles and accompanying policy documents/FAQs. 

In-scope companies are also required to adopt and implement a climate change mitigation plan to ensure their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.  

The Directive is designed to operate in harmony with the Corporate Sustainability Reporting Directive (“CSRD”), and as such, does not impose any significant disclosure obligations for companies that are already compliant with the CSRD. Companies in-scope for the CS3D but not in-scope for the CSRD must publish an annual report, the exact content of which will be specified by the EU through delegated acts, by 2027 at the latest.   

Implementation by Member States

Member States are required to bring the CS3D into national law by 26 July 2026, although it is expected that many Member States will start legislating sooner. Member States will be required to appoint national supervising authorities who will be responsible for supervising the new rules and who will have significant powers 

Each Member State will be required to implement the core requirements of the CS3D into their national law, but the Directive leaves room for the Member States to set more stringent due diligence requirements should they wish. Stakeholders should therefore be careful to make sure they abide by the laws of each Member State (many of which have pre-existing sustainability due diligence laws), as well as the core obligations set out in the EU legislation.

Penalties/Fines

Under the Directive,  Member States’ respective supervisory authorities will have powers enabling them to require companies to provide further information, to conduct compliance investigations, and to allow inspections of the relevant companies.  Failures of compliance will entitle the supervisory authorities to exercise all or any of the following powers:

• To order:
  
  • The cessation of any infringement
  • That the company not repeat the infringement
  • Provision of remediation to any stakeholders affected
• To impose financial or other penalties. The maximum penalty allowable under the legislation is 5% of the worldwide turnover of the entity in question from the preceding financial year.  This penalty may be increased according to the formulation of the laws implemented by particular Member States.
• To impose relevant interim measures to avoid an imminent risk of severe harm arising from the infringement.

The CS3D also creates a regulated civil liability regime whereby natural persons/entities/other stakeholders will have the opportunity to take legal action for damages suffered that could have been avoided with appropriate due diligence measures. 

Financial undertakings

Financial undertakings have an exclusion from part of the CS3D obligations in relation to their downstream chain of activities.

Further Reading

The European Commission has published a helpful set of FAQs here. 

For more information, please see the below articles:

• Human rights due diligence moves apace with the EU Parliament expanded version of the proposed CSDDD
• The interplay of the new CS3D with EU private international law: what lies ahead for businesses
• European Parliament adopts CS3D: New ESG litigation risks in the supply chain
• European due diligence: financial players are not fully excluded from the CS3D Directive

Non-financial reporting

The CSRD entered into force on January 5, 2023.

The rules will start applying between 2024 and 2028 in the following increments:

• For the year commencing 1 January 2024: Large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with the relevant reports due in 2025;
• For the year commencing 1 January 2025:  Large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with the relevant reports due in 2026;
• For the year commencing 1 January 2026:  Listed small and medium sized enterprises (SMEs) and other undertakings (small and non-complex credit institutions and captive insurance undertakings), with the relevant reports due in 2027. SMEs can opt-out until 2028.
• For the year commencing 1 January 2028:  Non-EU companies with net sales in the EU of more than EUR 150 million and at least one subsidiary or  branch in the EU, with the relevant reports due in 2029

Listed companies, and large companies in particular.

The CSRD is a flagship piece of legislation that, once brought into national law, will impose tighter reporting standards and   obligations on in scope companies in relation to their disclosure of pertinent sustainability information.

The CSRD replaces the Non Financial Reporting Directive (NFRD), and is aimed at, amongst other things, addressing shortcomings in the existing legislation, and expanding the scope of the disclosure required by the relevant entities.

The CSRD introduces more detailed reporting requirements in relation to companies’ environmental, social,  and human rights impacts.  The stated aim of the legislation is to “modernise and strengthen the rules concerning the social and environmental information that companies have to report ….. to ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.”

To ensure the relevant companies are providing reliable information, they will be subject to independent auditing and certification. The legislation aims to put financial and sustainability reporting on equal footings, and give investors access to similarly granular sustainability data as they would have financial information.  

The reporting standards required are enshrined in the European Sustainability Reporting Standards (ESRS), which the European commission adopted on 31 July 2023. A detailed article on the ESRS can be found here.

Transposition Status

For a summary of the transposition status of the CSRD, please see the Hogan Lovells CSRD Transposition tracker here . The EU also publishes a list of member states who have transposed the CSRD into national law, as well as links to the underlying legislation (see here).

The European Commission recently published a number of draft FAQs (see here) clarifying the scope of the CSRD, amongst other regulations. See these useful articles “Three months on from the CSRD transposition deadline – where are we now” and “European Commission publishes draft FAQs on EU Corporate Sustainability Reporting Directive (CSRD)” for more information.

Financial reporting

Entry into force: 10 March 2021

Application: 

• Level 1 (high level and principles based requirements on a comply or explain basis) since 10 March 2021.
• Level 2 (more detailed disclosure requirements in relation to regulatory technical standards) since January 2022.

Financial advisers and financial market participants

The SFDR is part of the EU Commission’s “Action Plan on Sustainable Growth”, and is intended to complement the EU Taxonomy Regulations and the EU Regulatory Technical Standards. The SFDR is designed to enable investors and consumers to make informed investment decisions with respect to the ESG credentials of the funds, assets, or products they are investing in/purchasing, with a view to investors making decisions that contribute to sustainable growth in the financial sector. It is hoped that its adoption will provide clarity and consistency as to the language used by FMPs when selling investment products, especially those described as ‘sustainable’ or ‘ESG focused’, or a number of other adjacent terms. In particular, the Commission hopes to eliminate ‘greenwashing’ from the investment landscape, and force FMPs to make undertake proper due diligence as to the nature of the underlying products they are selling and/or providing.

Product level classification

The SFDR requires FMPs, whenever they are offering financial products purporting to be one of the below, to make certain disclosures as to the natures of the relevant products, which will either fall into Articles 8 or 9 of the Regulation:

• Those promoting environmental and/or social characteristics, and those for which the investee company follows ‘good governance practices’ (Article 8 products)
  • The Regulation does not specifically define ‘environmental and/or social characteristics’, nor ‘good governance practices’, but gives a number of examples of activities that would be regarded as contributing to each area. 
• Those having sustainable investments as an objective (Article 9 products)
• Sustainable investments products specifically relating to carbon emissions reductions (Article 9(3) products).

The mandatory disclosure requirements for FMPs to promote Article 8 and Article 9 products differ substantially, with Article 9 products subject to more stringent disclosure obligations.  Distinguishing between Article 8 and Article 9 products is critical for FMPs to ensure they adhere to the requirements of the SFDR.  The disclosure rules are complex, with disclosure at a granular level required, particularly for Article 9 companies, the detail of which is beyond the scope of this note. For more information, see details of the regulation here.

Firm level classification

Article 3 of the Regulation also requires in scope entities/individuals to publish, on their website, three broad categories of information in relation to the integration of sustainability risks into their investment process, both at the firm and product levels:

1. Principal adverse impact (Article 4) - how investments might create or lead to possible adverse impacts in relation to a range of sustainability factors.  This requirement is by far and away the hardest and most complicated for firms to navigate, as it requires access to detailed ESG data, which most firms do not generate during the normal course of their business.  A notable feature of Article 4 is the requirement to explain the provenance of the ESG data, or, where data is unavailable, explain why the data is unavailable, and provide best estimates in its place. 

Under this heading, in-scope companies must report on 14 different sustainability related factors, ranging across a spectrum of ESG risks.

Included in this is the key requirement for in scope entities to understand and report on the Scope 1, 2, and 3 emissions for companies they have invested in.  As detailed elsewhere on the GVT, Scope 1 emissions are those directly produced by the company, Scope 2 emissions are those produced by energy it purchases for its direct use (for example, the emissions deriving from the purchase of electricity), and Scope 3 emissions are those for which the company is responsible for up and down its value chain. For FMPs, the vast majority of their emissions will be categorised as Scope 3, given their economic activities do not involve energy intensive means of production.

Scope 3 emissions are also the most difficult to track and assess. For more information on Scope 1/2/3 emissions measuring, see here.

2. Remuneration (Article 5) – in scope FMPs must publish a statement stating how sustainability risks are taken into account in their remuneration policy. 

3. Sustainability risk policy (Article 6) - how ESG risk is considered in the investment process and how these risks are taken into account in any and all investment decisions. This must detail the ‘likely impacts’ of those risks on the returns of the products they are providing or advising on.  Even in circumstances where there are no risks identified, or where the risks are ‘not relevant’, FMPs must make clear why these risks are not relevant.

These Article 4-6 disclosures must be made:

• in the relevant documentation for a specific financial product; and
• on the FMP’s website.

Comply or explain policy

Under the comply or explain rule, if an FMP does not consider the ESG/sustainability impact(s) of its decisions/investments, it must publish a statement this effect on their website and give clear and detailed reasons for failing to comply with the requirement under the Regulation.

The Regulation may also require additional disclosure of sustainability information in relation to certain financial products purporting to promote ESG objectives.

Stakeholder consultation

In late 2023, the Commission launched a consultation through which stakeholders could provide feedback on the implementation of the SFDR, alongside their suggestions for future changes/amendments. On 3 May 2024 the Commission published a summary of the responses received, which highlighted the need to ensure consistency across EU sustainability regulation and legislation, as well as providing clarity on the exact disclosures required under the SFDR. For more detail, please see the summary here, as well as this article. It is anticipated that further consultations will follow.

For more information generally, please see these articles (and this analysis piece):

• European Commission seeks industry views in SFDR target consultation
• EU Sustainable Finance Package and development in EU Taxonomy and SFDR interactions
• European Supervisory Authorities update consolidated Q&As on the SFDR
• EU Sustainable Finance Disclosure Regulation and EU Taxonomy: Regulatory Technical Standards Update

Corporate governance policy

In force.  The Code was revised in December 2022 and the revised version of the Code applies to financial years starting on or after 1 January 2023.

All companies whose registered offices are in the Netherlands and whose shares, or depositary receipts for shares, have been admitted to trading on a regulated market or a comparable system.

and

All large companies whose registered offices are in the Netherlands (balance sheet value > €500 million) and whose shares, or depositary receipts for shares, have been admitted to trading on a multilateral trading facility or a comparable system.

The Code contains principles and best practice provisions that govern the relationship between the management board, the supervisory board and the general meeting/shareholders. Listed companies use the Code as a guide for setting up their governance structures and processes. In addition, the Code is a source of inspiration for many other companies and institutions that choose to apply the Code voluntarily. The principles and provisions are aimed at fulfilling responsibilities for long-term value creation, risk management, effective management and supervision, remuneration and the relationship with (the general meeting of) shareholders and stakeholders. The principles can be understood as broadly supported general views on good corporate governance. The principles have been elaborated in best practice provisions. These provisions contain standards for the conduct of directors, supervisory directors and shareholders. They reflect best practice and are an interpretation of the general principles of good corporate governance.

Listed companies must render account for their compliance with the Code in their management report. Based on the ‘comply-or-explain’ principle, the provisions of the Code must either be complied with by applying them or the reason for deviating from the relevant provisions must be explained.

The revised version of the Code includes new provisions concerning sustainability and diversity and inclusion:

• The management board, supervisory board and executive committee should be composed in such a way to ensure appropriate degree of diversity for the company.
• The gender identity (instead of gender) of each supervisory board member should (if desired by the individual concerned) be reported in the company’s supervisory board report.
• Companies should have a D&I policy as well as accountability for the D&I policy in their Corporate Governance Statement by explaining their D&I policy targets, plans to achieve these targets and the results of the D&I policy in the past financial year.

Non-financial reporting, corporate governance policy

In force

Listed companies.

This Decree provides that large public and private companies must formulate a corporate governance statement, an explanation of the characteristics and functioning of internal control mechanisms, the compliance with the Dutch Corporate Governance Code and appropriate ambitious targets for the ratio between men and women in the management board, the supervisory board (the top) and the categories of employees to be determined by the company in management positions (the sub-top). They must report this to the Social Economic Council ("Sociaal-Economische Raad", SER).

Corporate governance policy

Entry into force: 9 June 2017

Companies that have their registered office in the EU and their shares listed on a regulated market in the EU.

SRD II enhances the SRD regime by introducing rules that aim to counter an excessive focus on short-term profits and risk-taking in favour of a longer term, more sustainable model of corporate governance that considers the wider interests of shareholders and stakeholders.

Financial reporting

Published by the EC on 21 April 2021.

Application: rules expected to start applying from around October 2022.

Firms within the scope of MiFID, AIFMD and UCITS.

The proposed amendments set out obligations on investment funds, mutual funds, alternative investment funds (AIFs), investment firms, insurance firms and brokers, and reinsurance companies to provide clients with clear advice on ESG risks and opportunities attached to their investments.

Find out more:

MiFID Delegated Regulation

Delegated Directive

AIFMD Delegated Regulation

UCITS Implementing Directive

Corporate governance policy

Entry into force: 2 August 2022

Management companies and credit institutions

The Delegated Regulation concerns integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms.

Corporate governance policy

Entry into force: 2 August 2022

Any alternative investment fund.

The Delegated Regulation concerns sustainability risks and sustainability factors to be taken into account by alternative investment fund managers.

Corporate governance policy

Entry into force: 2 August 2022

Any insurance and reinsurance undertaking.

The Delegated Regulation concerns the integration of sustainability risks into the governance of insurance and reinsurance undertakings.

The Delegated Regulation provides for the integration of sustainability risks in the prudent person principle. In particular, when dealing with risks arising from investments, insurance and reinsurance undertakings shall take into account sustainability risks. More precisely they shall take into account the potential long-term impact of their investment strategy and decisions on sustainability factors and, where relevant, that strategy and those decisions of an insurance undertaking shall reflect the sustainability preferences of its customers taken into account in the product approval process referred to in Article 4 of Commission Delegated Regulation (EU) 2017/2358 (product oversight and governance requirements for insurance undertakings and insurance distributors).

Corporate governance policy

Entry into force: 2 August 2022

Any insurance undertaking and distributor of insurance products.

The Delegated Regulation concerns the integration of sustainability factors, sustainability risks, and sustainability preferences into product control and product governance requirements for insurance companies and distributors of insurance products and into conduct of business rules and investment advice for insurance investment products.

Corporate governance and financial policy

Entry into force: Member States shall implement the Directive by 22 November 2022.

Any Member State

The Delegated Directive concerns the integration of sustainability factors into product governance obligations (safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits).

Corporate governance and financial policy

Entry into force: Member States shall implement the Directive by 2 August 2022

Any Member State

The Delegated Directive concerns sustainability risks and sustainability factors to be taken into account for undertakings for collective investment in transferable securities (UCITS).

In particular, management companies should, when identifying the types of conflicts of interest the existence of which may damage the interests of a UCITS, include conflicts of interest that may arise as a result of the integration of sustainability risks in their processes, systems and internal controls. Those conflicts may include conflicts arising from remuneration or personal transactions of relevant staff, conflicts of interest that could give rise to greenwashing, mis-selling or misrepresentation of investment strategies and conflicts of interests between different UCITS managed by the same management company.

Social policy

Not yet in force. Please note that the Child Labour Due Diligence Act will be withdrawn once the Act on Responsible and Sustainable Business Operations is in force, as the contents will be implemented in this new Act (see below), which in addition to child labour, protects against wider human rights abuses and labour and environmental violations.

All companies that sell goods or services to Dutch end users (consumers) and companies fall under the scope of the Act, as well as foreign companies and companies that only operate online. Commerce between companies and the mere transportation of goods fall outside the scope. An exception has also been made for current agreements. In an implementing regulation yet to be established, certain categories of  xompanies will be able to receive an exemption.

The main requirements of the new legislation are: 

1. When importing goods and services from other countries, companies must apply due diligence by examining whether there is a reasonable suspicion that goods and services were produced using child labour. This examination must be focused on sources that are reasonably apparent and accessible to the company. If the examination reveals that there is a reasonable suspicion of child labour, an action plan to prevent this must be drawn up in line with international guidelines.
2. Companies must send a notice to the supervisory authority, the Netherlands Authority for Consumers & Markets ("ACM"), that they are adhering to the aforementioned due diligence.

Social policy

Directive entered into force on 6 June 2023 and Member States must implement within three years, by 7 June 2026

Employers in the public and private sectors

This Directive aims to improve equal pay between men and women through greater pay transparency and better access to justice in the event of unequal pay.

The Directive provides for a reporting obligation for employers with 100 or more employees on the gender pay gap between female and male workers in their organisation. Companies with more than 250 employees will be required to report annually to the relevant national authority (to be determined). For smaller organisations (initially those with over 150 employees), the reporting obligation should take place every three years.

The Directive also provides for better access to information for job applicants, workers and their representatives, a shift of the burden of proof (of equal pay) to the employer in pay discrimination cases, and an obligation for Member States to introduce effective and appropriate sanctions for non-compliance, including fines.

Social policy

Entry into force: 8 December 2020

Consolidated version adopted on 22 March 2021.

EU persons, companies incorporated or constituted under the law of an EU Member State, non-EU companies in respect of any business done in whole or in part within the EU.

In December 2020, the Council adopted the EU’s first global human rights sanctions regime. This new regime allows the EU to impose travel bans and financial sanctions on individuals, entities and bodies (including state and non-state actors) responsible for, involved in or associated with serious human rights violations and abuses worldwide, irrespective of where they occurred.

Social Policy

In force (Member States are required to implement the Directive)

Any member State

Under the new rules, workers are, inter alia, entitled to greater predictability regarding assignments and working hours. They will also be entitled to receive timely and more complete information about essential aspects of their work, such as their place of work and pay. The new rules will particularly benefit some 2-3 million workers with precarious forms of employment.

Social policy

In force

All employers, defined as (i) the party towards whom another person is obliged to perform work pursuant to a contract of employment or an appointment under public law, (ii) the party to whom another person is made available for performing work, and (iii) a party, who causes another person to perform work under his authority. The scope includes the performance of work within the exclusive economic zone; activities of pupils and students in educational establishments comparable to employment in professional practice; employment outside the Netherlands by persons employed on board of Dutch sea-going vessels; and employment outside the Netherlands by persons employed on board of aircraft for an employer established in the Netherlands.

The Working Conditions Act – together with the Decree and the Regulation - contains rules for employers and employees to promote the health, safety and well-being of employees.

The Working Conditions Act is a framework act. This means that there are no concrete rules, but general provisions about the occupational health and safety policy in companies. It states that the employer and employees must work together to improve working conditions. The employer is ultimately responsible, but the employee also has the obligation to observe his own health and safety by, for example, using work equipment and protective equipment correctly.

More concrete rules per type of work or per sector can be found in the Decree and the Regulation.

Find out more:

Working Conditions Act  

Working Conditions Decree  

Working Conditions Regulation 

There is a legislative proposal to amend the Working Conditions Act, which would require all employers to appoint a confidential counsellor to whom an employee who experiences inappropriate behaviour (including direct and indirect discrimination, harassment, sexual harassment, aggression, violence or bullying) can turn. When in place, the works council or employee representatives must agree to the appointment of a confidential advisor. If an employer fails to appoint an employee as a confidential counsellor, an external confidential counsellor must be appointed. Furthermore, the proposal regulates the tasks of a confidential counsellor, as well as their independence and a duty of confidentiality. The proposal also stipulates that a confidential counsellor must be sufficiently experienced and competent. Lastly, the legal status of the confidential counsellor is protected. Thus, the confidential counsellor may not be disadvantaged in connection with their position in the company or dismissed because of this position. 

Social policy

The Dutch Whistle-blower Protection Act entered into force February 18 2023, with the exception of the sanctioning powers of the Dutch House for Whistle-blowers and the rules relating to submitting an anonymous report. 

• Large employers (with at least 250 employees) must comply and have adjusted their internal reporting procedures accordingly.
• Medium-sized employers (50-249 employees) will have more time for implementation, until 17 December 2023.
• Employers with fewer than 50 employees do not have to comply with the Act.

In addition to regular employees, the term 'employee' includes 'anyone who otherwise performs work for remuneration in a subordinated relationship', such as interns and volunteers, insofar as they receive remuneration for their work.

The Dutch Whistle-blower Protection Act replaces the Dutch House for Whistle-blowers Act and provides for new protection measures. For example, whistle-blowers are no longer obliged to first submit a report internally, the retaliation prohibition has been expanded, the persons who can submit a protected report as well as the definition of protected reports have been expanded, a prohibition on silencing reporters has been introduced and stricter requirements apply to the internal reporting procedure itself (inter alia relating to anonymous reports, deadlines and mandatory registration of reports).

The investigation department of the Dutch House for Whistle-blowers (Huis voor Klokkenluiders) has also been given sanctioning powers, including imposing fines (amount not yet known), namely in the event of retaliation, failure to follow its instructions or in the absence of an internal reporting procedure. Rules relating to submitting anonymous reports and the sanctioning powers of the House are yet to be set out in subordinate legislation.

Environmental policy

In force

The Government / Setting national climate protection targets

The Climate Act stipulates that the Netherlands must emit 49% fewer greenhouse gases in 2030 and 95% less in 2050 compared to 1990. The Netherlands converts greenhouse gases other than CO2 into CO2 equivalents. Another aim is to increase the share of renewable energy to 100 percent by 2050.

The government must draw up a Climate Plan every five years, setting out the main points of climate policy for the next ten years (the Climate Plan is mentioned above under "Voluntary Standards").

Environmental policy

In force – will soon be replaced by the Environmental Act ( "Omgevingswet")

All companies and citizens

The most important chapters from the Environmental Protection Act:

• environmental policies and programs (chapter 4);
• environmental quality requirements (chapter 5);
• environmental impact assessments (chapter 7);
• establishments (chapter 8);
• waste (chapter 10);
• sound (chapter 11);
• reporting, registration and measurement obligations (chapter 12); and
• procedures for permits and exemptions (chapter 13).

This Act for instance requires companies to have permits when conducting projects that might affect the environment.

Financial reporting

Entry into force: 10 December 2019

Benchmark administrators

The Benchmark Regulations require benchmark administrators to disclose ESG factors, and include disclosure in their benchmark statement on how their methodology aligns with the target of carbon emissions reduction or attains the objectives of the Paris Agreement.

Taxonomy, financial reporting and non-financial reporting

Applies from 1 January 2022.

The following delegated acts were approved by the Commission for scrutiny by the co-legislators:

Delegated Act on sustainable activities for climate change adaptation and mitigation objectives

Delegated act supplementing Article 8

• Financial market participants who offer financial products and market these as environmentally sustainable
• Organisations covered by the NFRD and SFDR

The Taxonomy Regulation sets out an EU-wide framework and classification system according to which investors and businesses can assess whether certain economic activities are environmentally sustainable.

The Taxonomy Regulation introduces amendments to disclosure requirements under SFDR and NFRD.

Financial reporting

In force

EU Institutions and national governments.

The European Climate Law writes into law the goal set out in the European Green Deal – for Europe’s economy and society to become climate-neutral by 2050.

Taxonomy, financial reporting and non-financial reporting

Entry into force: 29 December 2021.

Application from 1 January 2022.

1. Financial market participants who offer financial products and market these as environmentally sustainable
2. Organisations covered by the NFRD and SFDR

The Net Zero Investment Framework provides recommended methodologies and actions which asset owners and asset managers should utilise to assess and undertake alignment of their portfolios towards net zero, in order to maximise their contribution to the decarbonisation of the real economy. The Framework puts forward metrics to assess investments and measure alignment, and requires investors to set concrete targets at portfolio and asset level.

The key recommendations revolve around governance and strategy, portfolio reference targets, strategic asset allocation, asset class alignment, policy advocacy, and stakeholder and market engagement.

Investors are encouraged to publish information annually on how they consider their targets to be aligned to a pathway to achieve global net zero emissions by 2050, and the strategy and actions they have implemented across all asset classes, and performance against the objectives and targets over time.

Financial reporting

Entry into force: 23 December 2020

Benchmark administrators

The three Delegated Acts required by the Low Carbon Benchmarks Regulation and adopted by the EC, set out (i) the environmental, social, and governance (ESG) disclosure requirements for benchmarks provided in accordance with the EU Benchmarks Regulation (Regulation (EU) 2016/1011), and (ii) sustainability criteria in order for a benchmark to qualify as an EU Climate Transition Benchmark or EU Paris-aligned Benchmark. Those are:

Commission Delegated Regulation (EU) 2020/1816

Commission Delegated Regulation (EU) 2020/1817

Commission Delegated Regulation (EU) 2020/1818

Environmental policy

Entry into force : Member States shall bring into force the provisions of the Directive by 10 March 2020

Any EU Member State

This Directive presents some amendments to Directives 2010/31 and 2012/27 to better address and ensure that sustainability requirements are met in building construction activities, new building characteristics and building energy performance aspects.

Environmental policy

In force from 1 January 2024

However, companies may submit information voluntarily from 16 May 2023.

Employers with 100 or more employees will be required to report from 1 January 2024.

The reporting requirement entails that each year relevant employers must submit a report on the total number of kilometres travelled by its employees. The employer must report the kilometres by vehicle type and fuel type. It must also specify whether the mileage relates to commuting or business travel. Once all the data has been entered into the digital form, the CO2 emissions of the employer’s commuting and business mobility will be calculated.

The first year for which relevant employers have to report is 2024. From 2025, the data provided will be made available (automatically) to the regional environmental service (regionale omgevingsdienst) working for the municipality where the employer's head office is located. Every year, the environmental service will verify whether the employer has submitted the data on time and correctly. Each year, the data for the previous year must be submitted by 1 July. For example, the data for the year 2024 must be entered on the digital form by 30 June 2025 at the latest.

Social policy, due diligence obligation

Entry into force: 8 June 2017.

New consolidated version adopted on 19 November 2020.

Application: 1 January 2021

EU-based importers of tin, tantalum, tungsten and gold

The regulation requires EU importers of the four minerals – tin, tantalum, tungsten and gold – to ensure they use only responsible and conflict-free sources.

They need to comply with, and report on, supply chain due diligence obligations if the minerals originate (even potentially) from conflict-affected and high-risk areas.

Companies from outside the EU are also impacted as EU-companies will need to make sure they source from responsible smelters and refiners.

Social Policy, Corporate Governance Policy

In force

It differs per article. Article 2:142b: companies whose shares or depositary receipts for shares are admitted to trading on a regulated market.

Articles 2:166 and 2:276: companies that have not met at least two of the following requirements on two consecutive balance sheet dates:

• the value of assets does not exceed €20.000.000,
• the net turnover for the financial year does not exceed €40.000.000,
• the average number of employees for the financial year is less than 250.

This amendment of Book 2 of the Dutch Civil Code, requires large public (limited) companies and large private (limited) companies to formulate appropriate and ambitious goals in the form of target figures for the ratio between men and women in the management board, the supervisory board and the sub-top management. The company is also required to draw up a plan to achieve the goals, which must be reported to the Socio-Economic Council and the management report ("bestuursverslag") shall include a description thereof.

This amendment also requires that the composition of the supervisory board of listed companies must be balanced. A so-called women's quota or growth quota applies to this: at least one third of the supervisory board consists of men and one third of women. An appointment that does not make the distribution more balanced is null and void. The vacancy will then remain open.

Social policy

Consultation phase – likely to be implemented in 2023/2024

Chapter 1: Legal duty of care

All companies, that know or can reasonably suspect that its activities may have adverse effects on human rights, labor rights or the environment in a country outside the Netherlands.

Chapter 2: Duty of appropriate care

Companies that perform their activities in a country outside the Netherlands and on the balance sheet date, at least two of the following three criteria exceeds:

1. balance sheet total: € 20 million;
2. net turnover: € 40 million
3. average number of employees during the financial year: 250 employees.

This Act places a broad duty of care on companies, with the goal to prevent and address actual and potential adverse consequences of the activities of companies abroad (e.g. in the sense of their supply chains), in particular with regard to human rights, labour rights and the environment. It tries to reach this goal by placing this duty of care on and making compliance with the OECD Guidelines mandatory for multinational companies.

Companies must exercise due diligence in their supply chains to assess, identify, reduce and prevent the actual and potential adverse consequences thereof their actions. Such adverse consequences take place, for example, when in the supply chain use is made of restrictions on the freedom of association and collective bargaining, or when discrimination, forced labour, child labour, unsafe working conditions, slavery, exploitation or environmental damage takes place.

Non-financial reporting

In force

Public interest entities (i) with an average number of  more than 500 employees over the financial year, and (ii) that have not met one of the below requirements on two consecutive balance sheet dates:

• the value of the assets does not exceed € 20.000,000,
• the net turnover for the financial year does not exceed € 40.000,000.

Implementation of EU Directive 2014/95/EU. According to this Decree, these public interest entities are obliged to include information about their performance or impact on the  environment, human resources, social aspects, human rights and prevention of bribery and extortion in their annual report.

Prudential measures

Entry into force: 30 December 2019

Institutions subject to supervision by the EBA, EIOPA and ESMA

The Omnibus Regulation establishes ESG-related factors as part of the EBA, EIOPA and ESMA’s "scope of action" and assigns each with the task of monitoring and assessing ESG-related developments in their areas of competence.

The Omnibus Regulation also modifies Article 23 (1) of each regulation, requiring each authority to develop criteria for the identification and measurement of systemic risk, including environmental risks, and Article 29 (1) of each regulation, requiring each authority to put in place a monitoring system to assess material ESG-related risks, taking into account the Paris Agreement.

Prudential measures

In progress

Report on Environmental, Social and Governance (ESG) risks management and supervision published on 23 June 2021

Credit institutions and investment firms

Article 98(8) of Directive 2013/36/EU (“CRD IV”) and Article 35 of Directive (EU) 2019/2034 (“IFD”) requires the EBA to develop a report providing uniform definitions of ESG risks, and appropriate qualitative and quantitative criteria for the assessment of the impact of ESG risks on the financial stability of institutions in the short, medium and long term. They also mandate the EBA to assess whether to include ESG risks in its annual prudential supervisory review and evaluation process undertaken by Member State prudential regulators (“SREP”).

Prudential measures

In progress

Report on Environmental, Social and Governance (ESG) risks management and supervision published on 24 October 2022

Credit institutions and investment firms

In June 2021, the EBA published a Report on the management and supervision of ESG risks for credit institutions and investment firms in accordance with Article 98(8) of Directive 2013/36/EU (Capital Requirements Directive - CRD) and Article 35 Directive (EU) 2019/2034 (Investment Firms Directive - IFD).

Following the publication of the EBA Guidelines on SREP for investment firms, the Report published on 24 Oct 2022 fulfils the mandate under point (d) of Article 35 of the IFD and complements the Report on the management and supervision of ESG risks for credit institutions and investment firms, published in June 2021.

Point (d) of Article 35 of IFD mandates the EBA to develop a report providing the criteria, parameters and metrics by means of which supervisors and investment firms can assess the impact of short, medium and long-term ESG risks for the purposes of the supervisory review and evaluation process. The Report has been transmitted to the EU Parliament, the Council and the European Commission.

Non-financial reporting

The CSRD entered into force on January 5, 2023.

The rules will start applying between 2024 and 2028 in the following increments:

• For the year commencing 1 January 2024: Large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with the relevant reports due in 2025;
• For the year commencing 1 January 2025:  Large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with the relevant reports due in 2026;
• For the year commencing 1 January 2026:  Listed small and medium sized enterprises (SMEs) and other undertakings (small and non-complex credit institutions and captive insurance undertakings), with the relevant reports due in 2027. SMEs can opt-out until 2028.
• For the year commencing 1 January 2028:  Non-EU companies with net sales in the EU of more than EUR 150 million and at least one subsidiary or  branch in the EU, with the relevant reports due in 2029

Listed companies, and large companies in particular.

The CSRD is a flagship piece of legislation that, once brought into national law, will impose tighter reporting standards and   obligations on in scope companies in relation to their disclosure of pertinent sustainability information.

The CSRD replaces the Non Financial Reporting Directive (NFRD), and is aimed at, amongst other things, addressing shortcomings in the existing legislation, and expanding the scope of the disclosure required by the relevant entities.

The CSRD introduces more detailed reporting requirements in relation to companies’ environmental, social,  and human rights impacts.  The stated aim of the legislation is to “modernise and strengthen the rules concerning the social and environmental information that companies have to report ….. to ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.”

To ensure the relevant companies are providing reliable information, they will be subject to independent auditing and certification. The legislation aims to put financial and sustainability reporting on equal footings, and give investors access to similarly granular sustainability data as they would have financial information.  

The reporting standards required are enshrined in the European Sustainability Reporting Standards (ESRS), which the European commission adopted on 31 July 2023. A detailed article on the ESRS can be found here.

Transposition Status

For a summary of the transposition status of the CSRD, please see the Hogan Lovells CSRD Transposition tracker here . The EU also publishes a list of member states who have transposed the CSRD into national law, as well as links to the underlying legislation (see here).

The European Commission recently published a number of draft FAQs (see here) clarifying the scope of the CSRD, amongst other regulations. See these useful articles “Three months on from the CSRD transposition deadline – where are we now” and “European Commission publishes draft FAQs on EU Corporate Sustainability Reporting Directive (CSRD)” for more information.

Corporate governance policy and financial and non-financial disclosures

In force since 2013

New consolidated version adopted on 30 September 2021.

Large institutions with securities traded on a regulated market of any EU Member State

Regulation (EU) 2019/876 amending Capital Requirements Regulation includes under article 449a the requirement to disclose prudential information on environmental, social and governance risks, including transition and physical risk, addressed to large institutions with securities traded on a regulated market of any Member State. These disclosure requirements are applicable from June 2022 on an annual basis during the first year and biannually thereinafter. 

Non-financial reporting

Voluntary standards

Financial institutions such as pension funds and asset managers

The Net Zero Investment Framework provides recommended methodologies and actions which asset owners and asset managers should utilise to assess and undertake alignment of their portfolios towards net zero, in order to maximise their contribution to the decarbonisation of the real economy. The Framework puts forward metrics to assess investments and measure alignment, and requires investors to set concrete targets at portfolio and asset level.

The key recommendations revolve around governance and strategy, portfolio reference targets, strategic asset allocation, asset class alignment, policy advocacy, and stakeholder and market engagement.

Investors are encouraged to publish information annually on how they consider their targets to be aligned to a pathway to achieve global net zero emissions by 2050, and the strategy and actions they have implemented across all asset classes, and performance against the objectives and targets over time.

Financial and non-financial reporting

Voluntary standards

Asset managers

The code focuses on socially responsible investment (SRI) funds distributed publicly in Europe and has been designed to cover a range of assets classes, such as equity and fixed income.

The principle driving the Code is that asset manager signatories should be open and honest, and disclose accurate, adequate and timely information to enable stakeholders, in particular retail investors, to understand the policies and practices of a given SRI fund.

Signatories need to make several commitments such as respecting the order and exact wording of the questions of the code, updating responses at least on an annual basis, and making the responses to the code easily accessible from the fund’s and/or fund manager’s website.

Sustainability standards

Voluntary standards

All companies

The Commission adopted on March 2022 draft revised Guidelines on the assessment of Horizontal Agreements. Such guidelines will enter into force on 1 January 2023. Chapter 9 of the guidelines concerns “sustainability agreements”. According to chapter 9, agreements which meet certain standards of sustainability can outbalance negative effects under a competition standpoint and can thus be exempted from the application of competition rules.

Corporate Governance

In force

EU financial services firms

The EU has introduced amendments to various Delegated Acts (see link) which will integrate sustainability issues into a number of key financial services Directives.

Entities will be:

• Required to integrate sustainability factors into their assessment of client suitability for certain financial products and when undertaking product approval of instruments.
• Subject to new obligations to integrate sustainability risks into risk management and conflict procedures
• Subject to new fiduciary duties, making sure that they encompass sustainability risks such as the impact of climate change.
   

Support of SMEs and organisations projects

Entry into force: 26 March 2021.

Application: 1 January 2021

EU SMEs and organisations with difficulties when accessing finance because of their perceived high risk (in particular after COVID-19 crisis).

This Regulation establishes the InvestEU Fund, which shall provide for an EU guarantee to support financing and investment operations carried out by the implementing partners that contribute to objectives of the Union’s internal policies. The Regulation also establishes an advisory support mechanism to provide support for the development of investable projects and access to financing and to provide related capacity building assistance.