The Corporate Sustainability Due Diligence Directive (CSDDD) has created a new sustainability standards framework in Dutch (corporate) law. It is not always clear how to adequately implement these due diligence obligations expected of companies under environmental, social, and governance (ESG) sustainability standards, such as the CSDDD. Our colleagues Menno Baks and Sjoerd Pennink explore the civil liabilities that these obligations introduced by the CSDDD may entail for companies and directors in their recent article.
Key insights
Increased civil liability: The CSDDD introduces new civil liability risks for companies and possibly their directors, particularly in the context of greenwashing and negligence in fulfilling ESG obligations.
Uncertainty around compliance: While the CSDDD sets out comprehensive obligations, there remains uncertainty about specific expectations and compliance under the CSDDD.
Importance of ESG-proof governance: The article highlights the need for clear legal standards and offers concrete recommendations for implementing ESG norms into corporate governance towards more 'ESG-proof' practices.
The CSDDD introduces obligations for in-scope companies regarding sustainability and due diligence, aiming to enhance corporate accountability in relation to ESG issues. It establishes broad requirements that in-scope companies must adhere to, creating a more level playing field across the EU. For a summary overview of the scope, timelines, main obligations and control systems of the CSDDD, please see our Cheat Sheet.
The CSDDD also raises questions about potential civil liabilities for companies that fail to meet these obligations, particularly in the context of greenwashing and unfair commercial practice. Under Dutch law, the CSDDD opens up new avenues for civil liability for companies and possibly even for their directors as well. Failure to comply with these obligations could lead to civil liability claims, as stakeholders — including consumers, employees, and NGOs — may seek redress for damages resulting from a company's negligence in fulfilling its ESG responsibilities. The potential for claims is heightened by the risk of being accused of greenwashing, where companies may misrepresent their sustainability efforts or outcomes.
In their recently published article in the Dutch Legal Journal 'Onderneming & Financiering' (Company & Financing), Menno and Sjoerd explore the implications of the CSDDD and existing ESG frameworks and the potential civil liability grounds that may arise under Dutch (corporate) law. They note that while the CSDDD sets forth comprehensive duties, the specifics of compliance and the expectations for companies remain unclear under the CSDDD. The article emphasizes the need for clarity in the legal standards. To help navigate these standards, the authors conclude with concrete recommendations for implementing these ESG norms into practice towards a more 'ESG-proof' corporate governance. Overall, it is still early to assess the full impact of the CSDDD on corporate practices and legal accountability.
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