Belgium: Pioneer protecting the planet 

Belgium has become the first EU state to recognize ecocide as an international and domestic crime.

Under this new penal code, ecocide has been defined as an unlawful and deliberate act or omission that causes substantial and irreparable damage to the environment, which will carry penalties of up to 20 years in prison (for natural persons) or a fine of up to €1.6 million (for legal persons). Courts will also have the power to consider additional measures such as special confiscation, dissolution, or the closure of one or more establishments being implemented. 

David v Goliath: ClientEarth v Shell and the growing need to consider nature related risks as part of directors’ duties 

ClientEarth, a 0.17% minority shareholder, sought High Court permission to bring a derivative claim against Shell directors, alleging violations of their duties under the Companies Act 2006 in managing climate change risk. The claim was based on Shell's adoption of a net zero target without implementing appropriate policies.

The Court dismissed the claim, noting ClientEarth's small shareholding, Shell's majority approval for its strategy, and ClientEarth's broader agenda rather than benefiting Shell's success as a whole.

Whilst this bucks the recent trend of the English courts favoring ESG-related actions, the importance of maintaining robust stakeholder relationships for good corporate governance cannot be overstated. This is particularly crucial in circumstances where a decision relates to ESG and requires shareholder approval. 

This aligns with the recent opinion published by Shivji KC & Stubbs KC, which concludes that nature-related risks are relevant to directors’ duties under sections 172 and 174 of the Companies Act 2006.

New ESG rules set by ESMA

The European Securities and Markets Authority (ESMA) has proposed rule changes in respect of:

• information requirements for external reviewers (e.g. ratings agencies) of EU green bonds; and
• how credit rating agencies use ESG factors when they rate companies for their creditworthiness. 

These measures are intended to combat conflicts of interest arising where external reviewers are paid by the bond issuer to give a view on the issuer’s compliance with relevant green bonds regulation, enhance transparency around the consideration of ESG factors and to help stop greenwashing.

EU Council approves watered down Corporate Sustainability Due Diligence Directive at the last minute

Following two years of controversial discussion, eventually, the EU Council and the European Parliament have endorsed the Directive on Corporate Sustainability Due Diligence (CS3D) which will require certain companies operating in the EU to incorporate human rights and environmental due diligence into their management systems in order to detect any such violations in their operations and supply chains.

This revised directive has also further limited the proposed obligations to be imposed, including to reduce the number of companies that will be caught by the legislation. Companies will now only be caught where they have a minimum of:

• 1,000 employees (previously 500); and
• worldwide net turnover of €450 million (previously €150 million).

There are specific provisions regarding the applicability on (ultimate) parent companies and franchising and licensing models. Notably, the CS3D will also be applicable to non-EU companies with equivalent turnover generated in the EU.

Member States will have two years to transpose the CS3D into national law and the obligations set out therein would begin to apply to applicable companies within three and five years of the CS3D coming into force (depending on the size of the company).

Further information can be found here and here.

SEC puts Climate-Related Disclosure Rules on hold

On 4 April 2024, less than one month after their release, the SEC has decided to temporarily pause the Climate-Related Disclosure Rules (CRDRs) pending judicial review.

The SEC exercised its discretion to put the CRDRs on hold in light of eight legal challenges to the CRDRs. The Rules, which set standards for how large publicly traded companies disclose climate-related risks to investors, have received criticism from across the political spectrum. Conservative states and energy industry companies claim the rules exceed the SEC’s authority, whilst environmental groups argue that the CRDRs do not go far enough. 

Despite the pause, the SEC has vowed to “continue vigorously defending” the first-of-its kind regulation, which it states is consistent with applicable law and within the Commission’s long-standing authority. 

ESG Counsel

The Hogan Lovells ESG team is here to help, including on all the issues raised in this snapshot. Hogan Lovells is one of the leading ESG firms in the world, delivering uniquely tailored cross-practice and geographic holistic advice as ESG Counsel to clients globally. Our holistic and solutions-driven approach to managing ESG issues draws on the full scope of our global practice and sector capabilities (including our leading global corporate, environmental, governmental relations and regulatory, employment, and dispute resolution teams) to drive sustainable value and maximize positive impact for clients. Please contact us to discuss next steps or for our latest ESG-related materials, including our ESG Academy.

Upcoming events

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Authored by John Connell, Nicola Evans, John Livesey, Alastair Young, Christian Ritz, Russell Clay, Felix Werner, Alexandra Miller, Bethany Bridges, Hope O’Dwyer, Coco Brown, Roddy Freeman, Hanwei Low, Aled Luckman, and Sarah Tillmann.