It proves more and more difficult to deny¹ that climate change and environmental degradation are an important, so not to say existential, threat to Europe and the world.

Corporate social or societal responsibility (CSR) is defined by the European Commission as “the responsibility of enterprises for their impacts on society”². As such, the concept aims to embrace the environmental, social and societal aspects of the enterprise’s management, strategy and activities.

To overcome the challenges linked to the climate change, and all social and environmental consequences related to it (and to moderate the natural inclination of humans to - rapidly and easily, without taking into the possible collateral damages - make profit), the European legislator adopted a set of proposals and regulations to make the EU's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels, launching the European Green Deal³. This initiative, that is to significantly impact the development of the economic activities for the next decades, has notably been translated in a series of new regulations in the field of CSR that experts and lawyers often like to describe through beautiful acronyms: NFRD⁴, SFDR⁵, CSRD⁶ (the list is of course non-exhaustive⁷). The Taxonomy Regulation⁸ and the Due Diligence Directive⁹ did not benefit of the same privilege. This being said, CSR is subject to an increasing number of rules that can no longer be ignored by companies: some of them relate to the management and strategy of companies, other to their disclosures and communication.

Some of these new regulations deserve a brief overview¹⁰ .

1. Corporate Governance and operations

The recent adoption of the set of proposals and regulations in the field of corporate social responsibility have first a significant impact on corporate governance of companies. Management bodies (by default, in Belgium, the board of directors) are responsible for setting the direction of the company’s activity while taking the associated social and environmental issues into account. Because it is the main body involved in strategy and long-term issues, the board of directors must fully address ESG issues. In particular, it must arbitrate between these usually long-term considerations and those relating to shareholders’ expectations of short- and medium-term performance.

The EU proposal for a directive on corporate sustainability due diligence of 23 February 2022¹¹ intends to ask Member States to transpose into national law a corporate due diligence duty to identify, prevent, bring to an end, mitigate and account for adverse human rights and environmental impacts. The duty would apply to a company’s own operations, its subsidiaries and their value chains (i.e. business partners).

By organizing a due diligence duty on corporate sustainability for certain companies, the proposal for a directive provides for strengthening the duties of directors by introducing the obligation for them:

• to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy, and
• when fulfilling their duty to act in the best interest of the company, to take into account the human rights, climate change and environmental consequences of their decisions.

Of course, the means depend on the size of the company, on whether it is listed, and on its activity. The directive proposal distinguishes between two groups of companies:

1. The first group (Group 1) includes all EU limited liability companies with more than 500 employees and a net worldwide turnover of more than EUR 150 million;
2. The second group (Group 2) includes all EU limited liability companies operating in high-impact sectors (textile and footwear industry, agriculture, fisheries, agri-food, extraction of mineral resources (oil, gas, coal), manufacture of metal products, etc.) that employ more than 250 employees and have a net worldwide turnover of more than EUR 40 million (and provided that turnover generated by high-impact activities represents more than 50% of the total turnover). These companies would have an additional period of two years compared with Group 1 companies to comply with the directive.

Third-country companies with a turnover in the European Union of more than EUR 150 million (Group 1) or EUR 40 million if the activity is carried out in a high-impact sector (Group 2), would also be required to comply with the European provisions on due diligence.

In view of the considered thresholds, it is likely that significant numbers of companies would be required to comply with a duty of due diligence. Importantly, the due diligence duty would cover the activities of the company concerned, its subsidiaries and the companies with which it maintains established business relationships throughout the entire value chain (versus the supply chain only).

On the basis of the new directive, it is expected that many companies will have to (i) integrate the duty of due diligence into their internal policies and governance; (ii) identify the actual or potential negative impacts of their activities on human rights and the environment, and prevent or minimize such adverse effects (involving, where applicable, the establishment of an action plan with objectives to be achieved on the basis of qualitative and quantitative indicators, or the inclusion in contractual documentation of clauses requiring the commercial partner to comply with the company’s code of conduct); (iii) take the necessary measures to bring to an end or minimize the actual impacts. Member States will also be able to require the companies concerned to make investments (in terms of management or infrastructure) or, in cases where a company is unlikely to prevent or minimize the above-mentioned risks to demand that it suspends or terminates a business relationship; (iv) establish and maintain a complaints procedure; (v) monitor the effectiveness of the policy and due diligence measures; (vi) and publicly communicate on due diligence¹².

Although SMEs are excluded from the due diligence duty, these companies will be exposed to some of the costs and burden through business relationships with companies in scope as large companies will (at least partly) pass on demands to their suppliers. Especially since the directive specifies that the liability regime applying to a company that fail to comply with its due diligence obligations or to take the appropriate measures is without prejudice to the civil liability of the subsidiaries or of any direct or indirect partners in the value chain¹³.

It is not difficult to imagine that the new obligations will have a significant impact on the corporate governance of the companies concerned. It will also impact on the possible liability of directors under civil law, if the appropriate measures are not taken into account¹⁴.

ESG issues and the target’s CSR policy are also expected to impact on the assessment to be carried out upstream of a merger, acquisition or investment operation. For companies that carry out mergers, acquisitions and investments, a CSR audit of the target company should be added to the usual scope of their pre-operation audits. In addition to the identification of legal risks, the existence of ESG deficiencies could affect the target’s valuation, reputation or financing ability.

2. Contractualisation of CSR commitments

The emergence of CSR commitments or obligations also involves that companies ensure, beyond their own practices, the level of risk and commitment of the various actors in its value chain. This will require that clauses to this effect are included in the contracts concluded by the company with its suppliers and subcontractors. These clauses will usually aim to ensure that : (i) the company’s suppliers or subcontractors adhere to a CSR charter and/or to reference texts (e.g. OECD Guidelines) with which they undertake to comply; (ii) the suppliers or contractors make commitments in relation to different ESG criteria; (iii) an evaluation of the supplier’s progress with regard to certain criteria, or the conduct of audits or verifications can be made to ensure that the CSR commitments made by suppliers or subcontractors are met; (iv) the consequences of a breach of commitments are adequately covered through indemnification and/or the right to suspend or terminate contracts in the event of a serious breach of some of those commitments.

Current text of the EU proposal for a directive on corporate sustainability due diligence proposes that the Commission shall adopt guidance about voluntarily model contract clauses to facilitate the due diligence on business partners¹⁵.

3. Additional reporting requirements

3.1. Extra-financial reporting

Companies are increasingly being driven to voluntarily disclose their practices with regard to CSR. Beyond these incentives, further to the implementation of the Non-Financial Reporting Directive (NFRD¹⁶), some mandatory disclosure rules recently emerged: certain categories of companies are required to draw up an “extra-financial performance statement”¹⁷. The information contained in the statement must include among others the social and environmental consequences of its activity and must be presented to the extent necessary to provide an understanding of the company’s situation and the evolution of its business activities.

Companies concerned are companies whose securities are admitted to trading on a regulated market, credit institutions, insurance undertakings and central depositaries that meet the following thresholds: the balance sheet total exceeds EUR 17 million or the net turnover exceeds EUR 34 million, and it employs an average of more than 500 permanent employees during the financial year.

The information provided is given under the principle of proportionality and subject to the “comply or explain” principle; any lack of information or policy on any of these topics must be duly justified¹⁸.

The extra-financial performance statement regime is expected to change in the coming years due to the new legislative proposal - the so-called CSRD¹⁹ - that is to replace the NFRD.

The CSRD pursues the objectives to (i) improve the relevance, reliability and comparability of non-financial information (renamed “corporate sustainability information”); (ii) harmonize standards for the publication of corporate sustainability information between European law and international law; (iii) organize the digitization of sustainability information; and (iv) introduce the principle of “double materiality”, i.e. requiring to report on both the risks that may affect the company in relation to social and environmental issues and the company’s own impact in these areas.

The CSRD would require all companies in scope of the proposal to be subject to a verification of sustainability reporting by an independent third-party audit and the obligation to include such sustainability information in the management report.

This directive is anticipated to (i) be applicable from financial year 2024, with respect to the data for financial year 2023, for the first companies concerned, and (ii) extend the scope of companies subject to the obligation to publish an extra-financial performance statement to all large companies (the threshold in terms of workforce is 250 employees, whether listed or unlisted, and to listed SMEs, except microenterprises).

3.2. Sustainable finance disclosures

In the financial sector, the Sustainable Finance Disclosures Regulation (SFDR) sets out sustainability-related disclosure requirements for financial market participants, financial advisers and financial products. Its aim is to improve sustainability-related disclosures, comparability of the disclosures for end investors and to reduce the occurrence of adverse sustainability impacts and greenwashing. The SFRD entered into force on 10 March 2021.

The European Commission adopted on 6 April 2022 a technical standards²⁰ to be used by financial market participants when disclosing sustainability-related information under the Sustainable Finance Disclosures Regulation (SFDR). Today’s Delegated Regulation specifies the exact content, methodology and presentation of the information to be disclosed, thereby improving its quality and comparability. Under these rules, financial market participants will provide detailed information about how they tackle and reduce any possible negative impacts that their investments may have on the environment and society in general. Moreover, these new requirements will help to assess the sustainability performances of financial products. Compliance with sustainability-related disclosures will contribute to strengthening investor protection and reduce greenwashing and ultimately support the financial system’s transition towards a more sustainable economy.

3.3. Taxonomy of environmentally sustainable activities

The Taxonomy Regulation is expected to play a central role in the promotion of sustainable activities as it establishes a classification as well as disclosure rules with a view to providing all financial and non-financial actors with a common understanding of when an economic activity should be considered to be environmentally sustainable. It aims to provide uniform criteria for companies and investors on economic activities that can be considered environmentally sustainable and thus to increase transparency and consistency in the classification of such activities and limit the risk of greenwashing. Investors may continue to invest as they wish and the Taxonomy Regulation does not imply any obligation on investors to invest only in those economic activities that meet specific criteria. The purpose (and expectation) is that the Taxonomy Regulation helps establish over time a universal standard which will help the production of comparable and reliable data.

Sustainable economic activities are identified as those that, among other conditions, make a substantial contribution to one or more of the following six environmental objectives: (i) climate change mitigation, (ii) climate change adaptation, (iii) the sustainable use and protection of water and marine resources, (iv) the transition to a circular economy, (v) pollution prevention and control, and (vi) the protection and restoration of biodiversity and ecosystems.

The Taxonomy Regulation requires undertakings subject to the Non-Financial Reporting Directive (NFRD) to disclose information on how and to what extent their activities are associated with environmentally sustainable economic activities according to the technical screening criteria. Each of these objectives is to be further defined by way of delegated acts specifying the conditions and relevant criteria for the application of the Taxonomy.

The Taxonomy Regulation applies, in respect of the environmental objectives referred to in points (i) and (ii) above (climate change mitigation and climate change adaptation) as from 1 January 2022; it will further apply to the other objectives from 1 January 2023. A first delegated act concerning the two climate objectives was adopted and published in the Official Journal of the European Union on 9 December 2021. A supplementary delegated act, covering the climate objectives of the EU taxonomy for certain activities in the gas and nuclear sectors, was published in the Official Journal on 15 July 2022, becoming applicable as of January 2023.

Following the recent adoption of the CSRD, a far greater number of companies will be concerned: all listed companies, except microenterprises, with the threshold for the number of employees being reduced, for unlisted companies, to 250.

4. Towards a new paradigm²¹ for Belgian companies ?

For a century, the actions of Belgian companies - if we look at it through the prism of their corporate interest - was guided by the maximization of the profits in favour of their shareholders, while taking into account the laws applicable to their activities and the classic duty of care (based on the ordinary rules of civil liability, imposing every person or legal entity not to commit a faut that would harm anyone). The concept of corporate interest has been heavily debated for decades in both doctrine and case law. The debate eventually led to the acceptance among the majority of legal authors as well in case law²² that the concept of the corporate interest should be taken broadly, encompassing not only shareholders’ profits, but also the interest of the employees, the contractors, and even the community or society as a whole. The legal recognition of the broad conception of the notion of social interest implies, of course, that the management bodies, that are in charge of ensuring that corporate interest is duly taken into account, be in charge of dealing with the societal issues linked to the company's activities.

Recent EU regulations adopted in the framework of the European Green Deal reinforce that approach. Both the NFRD and the CSRD aim to organize that management bodies have collective responsibility for ensuring that financial statements and management reports are drawn up and published in accordance with the requirements of the directives. The Due Diligence Directive also establishes that the responsibility for due diligence is assigned to the company’s directors, who should therefore be responsible for putting in place and overseeing the due diligence actions and for adopting the adequate due diligence policy. In doing so, they should adapt the corporate strategy to actual and potential impacts identified and any due diligence measures taken²³. Recent evolutions of Belgian Corporate Governance Code confirm that approach in establishing that the board must pursue “sustainable value creation (…) by setting the company’s strategy, putting in place effective, responsible and ethical leadership and monitoring the company’s performance” (principle 2.1 of the Code)²⁴. That evolution is also to be noted in the Code of Companies and Associations, which provides that “a company is formed by a legal act by through which one or more people, called partners, make a contribution. (…) One of its goals is to distribute or procure for its associates a direct or indirect asset advantage”²⁵.

Attentive readers will observe that most of these new rules relating to due diligence and report are mandatory to large or regulated companies only. This is true. It should however not be forgotten that, on the one hand, companies concerned by these regulations will partly impose their contractors and suppliers to take into account social or environmental impacts of the activities; on the other hand, case law tends to increase, slowly, the liability of directors²⁶ who do not sufficiently take into account social or environmental matters. Foreign case law are numerous²⁷. In Belgium as well, the risk of liability of directors for breach of environmental obligations exists. In an arrest of 25 November 2011, the court of appeal of Ghent considered that a director commits a punishable act of participation with the company within the meaning of Article 66 of the Criminal Code if the board of directors has systematically failed, due to economic considerations, to comply with environmental protection and water purification obligations, and the director has not protested against these decisions or proposed to provide the necessary resources²⁸.

On the basis of the elements, whether we call (or not) these evolutions as a change of paradigm in the management of companies, it appears that the management bodies are called to play a central role in taking into account the social and environmental aspects of the company's activities, and this role will very likely increase in the future, with the expected rise of the environmental and social challenges of our society. Taking into account the social and environmental dimension of the activities of the company they manage will become more and more a central element for directors who, very likely, will also see in this transition to a (hopefully) more sustainable world, new business opportunities for companies adopting a governance that puts sustainability at the center of their activities.

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¹ For those who would feel to need to make that exercise and are interested in the debate: https://www.ipcc.ch/languages-2/francais/; https://reseauactionclimat.org/reponses-climatosceptiques/

² https://single-market-economy.ec.europa.eu/industry/sustainability/corporate-social-responsibility-responsible-business-conduct_en

³ https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_fr It must be stressed that the European Green Deal goes far beyond the mere set up of regulations regarding corporate social responsibility, as it covers numerous actions and regulations on the climate, energy, agriculture, industry, environment and oceans, transport, finance as well as research and innovation.

⁴ Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups Text with EEA relevance (the Non-Financial Reporting Directive) The NFRD is implemented under Belgian law through the Act of 3 September 2017 relating to the publication of non-financial information and information relating to diversity by some large companies and certain groups (Belgian Official Gazette 11 September 2017).

⁵ Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (the Sustainable Finance Disclosure Regulation)

⁶ Proposal for a Directive of the European Parliament and of the Council amending Directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting (the Corporate Sustainability Reporting Directive), due to replace NFRD.

⁷ Other notable acronyms include AIFMD, UCITS, Solvency II, IDD and MiFID II.

⁸ Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation).

⁹ Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 (the Due Diligence Directive).

¹⁰ This overview should not be considered as comprehensive. It however aims at identifying the most significant recent legal trends and evolutions related to CSR. Interested readers could read: J.M. Gollier, Responsabilité sociétale de l’entreprise. Le droit dans la transition, Anthémis, 2018, 138 p. ; Veerle Colsaert and others, Sustainable Finance in the European Union and Belgium, Cahiers AEDBF/EVBFR Belgium, die Keure and Anthémis, 2021, 211 p ; P. Bégasse de Dhaem, Philippe Lambrecht and others, Aspects juridiques de la finale durable, Lacier, 2022, 155 p.

¹¹ See footnote 7. CSRD aims to complement NFRD by adding substantive corporate duly to identify, mitigate and prevent environmental impact; it further underpins the SFRD by imposing financial market participants to publish, among others, a statement on their due diligence policies; it also complements the recent Taxonomy Regulation. For more information, see also the explanatory memorandum of the European Commission regarding the CSRD (COM (2022), 71 final – 2022/0051 (COD) of 23 February 2022).

¹² Articles 4 to 11 of the proposal for a directive on corporate sustainability due diligence.

¹³ Article 22 of the proposal for a directive on corporate sustainability due diligence.

¹⁴ Article 26 of the proposal for a directive on corporate sustainability due diligence.

¹⁵ Article 12 of proposal for a directive on corporate sustainability due diligence.

¹⁶ See footnote 4.

¹⁷ Art. 3:6 §2 à §4 and 3:32, §2 of the Code of Companies and Associations, implementing the NFRD.

¹⁸ Art. 3:6 §4 of the Code of Companies and Associations, implementing the NFRD.

¹⁹ See footnote 7.

²⁰ Commission Delegated Regulation (EU) of 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in precontractual documents, on websites and in periodic reports;

²¹ The question is pertinently raised by Anne-Sophie Pijcke, “Sustainable Governance: a key dimension to future prosperity”, in Sustainable Finance in the European Union and Belgium, Cahiers AEDBF/EVBFR Belgium, die Keure and Anthémis, 2021, p. 101.

²² Bruxelles, 15 janvier 2010, Droit bancaire et financier, 2010, p. 385 ; Comm. Liège (ref.), 26 novembre 2013, TRV, 2014, p. 319 ; Didier Willermain, « L’intérêt social selon la Cour de cassation : The Social Responsability of Business is to Increase its Profits? », note sous Cass. 28 novembre 2013, R.D.C., 2014, p. 865 ; X. Dieux, Le respect dû aux anticipations légitimes d’autrui – Essai sur la genèse d’un principe général de droit, Bruxelles/Paris, Bruylant,/LGDJ, 1995, p.223 and foll.; P. Van Ommeslaghe and X. Dieux, « Examen de Jurisprudence (1979 à 1990) – Les sociétés commerciales », R.C.J.B., 1993, p.776.

²³ Recital 64 of the proposal for a directive on corporate sustainability due diligence.

²⁴ Anne-Sophie Pijcke, op.cit., p.103.

²⁵ The indication “one of its goals” aims to stress that the generation of profits for the shareholders is not the only purpose of the company (Anne-Sophie Pijcke, op.cit., p. 104). That evolution remains modest in comparison with the wording of the French Code de Commerce: under French law, the role of the management body was strongly reinforced by the so-called “Loi Pacte” which imposes each company to be managed “in its social interest, taking into account the social and environmental issues associated with its activity” (Art.225-35 and 225-64 of the French Code de Commerce). That provision expressly provides that directors must take into account the social and environmental aspects of the activities of the company of which they are in charge.

²⁶ The study of the liability of directors exceeds the scope of this contribution.

²⁷ Anne-Sophie Pijcke, op.cit., p.99-101 ; J.M. Gollier, op.cit., p.131-133.

²⁸ Ghent, 25 November 2011, R.D.C.-T.B.H., 2013/9, p. 919-929. The fact that some directors had no executive functions or that the directors were advised by external consultants was not deemed sufficient for the court to exclude their liability.