ESG in the Netherlands

ESG topics

Ignoring ESG could impact businesses’ profitably and governments’ credibility.

Our market-leading team of multidisciplinary and highly experienced lawyers are at the forefront of supporting clients on environmental and climate matters. We have a very strong appreciation of the opportunities and challenges arising out of the growing focus on sustainability and are perfectly positioned to support businesses in meeting their sustainability goals.

Several practice groups from Linklaters Amsterdam wrote articles about ESG that are relevant in or have an impact on the Netherlands, you and/or your organisation. Think about the IPCC report, the COP27, and more.

Please click on a practice group on the left to be directed to their articles.

Last updated: 12 January 2023

Explore our Corporate M&A topics related to ESG in the Netherlands

Climate Policy in the Netherlands
Renewable Energy and Incentive Schemes
Hydrogen Sustainable companies and collaboration by companies for sustainable objectives
Corporate governance

Explore our Banking topic related to ESG in the Netherlands

Green loans and sustainability-linked loans

Explore our Capital markets topics related to ESG in the Netherlands

ICMA Green, Social and Sustainability Linked-Bond Principles
EBA recommendation for ESG-linked capital issuances
EBA publishes binding standards on Pillar 3 disclosures on ESG risks
European Parliament publishes its report with respect to the proposed EU Green Bond Standard

ECB takes further steps to incorporate climate change into its monetary policy operations

Explore our Financial Regulation topic related to ESG in the Netherlands

Regulatory

Explore our Dispute Resolution topics related to ESG in the Netherlands

Supply chain due diligence and human rights

Climate litigation

Greenwashing in the Netherlands

EU proposal for a Corporate Sustainability Due Diligence Directive

Corporate M&A

Climate Policy in the Netherlands

Greenhouse gas emission reduction targets were first set in the National Climate Agreement (Klimaatakkoord), including a reduction by 49% in 2030 compared to 1990 levels.

At present, more ambitious goals are in place, aimed at achieving full climate neutrality by 2050 and a complete overhaul of the Dutch energy system (energiesysteem) which contributes to limiting the effects of climate change caused by greenhouse gas emissions.

In recent years the European Union (“EU”) has been sharply focused on climate policy and on the further reduction of greenhouse gas emissions. The European Green Deal is the EU's long-term growth plan to make Europe climate neutral by 2050. The EU Climate Law enshrines the EU’s new climate targets:

carbon neutrality (i.e. net zero) by 2050 with the aim of achieving “negative emissions thereafter”; and
a reduction in greenhouse gas emissions of at least 55% by 2030 compared to 1990 levels.

In the autumn of 2022 at the COP 27 summit the European Union’s climate chief Frans Timmermans pledged to increase the reduction target of the EU bloc’s emissions until 2030 from at least 55% to 57%.

The “Fit for 55”-package demonstrates the clear ambitions from an EU perspective to become a green and sustainable continent in the coming decades and to fully embrace the energy transition currently taking place. The REPowerEU plan (May 2022) (“REPowerEU”) puts forward an additional set of actions to: (i) save energy; (ii) diversify supplies; (iii) quickly substitute fossil fuels by accelerating Europe’s clean energy transition; and (iv) smartly combine investments and reforms.

In the National Climate Agreement (Klimaatakkoord) (“National Climate Agreement”), the central theme was to reduce greenhouse gas emissions in the Netherlands by 49% in 2030 compared to 1990 levels. This reduction target is laid down in the Dutch Climate Act (Klimaatwet) (“Climate Act”) along with the goal of arriving at a 95% reduction in CO2 by 2050. In its coalition agreement “Looking out for each other, look ahead to the future” (Omzien naar elkaar, vooruitkijken naar de toekomst), published on 15 December 2021 (the “Coalition Agreement”), the Dutch cabinet set more ambitious targets.

The CO2 emission reduction target in the Climate Act is set to increase to at least 55% by 2030 (but the Netherlands will focus its policy on a 60% CO2 emission reduction by 2030). Simultaneously, in the longer run, reductions of 70% by 2035 and 80% by 2040 are being targeted. The big hairy audacious goal is full climate neutrality by 2050. A legislative proposal to amend the current Climate Act is pending. In short, this proposal reflects the legally binding obligations of the European Climate Act, an explicit target of at least 55% reduction (including land use) by 2030 and climate neutrality by 2050.

Pursuant to the Climate Act the following mechanisms apply:

a climate plan which contains the key points of the government policy to be implemented in the next 10 years for which the Minister of Economic Affairs and Climate (Minister van Economische Zaken en Klimaat) is responsible;

an annual climate and energy report (“KEV”) which provides a report of actual and forecast CO2 emissions in the Netherlands; and

a climate memorandum which contains an appraisal by the Dutch government regarding the targets, accompanied by any additional policy intentions to achieve those targets.

With effect from the calendar year 2023 the Dutch government will update the Dutch parliament on its climate policy twice a year. Furthermore, the Dutch government will publish a draft of the second version of its 10-year climate plan in 2024. It is intended to install a Climate Council (Klimaatraad) in the Dutch Climate Act. Such Climate Council, which shall consist of independent scientists and other advisers, will also advise on the second version of its 10-year climate plan in 2024 and the adoption thereof.

On 2 June 2022 the draft policy programme Climate (ontwerp-beleidsprogramma Klimaat) was published. It builds on the National Climate Agreement and the Coalition Agreement and complements the Climate Plan 2020. It will form part of the KEV for 2022. The Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving) (“PBL”) concludes in its KEV for 2022 that an acceleration of the execution of the current emission reduction plans and formulating new policy is inevitable in order to achieve the Dutch climate targets for 2030. In Q2 of 2023 additional measures will be decided upon to achieve a 60% CO2 emission reduction by 2030.

Urgenda court ruling and additional measures

Since the inception of its climate policy, significant steps have been taken by the Dutch government to abide by the targets set out therein. This has partly been due to the Urgenda court ruling in which the Dutch State was ordered to reduce greenhouse gas emissions by the end of 2020 by at least 25% compared to 1990 (the “Urgenda Ruling”). Among other things, the obligation on the Dutch government to comply with the Urgenda Ruling resulted in the early closure of a coal-fired power plant in Amsterdam.

Please click here for an unofficial translation of the Urgenda ruling: Dutch Supreme court | Urgenda v Netherlands

In recent years further compliance with the Urgenda Ruling has been achieved among other things by: (i) the Coal Phase Out Act (Wet verbod op kolen bij elektriciteitsproductie) which introduces a production cap for coal-fired power plants; (ii) a call for the owners of each of the three existing modern coal plants in the Netherlands to close a plant voluntarily in consideration of a subsidy award; (iii) increased budgets under incentive schemes for renewables; and (iv) development of CO2 reduction projects in joint consultation with the industrial players. With regard to the latter, the Minister of Economic Affairs and Climate is working on the next phase of agreeing custom-made agreements with the 20 largest industrial emitters in the Netherlands. These custom-made agreements will make the (heavy) industry more sustainable and will enable a further reduction of CO2 emissions. Over 2022 the Minister of Economic Affairs and Climate has signed headline agreements with Tata Steel, Nobian, Dow Terneuzen and Yara.

Due to the Russian invasion of Ukraine and the gas crisis evolving from this in Europe, the Dutch cabinet has removed the average annual 35% production cap for coal-fired power plants. In addition, Riverstone pulled out of the deal with the Ministry of Economic Affairs and Climate on a EUR 212.5 million subsidy for the closure and dismantling of the Onyx coal-fired power plant in Rotterdam. Potential measures to limit greenhouse gas emissions, especially since the cap for coal fired power plants has been removed include acceleration of (i) electrification of the industry and greenhouse horticultural companies, (ii) business car fleets and (iii) sustainable construction and use of biobased products.

Despite these setbacks, the Dutch government will consider further suitable measures to comply with the Urgenda Ruling, also in light of its long-term climate policy towards 2030 and 2050. Urgenda’s view is that the Dutch State does not (sufficiently) comply with the Urgenda Ruling. Also, it publicly communicated that, on the basis of the draft CO2 emission figures for the calendar year 2021, the Netherlands fell short of its 25% reduction target (compared to 1990 levels). In light of its commitments pursuant to the Urgenda Ruling, the Dutch government intends to accelerate its greenhouse gas emission reduction target and limit the impact of external factors on such emissions.

Despite the measures taken (and proposed to be taken), Urgenda announced in June 2021 that it will ask the court to impose a judicial penalty (dwangsom) on the Dutch State for its (alleged) non-compliance with the ruling. It is also considering starting new proceedings in relation to the Dutch State’s alleged failure to meet the 2030 climate goals.

See here for an unofficial translation of the Urgenda ruling: Dutch Supreme court | Urgenda v Netherlands

Lastly, two Dutch levies related to CO2 have been introduced into Dutch law. With effect from 1 January 2021, the Dutch government introduced a CO2 levy on emissions from industrial installations pursuant to the Act on a carbon levy for the industrial sector (Wet CO2-heffing industrie). The amount of the CO2 levy per tonne of CO2 depends on the European Emissions Trading Scheme (“EU ETS”) price, as it is calculated as the difference between the rate set out in the Environmental Taxes Act (Wet belastingen op milieugrondslag) and the EU ETS price. This CO2 levy will be updated by the Act on a minimum CO2 price industry (Wet minimum CO2-prijs industrie) becoming effective as of 1 January 2023. This Act recalibrates and tightens the CO2 levy by introducing a minimum price over the part of emissions which is exempted by the CO2 levy. To this end, a minimum price will apply to emissions for which a company has dispensation rights for the CO2 levy industry.

In addition, a levy connected to a minimum carbon price to produce electricity came into effect on 5 April 2022 pursuant to the Act on a minimum carbon price for electricity production (Wet minimum CO2-prijs elektriciteitsopwekking). It applies to greenhouse gas emissions caused by companies under the EU ETS, active in the electricity generation business. The minimum carbon price is based on the EU ETS carbon price and top-up national levy.

Energy savings

The Russian invasion of Ukraine emphasized the importance of reducing our energy consumption. In its REPower EU plan, the European Commission stated that saving energy is the cheapest, safest and cleanest way to reduce our reliance on fossil fuel imports from Russia. In addition, the EU Council Regulation on Coordinated Demand Reduction Measures for Gas, which entered into force on 9 August 2022, requires EU Member States to use their best efforts to reduce their national gas consumption between 1 August 2022 and 31 March 2023 by at least 15% compared to their average consumption during that period in the last five years. Finally, the Proposal for an emergency intervention to address high energy prices adopted by the Council of the European Union on 6 October 2022 includes an obligation for Member States to reduce (i) electricity consumption by 5% during selected peak hours and (ii) overall electricity demand by 10% until 31 March 2023. It also introduces a cap on market revenues for inframarginal generation of electricity.

Netherlands: status of implementation of market revenue cap for electricity generators, Gijs Smit, Joris Knoll (linklaters.com)

REPowerEU: reinventing Europe's energy architecture, Lothar Van Driessche (linklaters.com)

Regulation on reducing gas demand in the EU by 15% comes into force, Lothar Van Driessche, Julia Voskoboinikova (linklaters.com)

In the Netherlands an energy savings obligation (energiebesparingsplicht) applies to companies and organisations consuming more than 50,000 kWh of electricity or 25,000 m3 of natural gas equivalent. Qualifying companies must implement all possible energy-saving measures with a payback period of five years or less. As from 2023, the energy savings obligation will require large energy users, including companies that participate in the EU ETS, to implement all energy sustainability measures with a payback period of five years or less. Additionally, large energy users must conduct a mandatory four-yearly study on their sustainable energy use. Other technical details are being considered for updating and strengthening the energy saving obligation.

Currently, the National Climate Agreement does not encompass specific energy savings targets. The Dutch government will investigate whether it will be useful and efficient to set specific energy savings targets for 2030 (comparable to any CO2 emissions reduction targets).

EU/Netherlands: measures to reduce energy consumption, Gijs Smit (linklaters.com)

Renewable Energy and Incentive Schemes

It is expected that offshore wind capacity in the North Sea should be between 38 and 72 GW in 2050.

The Regional Energy Strategies (Regionale Energiestratiegiëen) (“RES”) are a key feature of the National Climate Agreement. Currently, local governments, social partners, network operators, the private sector and residents collaborate on energy transition with the aim of becoming regionally supported choices for projects. In the RES, there is a particular focus on processing and creating local support as well as spatial implementation for future projects. On 1 July 2021, RES 1.0 (“RES 1.0”) was adopted for each of the 30 regions in the Netherlands. In the next decade, the RES will determine the development of renewables in the relevant regions as well as the pace of the implementation of the wider energy transition at a local level. At the end of 2022, the PBL will provide further detail on its appreciation of, and the progress made with respect to RES 1.0. In the past year we have seen that grid capacity issues, scarcity of materials and personnel, the so-called Nevele ruling and Porthos ruling as well as the formation of new coalition parties at the level of the Dutch municipalities following local elections in March 2022, have had an impact on further implementation of RES 1.0. That being said, the 30 RES regions have proposed electricity generation projects to be developed as part of RES 1.0 that amount up to 55 TWh. In this context, the primary goal of RES 1.0, i.e., the generation of 35 TWh of renewable energy onshore (wind/solar), is on track. All stakeholders will strive towards accomplishing as much of the proposed electricity generation of 55 TWh as possible by 2030. In 2023, certain regions will update their RES plans to a version 2.0, which may entail new insights, innovations and relevant updates.

The Dutch government confirmed that it will stimulate the further roll-out of solar and wind energy on land. Incentives could be in the form of the Stimulation of Sustainable Energy Transition (the “SDE++”) subsidy scheme or by any other means (e.g., a two-sided contract for difference).

Since 2015, the Offshore Wind Energy Act (Wet windenergie op zee), as amended, has constituted the legal framework for the construction and operation of offshore wind farms. The most recent amendments of that Act demonstrate that the offshore wind market has matured since 2015. A more robust and future proof tender mechanism and an increase in the permitted operational period of offshore wind farms have been introduced.

On a national level, offshore wind is one of the key drivers to reduce CO2 emissions by 2030. In spring 2022, the Dutch government announced the doubling of its ambition for offshore wind to an installed capacity of approximately 21 gigawatts (GW) by 2030. The total investment costs are estimated at approximately EUR 26 billion. At least half of these costs must be applied on site for the electrification of industrial processes and/or the production of green hydrogen. This ambition dovetails with the ambition of the European Commission laid down in its REPowerEU plan for an accelerated rollout of renewable energy. New offshore wind locations have been designated in connection with the North Sea Programme 2022 – 2027 (Programma Noordzee 2022-2027) as published on 18 March 2022.

The Offshore Wind Energy Road Map 2030 (Routekaart windenergie op zee 2030) for the period 2024 up to 2030 lays down the sequence for the development of the wind farms. In light of the developments set forth above, a supplement to the current 2030 Offshore Wind Energy Road Map was adopted at the end of June 2022. TenneT, the national transmission operator for the offshore grid, will install the grid connections for the new wind farms. TenneT’s formal appointment is related to the enclosed development framework for offshore wind. Clustering of offshore wind farms is envisaged. This would leave as much contiguous space as possible for other uses at sea. Consequently, there will be a power density equal to approximately 10 MW of wind capacity per square kilometre. This is about 2.5 times higher than the first large-scale wind farms built and currently operating in the Borssele wind energy area.

In September 2022, the Minister for Climate and Energy announced that guideline targets for offshore wind energy in 2035, 2040 and 2050 will be set in the National energy system plan (Nationaal plan energiesysteem) which is being prepared. Effectively, the Netherlands is looking towards realising approximately 50 GW in 2040 and 70 GW in 2050. Following 2030, the not only offshore wind will be generated on the North Sea, but substantial volumes of hydrogen are also expected to be produced. The Dutch government prefers a hub-based approach regarding further offshore development. The Energy Infrastructure Plan North Sea 2050 (Energie Infrastructuur Plan Noordzee) will cover the strategic approach on where the Dutch government expects to locate energy hubs and what type of infrastructure would be required in the context thereof. This forms part of an integrated approach of an energy market system which, depending on the characteristics of the site, location, surrounding and (onshore) demand could comprise of bringing electrons and/or molecules to land or to other hubs and/or neighboring countries.

A number of pilots for offshore hydrogen (production) will be brought into function before 2030 in order to be prepared and kickstart a learning cycle. New developments and offshore hydrogen demonstration projects will be part of the North Sea Energy System Development Programme (Ontwikkelprogramma Energiesysteem Noordzee). In connection herewith, the Minister for Climate and Energy is investigating a further coupling of offshore wind energy and renewable hydrogen production , for example in the form of combi-tenders.

It is not only the Netherlands that is committed to ambitious offshore wind targets. The same applies to our neighboring countries. At the North Sea Summit in Esjberg, Denmark, held on 18 May 2022, the heads of government of Denmark, Germany, Belgium and the Netherlands jointly declared their intention to facilitate an exponential growth in offshore wind. The ambition is to quadruple the four countries’ total offshore wind capacity by 2030 and increase the total offshore wind capacity to at least 150 GW by 2050.

The Stimulation of Sustainable Energy Transition (the “SDE++”) subsidy scheme has replaced the SDE+ regime. Under the SDE++ subsidy scheme, in addition to renewable energy, other CO2 reduction technologies have become eligible for incentives as well. Consequently, technologies no longer compete based on the amount of renewable energy produced, but rather on the amounts of CO2 that have been avoided. In fact, the SDE++ subsidy scheme offers an operating premium feed-in tariff subsidy for renewable energy and other CO2 reduction techniques compensating the difference between the cost price of the technology and the market price of avoided CO2. Applications for the SDE++ subsidy scheme for 2022 amounted to EUR 13.9 billion (whilst the budget was EUR 13 billion). More than half of the budget related to applications involving carbon capture and storage (CCS) projects.

Hydrogen

Netherlands on track for installing electrolysis production capacity in the Netherlands of 500 MW by 2025 and 3-4 GW with a potential increase to 8 GW by 2030.

Hydrogen policy

In its Government strategy on Hydrogen (Kabinetvisie waterstof), published in March 2020, the Dutch government envisages that hydrogen will be an indispensable part of the sustainability strategy for industrial clusters, ports and the transport sector generally. Within all industrial clusters in the Netherlands, market parties are preparing for hydrogen to play a growing role, including through feasibility studies, the development of business cases and proposed investments. In November 2022, the Minister of Economic Affairs and Climate confirmed that the Netherlands is on track to meet its ambition of having an installed electrolysis production capacity in the Netherlands of 500 MW by 2025 and 3-4 GW by 2030, and possibly realizing such production capacity sooner than originally planned. Moreover, certain political parties (Liberals and Democrats) have launched plans to increase these numbers to 8 GW by 2030. Dutch parliament agreed to target 8 GW in 2032 as discussed in a parliamentary debate at the end of 2022.

In January 2021 a National Hydrogen Programme (Nationaal Waterstof Programma) was launched. It describes in further detail the activities to be undertaken by the National Hydrogen Programme to facilitate and realise the potential of hydrogen as part of the energy transition in the Netherlands.

The National Hydrogen Programme was succeeded by the hydrogen road map which was published in November 2022. The hydrogen road map provides an overview of the current state of affairs on hydrogen and the sectors influenced by it. Additionally, it outlines the planned developments and hydrogen potential for long term (i.e., after 2030) as well as short term goals and actions to be taken for the periods 2022-2025 and 2025-2030.

Highlights during 2022

In 2022 a number of milestones were achieved. Inter alia further details on the anticipated market regulation for hydrogen were published, HyNetwork Service (“HNS”) was (provisionally) appointed as hydrogen network operator and specific incentive schemes targeted at the upscaling of hydrogen production were introduced.

On top of this, in early July 2022, Shell Nederland and Shell Overseas Investments took the Final Investment Decision (FID) to build the Holland Hydrogen I renewable hydrogen plant. This electrolyser of 200 MW will be constructed on the Tweede Maasvlakte in the Port of Rotterdam. The renewable hydrogen produced will supply the Shell Energy and Chemicals Park Rotterdam, by way of the HyTransPort pipeline, where it will replace some of the grey hydrogen usage in the Shell refinery.

Furthermore, a series of pilot audits regarding certification of renewable fuels of non-biological origin (RFNBOs) against the draft RED II requirements was concluded in December 2022. The pilot was organized by the Ministry of Economic Affairs and Climate, the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland) and the National Hydrogen Programme. The pilot led to the conclusion that compliance with the RED II RFNBO criteria can be demonstrated by using RFNBO certification schemes.

In addition, as of 1 January 2023, CertiQ and Vertogas (subsidiaries of TenneT and Gasunie, respectively) have merged into one organization, called VertiCer. VertiCer has thereby become the sole agency in the Netherlands and a one-stop shop providing guarantees of origin for all sustainable energy carriers, including green hydrogen.

Finally, in its REPowerEU plan, the European Commission has outlined a “hydrogen accelerator” concept to scale up the deployment of renewable hydrogen. This plan demonstrates that the ambition is to produce 10 million tonnes and import 10 million tonnes of renewable hydrogen in the EU by 2030.

Market regulation

The market regulation of hydrogen will have the following characteristics:

Production of hydrogen through electrolysis will be a market activity. That said, large-scale electrolysis production could use steering and guidance (locatiebeslissingen) from the Dutch government. Therefore, the Minister for Climate and Energy intends to influence the location of large-scale onshore electrolysis production sites by means of: (i) spatial regulations; (ii) network planning; and (iii) establishing detailed policy frameworks (i.e. Energy Strategy Plans (Energiestrategieën) and the National Plan Energy System (Nationaal Plan Energiesysteem)).

Private hydrogen networks established to date and new geographically limited private hydrogen networks remain private but newly developed large-scale private hydrogen networks may become part of the national hydrogen transport network (see below).

In the event of market failures, Dutch network companies (netwerkbedrijven) could play a role in developing underground storage facilities and import terminals for hydrogen. At a later development stage this should be a market activity and the Minister for Climate and Energy foresees a system of negotiated third party access regarding hydrogen import terminals and, subject to other EU Member States’ preference, either negotiated or regulated third party access with respect to hydrogen storage facilities.

Scaling up and incentivising parts of the hydrogen value chain

It is expected that in the next year subsidies to realize up to 1 GW of renewable hydrogen production via electrolysis are made available. The main instruments to incentivize production of renewable hydrogen are subsidies (including budgets for innovative pilots and demonstration projects pursuant to the specific funding programme (Groeifondsprogramma GroenvermogenNL) and DEI (for innovative techniques) and SDE++ subsidy scheme) and stimulating the use of renewable hydrogen as part of refinery processes (the so-called refining route).

In addition, funds are being made available for selected Important Projects of Common European Interest (IPCEI). Through the European IPCEI state aid framework, projects can be subsidised to boost the development of European hydrogen chains. The Netherlands takes part in all 4 waves within IPCEI Hydrogen announced so far with a total budget of over EUR 1.6 billion. The 4 waves are: (I) technological development (budget EUR 35 million), (II) large scale electrolysis (budget EUR 783.5 million), (III) infrastructure and storage (budget EUR 600 million) and (IV) mobility (budget EUR 199 million).

Over the summer of 2022 the first wave of projects selected by the Netherlands was approved by the European authorities. Under the second wave, concerning large electrolysis projects, seven projects developed by inter alia Ørsted, Shell, ENGIE, Air Liquide and HyCC received subsidies for approximately EUR 800 million. Once realised, such projects will add up to a nominal installed capacity of 1.150 MW of electrolysis projects to produce (renewable) hydrogen.

The Dutch government will release further details of an upscaling instrument for smaller electrolysis projects up to 50MW. A public consultation on the subsidy scheme scaling up renewable hydrogen production via electrolysis (Subsidieregeling opschaling hernieuwbare waterstofproductie via elektrolyse) was held in 2022. A subsidy budget of EUR 250 million is being made available. It is expected that the tender will open in March 2023 and subsidies will be granted to projects for a total volume of 50 -100 MW.

In 2023 the Dutch government will decide upon the budget made available out of the Climate Fund (in which EUR 15 billion is allocated to upscaling of renewable hydrogen (carriers)). Following such decisions more details will be known on the instruments that will assist in realizing the first 4 GW of electrolysis capacity. In 2024 the Minister of Economic Affairs and Climate will assess whether an increase up to 8 GW of electrolysis production capacity by 2030 is preferred.

Other specific (indirect) incentivising measures to accelerate the use of hydrogen techniques are a CO2 levy on emissions from industrial installations and custom-made agreements with the 20 largest industrial emitters in the Netherlands, as set out in further detail above. Furthermore, the Dutch government is considering an obligation for industrial parties to use renewable hydrogen (on the basis of binding RFNBO off-take targets set by Europe) as from 1 January 2026 which binding target will gradually increase towards 2030 and demand subsidies (vraagsubsidiëring) by means of either SDE++, contracts for difference or one- or double-sided tenders. The preferred mechanics will be further explored. Obviously, details will depend on the outcome of the discussions taking place in Europe on the amendments to RED II.

Hydrogen transport network

The Dutch government envisages re-using the existing gas infrastructure for its hydrogen transport network and the rollout plan for the hydrogen transport network will include details where (and where not) hydrogen transport infrastructure will be developed. In June 2022 the Minister for Climate and Energy informed the public that a flexible, adaptive and phased rollout of the hydrogen transport network is necessary given the current uncertainties on the development of a hydrogen market as well as the interdependency of production, demand and infrastructure of hydrogen.

Gasunie’s subsidiary HyNetwork Services (“HNS”) will in due course become the designated regulated hydrogen network operator for onshore transport. For now, HNS will take the lead in the development and management of the Netherlands’ hydrogen transport network. First, HNS is working on standard hydrogen connection and transportation agreements and it has received indications from the market on the expected use of the transport network. Secondly, other than the demand and supply side, there are other system elements that will impact the development of a hydrogen transport network. In this context, a hydrogen transport network is a prerequisite for transporting hydrogen (produced at and/or near the sea) to inland customers and (underground) storage locations. Both system elements are subject to ongoing further studies on behalf of the Dutch government. Finally, the Netherlands intends to function as a pivot in the developing hydrogen chain. The latter requires close collaboration and co-ordination with Belgium and Germany.

HNS must develop the hydrogen transport network at the right place and at the right time. Governmental conditions, which will be attached to HNS as a provider of a general service of economic interest (Dienst van Algemeen Economisch Belang), must ensure reasonable tariffs, non-discriminatory access and a reduction in the maturity risk (vollooprisico) for any governmental investments.

The Dutch State co-ordination scheme (Rijkscoördinatieregeling) will apply to the construction of the hydrogen transport network. This will enable a more time efficient and centrally co-ordinated spatial permitting process. Between 2025 and 2030 the Minister for Climate and Energy and the Dutch Authority for Consumers and Market (Autoriteit Consument & Markt) will work towards a system of regulated third party access with regard to the hydrogen transport network.

The Dutch Minister for Climate and Energy has noted and appreciated the hydrogen and gas market decarbonisation package (December 2021). This package is still being negotiated in the European Parliament and is currently being reviewed by the Committee Industry, Research and Energy. Furthermore, the Dutch Minister for Climate and Energy has indicated appreciation of the proposals made by the European Commission, including the delegated acts, clarifying EU rules applicable to renewable hydrogen under the Renewable Energy Directive (RED) (May 2022). Currently, it is expected that further clarity on European requirements for renewable hydrogen should emerge in the coming months. Formal adoption of the sustainability requirements could take until early 2023.

The overall investment costs of a hydrogen transport network are currently estimated at EUR 1.5 billion. The Dutch government intends to employ a subsidy of EUR 750 million to deal with low transport volumes and not being able to fully compensate market costs during the rollout phase. The Netherlands foresees a three phase rollout of the hydrogen transport network:

Phase 1 – large industrial clusters near the Dutch coast (including Belgium and Germany) and connections with storage locations in the northern part of the Netherlands (Groningen and Drenthe) (2025-2026). An alternative route could be necessary whilst an important gas pipe is not expected to be ready for re-use by 2026. Gasunie currently explores alternative routes through Noord-Brabant and the Betuwe;

Phase 2 – further expansion of the hydrogen network (primarily north-south connections) (2027/2028); and

Phase 3 – final rollout of the hydrogen network, in particular connecting the province of Zeeland with the Chemelot chemical cluster in Limburg (by 2030).

Specialists have advised the Dutch government to apply a minimum quality of hydrogen equal to 98 mol%. This minimum quality requirement will be evaluated three years following the commercial operations date of the hydrogen network.

With regard to the production of renewable hydrogen by means of offshore electrolysis, which is expected to kick off after 2030, the (regulation of) offshore hydrogen infrastructure must be considered. The Minister of Economic Affairs and Climate prefers that Gasunie will - in due course - be appointed as the offshore hydrogen network operator. Also, Energie Beheer Nederland will be involved in the development of the hydrogen transport infrastructure offshore as it currently participates in all (offshore) gas infrastructure in the Netherlands. Its expertise could play an important role in re-designing and re-using existing gas infrastructure assets for renewable hydrogen transport.

Hydrogen storage

Next to transport, the storage of hydrogen will become an important part of the Dutch hydrogen infrastructure. In this respect, a hydrogen transport network road map Energy Storage (routekaart Energieopslag) is expected to be published by April 2023. This road map will also discuss the role of hydrogen storage. Hydrogen storage can take place by way of (i) short-cyclical storage to deal with temporary surpluses in supply and demand, (ii) seasonal storage to take into account seasonal fluctuations in supply and demand and (iii) long-cyclical storage to guarantee sufficient supply in case of calamities. The general hydrogen road map, published in November 2022, states that three to four salt caverns with a total storage capacity of 750 to 1000 GWh will be required by 2030.

Import

The Dutch government will create viable conditions for the import of hydrogen. On this basis market participants can work on business plans to develop (vertical) hydrogen supply chains. Further research is being undertaken regarding the expected import volumes for hydrogen and LOHC products. The sustainability criteria for renewable hydrogen will take the lead with regard to the importing of hydrogen.

Currently, the Netherlands has (various forms of) co-operation agreements with Portugal, Chile, Uruguay, Namibia, Canada and the United Arab Emirates on the import and export of (renewable) hydrogen. Noteworthy in this respect is that the Minister for Climate and Energy confirmed to the Dutch parliament that it will perform a corporate social responsibility risk analysis (Maatschappelijk Verantwoord Ondernemen risico-analyse) regarding hydrogen imports.

Sustainable companies and collaboration by companies for sustainable objectives

Businesses will have a broader scope to enter into agreements, particularly to achieve climate objectives such as a reduction in carbon emissions.

The Netherlands is considering the introduction of a legal framework for social enterprises (besloten vennootschap met maatschappelijk doel (BVm)). Social enterprises will have a specific social purpose as set out in their articles of association (statuten). The managing directors of such enterprises will need to consider and act in accordance with such social purpose. A social purpose is likely to include one or more ESG elements. Social enterprises must report their social purpose in their management reports. Being transparent and disclosing the impact of business activities on people, the environment and society are key to a sustainable future. A legislative proposal for social enterprises is expected to be circulated to Dutch parliament in the second half of 2023. The Dutch Ministry of Economic Affairs and Climate intends to organise a consultation round first regarding the proposed legal framework on social enterprises early 2023.

Currently, no national or international framework on sustainable standards exists but the EU is rolling out its Taxonomy rules. The Dutch government supports a global harmonisation of sustainability standards. In November 2021 the International Financial Reporting Standards (IFRS) Foundation announced the formation of a new International Sustainability Standards Board (“ISSB”), which will develop international sustainability disclosure standards. The ISSB currently reviews and assesses feedback received on a consultation of its two proposed sustainability-related disclosure standards. This comprises IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The finalisation and issue of the first two standards is expected to occur as early as possible in 2023.

The Netherlands Authority for Consumers and Markets (“ACM”) wants to increase the opportunities for competing businesses to collaborate in the pursuit of sustainability objectives. Businesses will have more scope to enter into agreements, particularly to achieve climate objectives such as a reduction in carbon emissions. The ACM proposes to allow this in cases where the benefits for society as a whole outweigh the disadvantages of any restriction in competition. For this reason, the ACM’s revised “Sustainability Agreements’ Guidelines”, which include examples illustrating the opportunities for business collaboration that contribute to a sustainable society, have been drawn up. In this context, the ACM supports the proposal of the European Commission dated 1 March 2022 on the revision of the so-called “Horizontal Guidelines”. This proposal introduces specific guidelines on the application of competition law to sustainability agreements and recognises that certain sustainability agreements must not be limited by competition law. In practice, the ACM for example has allowed Shell and TotalEnergies, being competitors, to co-operate on CO2 storage given its importance from a sustainability point of view and to serve the energy transition.

It is noteworthy that the ACM takes a firm stance on misleading sustainability claims. Investigations have been conducted into the practices of several companies in the clothing, energy and dairy sectors. The ACM has also published guidelines on making reliable sustainability claims.

Corporate governance

Listed companies must include in their annual reports information on environment, workforce, social matters, human rights and anti-corruption and bribery policies.

In the Netherlands a debate is ongoing on the introduction in Dutch law of a duty of care on management board members and supervisory board members to participate responsibly in social and economic life. This would involve, among other matters, climate change, tax ethics, pay ratios within the business and diversity. Alternatively, scholars have proposed an explicit elaboration of the corporate purpose in the articles of association of Dutch companies. The Dutch government will further analyse how these proposals could be enshrined in Dutch law.

In addition, certain Dutch members of parliament submitted an updated version of a proposal for the Act for Responsible and Sustainable International Business Conduct (Wet verantwoord en duurzaam internationaal ondernemen) to the House of Representatives in November 2022. The Netherlands have signaled an intention to enact a national law on human rights and environmental due diligence, regardless of the outcome of the proposed Corporate Sustainability Due Diligence Directive in respect of which the Council of the EU reached an agreement at the end of 2022. The legislative proposal will be further discussed in the House of Representatives at the end of January 2023.

If the Act for Responsible and Sustainable International Business Conduct is adopted, a general duty of care on all undertakings and due diligence obligations on large undertakings in respect of responsible and sustainable international business conduct become effective. Effectively, undertakings in the European Union and foreign undertakings (to the extent they engage in activities in the Netherlands which know or should reasonably suspect that their activities may have a negative impact on human rights, labour rights or the environment in countries outside the Netherlands, must take all reasonable measures to prevent, mitigate or reverse such impacts and, where necessary, enable remediation thereof. Also, such undertakings must exercise due diligence in their value chains.

The ACM is envisaged to be entrusted with enforcing compliance with the proposed regulation. Administrative fines could equal 10% of the net turnover of the undertaking concerned and criminal sanctions may be imposed as well.

EU Council reaches compromise on CSDDD, James Marlow (linklaters.com)

With regard to board diversity, since 1 January 2022, Dutch-listed companies have been required to meet a quota of at least one-third women and one-third men on their supervisory board or one-tier board. Appointments that are not in accordance with this quota are null and void (nietig), without affecting the validity of passed (supervisory) board resolutions. In addition, all “large” public and limited liability companies must formulate a plan including appropriate and ambitious diversity target figures for their supervisory boards, management boards and their junior management. This plan must be reported to the Social and Economic Council (Sociaal Economische Raad) (“SER”) and the management report (bestuursverslag) shall include a description thereof. The SER will publish reports on the progress of these companies’ achievements of the targets set. These obligations are envisaged to apply for a period of eight years and will be evaluated after a period of five years.

ESG transparency and disclosure requirements are facing major attention and substantial changes are being faced by corporates in the years to come. The EU Corporate Sustainability Reporting Directive (“CSRD”) entered into force on 5 January 2023 (i.e., 20 days following its publication in the Official Journal of the European Union (OJEU) on 16 December 2022). EU Member States now have 18 months to implement the new rules into national law.

The CSRD will completely replace and significantly expand the scope of the current EU Non-Financial Reporting Directive. Large companies and all companies listed on EU regulated markets, including certain non-European entities, must include information on environment, workforce, social matters, human rights and governance in their annual reports. A less rigid regime will apply to small- and medium-sized enterprises (“SMEs”). Upon its implementation, the CSRD will not only extend the number of companies which will need to report on ESG matters but it will also significantly widen the scope of the reporting obligation itself.

The CSRD will become effective in four stages. Large public interest entities already subject to the EU Non-Financial Reporting Directive shall apply the CSRD with effect from 1 January 2024 (i.e., include in their reporting published in 2025). Finally, on 1 January 2028 certain non-EU companies must report in accordance with the CSRD standards.

The CSRD requires companies within its scope to report in compliance with the European Sustainability Reporting Standards (“ESRS”) which are to be adopted by the European Commission as delegated acts. The first set of draft ESRS developed by the European Financial Reporting Advisory Group (“EFRAG”), the technical advisor to the European Commission, were released to on 23 November 2022. This first set, consisting of twelve ESRS, sets out the sustainability transparency rules in-scope companies must adhere to. These rules relate to general requirements for disclosure in sustainability reporting, as well as more specific topics relating to environment (including climate change, pollution and biodiversity), social (including companies’ own workforces) and governance (business conduct). Consultations on the draft standards continue in 2023 and the European Commission strives towards adoption of the final standards as delegated acts in June 2023.

EU: CSRD adopted by Council and Parliament, and EFRAG submits first set of reporting standards to the Commission, Julia Voskoboinikova (linklaters.com)

EU CSRD: Council and European Parliament reach political agreement, Raza Naeem, Vanessa Havard-Williams, David Ballegeer, Claudia Schneider, Tom Cobbaert, Iyes Igiehon, Victoria Hickman, Sara Feijao (linklaters.com)

Accountants recognise the importance of ESG matters for business continuity reasons. For example, the accountant of Shell plc noted the financial impact of climate change and wider energy transition as a key audit matter and the accountant of Royal DSM N.V. noted the same regarding the sustainability indicator on Royal DSM’s sustainable solutions line. We expect companies to feel obliged to account for their ESG policy.

PwC announced it will be more alert on the impact of climate change on ongoing business operations of its clients. It has stated including explicitly in audit reports of its clients over FY 2022 if a company does not provide sufficient information on the impact of climate change on its business operations in its annual reporting. PwC has found that an increasing number of companies are confirming or promising climate ambitions without explaining the financial implications thereof in their reporting. Also, KPMG publicly expressed to undertake a stricter review of any climate related risks in the next audit cycle.

The Royal Netherlands Institute of Chartered Accountants (Koninklijke Nederlandse Beroepsorganisatie van Accountants (“NBA“)) is further defining the role of accountants regarding analysing, verifying and auditing climate targets and objectives of Dutch listed companies. The NBA has taken the stance that every annual report should contain a report on climate performance and has published a sustainability manual containing guidance for accountants relating to both existing and future standards and regulations, including the CSRD.

The updated Dutch Corporate Governance Code was published on 22 December 2022. The updated Dutch Corporate Governance Code will replace the code published in 2016 and relevant companies must adhere to its principles and best practices as from the financial year commencing on or after 1 January 2023 (i.e., compliance with the revised code must be accounted for in 2024 over the financial year 2023). The updated Dutch Corporate Governance Code puts a focus on three principal themes: (i) sustainable long-term value creation, (ii) the role of shareholders and (iii) diversity and inclusion. As such, the updated Code sharpens the focus on sustainability aspects of companies. The Code does not include a specific definition on sustainable long-term value creation, but it does specify that the companies’ management shall take account of the balance between social, environmental and economic aspects of a company’s business. Initial commentary reflects that the updated version could have been more ambitious regarding ESG, especially in light of the increased importance of ESG for various stakeholders in the Netherlands, which stakeholders include groups and/or individuals who are (in)directly influenced by realising the company’s objectives.

A significant shift has also been taking place in the stance of investors, trade unions and other stakeholders in the Netherlands on companies’ responsibilities in relation to ESG. One of those stakeholders, the Dutch Authority for the Financial Markets (“AFM”) recommends listed companies to make more explicit connections in their reporting between sustainable and financial information, as part of its supervision focus areas for 2023. This stance is in line with statements released by the European Securities and Markets Authority in October 2022. In order to assist investors to make better (economic) decisions, the AFM expects listed companies to be more granular on their reporting on sustainability items and the correlation thereof with the financial information included in the financial statements.

In addition, Eumedion, a representative body of institutional investors in Dutch-listed companies, has published its focus points for 2023. Last year, it was focused on plans to accomplish the net zero transition, diversity and inclusion and human rights due diligence. In the coming year attention will be on biodiversity. Eumedion views this focus point as complementary to the climate policy plans that are being adopted by listed companies and their wider net zero plans. Overall, it deems that further work and efforts must be undertaken regarding climate related disclosures and the establishment of net zero plans to meet the targets set by the Paris Agreement.

Furthermore, ABP, the largest pension fund in the Netherlands, and other pension funds have announced that they will stop investing in producers of fossil fuels. By the end of 2022 ABP publicly announced to overthrow its current investment strategy and, by means of contributing to a more sustainable world, could be existing of sustainable investments for more from than 50% of its current investments. It also expressed to invest over EUR 30 billion in the energy transition by 2030, including significant investments in offshore wind and other renewables.

Climate Policy in the Netherlands

Renewable Energy and Incentive Schemes

Hydrogen

Sustainable companies and collaboration by companies for sustainable objectives

Corporate governance

Banking

Green loans and sustainability-linked loans

Green loans and sustainability-linked loans

Rather than environmental change, social projects would be aimed at bettering society through a focus on affordable infrastructure, essential services, affordable housing or food security.

Certain Dutch banks led the initial charge in developing ESG products for their clients and, as a result, several Dutch lenders have considerable experience in the field. Many of these lenders go out of their way to encourage their clients to make use of ESG products and develop sustainability key performance indicators (“KPIs”). Some act as sustainability co-ordinators, with specialist teams advising on ESG elements, such as selecting and auditing KPIs, and there are also a range of third-party providers offering similar services.

Perhaps partly as a result of their lenders’ enthusiasm, green loans and sustainable loans are both popular options for Dutch borrowers. An increasing number of Dutch SMEs borrow green loans in order to finance a range of relevant projects, and larger businesses are following suit. With the encouragement of Dutch banks, and a growing awareness among borrowers of the available products, sustainability-linked pricing is also increasingly popular in large syndicated loans. As in other European jurisdictions, sustainability has mostly been integrated into investment grade lending, but there is growing interest in incorporating sustainability KPIs into leveraged finance transactions and the mid-market as well.

The Loan Market Association (“LMA”) publishes Green Loan Principles (“GLPs”), Sustainability-Linked Loan Principles (“SLLPs”) and Social Loan Principles (“SLPs”). As a reminder:

green loans are loans allocated for “green” projects such as energy efficiency upgrades or replacing gasoline-driven vehicles with electric ones;

sustainability-linked loans are loans for a general purpose where the pricing is linked to the borrower’s performance against certain ESG-related KPIs, such as a target to reduce carbon emissions; and
like green loans, social loans are loans allocated for a specific purpose, but they go towards bettering society through a focus on matters such as affordable infrastructure, essential services, affordable housing or food security.

All three of the Principles also have associated guidance that provides additional detail on the suggestions contained in the Principles. The guidance typically focuses on the documentation and administration of the loans, as well as the ways to ensure that such products are not “greenwashing”, by aiming for goals that are material and impactful.

In addition, the LMA provides a range of best practice guidance including a Best Practice Guide to Sustainability-Linked Leveraged Loans, produced in conjunction with the European Leveraged Finance Association and a working group consisting of various financial institutions and law firms (including Linklaters). Along with our report on the subject (linked below), this represents the increasing interest in ESG from the leveraged market – particularly sustainability-linked loans. We have held discussions with several financial institutions (in the Netherlands and elsewhere) to discuss the emerging market practices and how to implement them in the unique, often challenging, context of leveraged finance.

Social loans have not been a focus in the Dutch market to date, but the publication of the SLPs may provide the necessary framework to encourage lenders and borrowers to begin developing those products – if only to agree a path for change with borrowers active in sectors with less of a sustainability footprint. However, socially-oriented KPIs (such as staff volunteering hours, employee diversity and training programmes) have become much more common in investment grade sustainability-linked loans over the last year.

The LMA also published three thought pieces on ESG in the loan market. The first, “A Matter of Materiality”, highlighted the importance of setting KPIs that are material – which is often a particular challenge when looking at more socially-focused KPIs. Another publication, “Fear of Failure”, set out the importance of KPIs which are genuinely challenging to the business, rather than simply codifying objectives that the borrower already expects to achieve. And the last, “A Matter of Time”, discussed the time pressures that often apply to setting KPIs during the negotiation of a deal, rather than in advance or during the term sheet stage.

Read more:

Changes to ESG loan market standards

Changes to ESG loan market standard | Client alert | Linklaters

Sustainability linked lending in the European leveraged loan market

Sustainable Finance in Europe: Regulatory State of Play AFME report

Recap on ESG loan market standards

The SLLPs were originally published by a joint working group of the LMA, the Asia Pacific Loan Market Association and the Loan Syndications & Trading Association in 2019. They benefit from supplementary guidance published in 2020 and set out voluntary market standards for what constitutes a sustainability-linked loan. Over time, sustainability-linked loans have evolved increasingly sophisticated features. The updates made to the SLLP and SLLP Guidance reflect the evolution of the product and more closely align with the Sustainability-Linked Bond Principles published by the International Capital Market Association (“ICMA”).

The GLPs were published in 2018 and set out voluntary market standards for what constitutes a green loan. The February 2021 changes to the GLP are less extensive than those made in relation to the SLLPs, and focus on how borrowers communicate certain eligibility criteria for a green loan to lenders.

The Social LP represent a new product for the loan markets, but one which builds on the concept of a green loan. The key characteristic of a green loan is that it finances a green activity. In a similar way, a social loan is made to finance activity which mitigates or improves social challenges. The publication of the new Social LP reflects a desire among market participants that such loans be recognised as a separate loan product.

Capital Markets

ICMA Green, Social and Sustainability Linked-Bond Principles

The updated 2021 GBP does not change the mandatory “core components” around use of proceeds, project evaluation and selection, proceeds management or reporting.

On 10 June 2021, the ICMA published the 2021 edition of the Green Bond Principles (“GBP”), which are voluntary process guidelines that recommend transparency and disclosure in the Green Bond market by clarifying the approach for issuance of a Green Bond. This is the first update to the GBP since 2018.

The 2021 edition of the GBP features:

Two key recommendations on the Bond Framework and External Reviews designed to increase transparency alongside the four core components (Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and Reporting);

A recommendation of heightened transparency for issuer-level sustainability strategies and commitments;

Encouragement to supply information, if relevant, on the degree of alignment of projects with official or market-based taxonomies;

Promotion of transparency on issuer processes to identify and manage perceived and known social and/or environmental risks; and

Links and references to the complementary guidance of the Climate Transition Finance Handbook, the Harmonised Framework for Impact Reporting and the Guidelines for External Reviews, which are supplemented by the Guidance Handbook.

The 2021 editions of the Social Bond Principles and Sustainability Bond Guidelines have been similarly revised.

The updated GBP does not change the mandatory “core components” around use of proceeds, project evaluation and selection, proceeds management or reporting. Nonetheless, it has added two “key recommendations” to these core requirements for issuers to encourage “heightened transparency”. These key recommendations are the use of: (i) Green Bond Frameworks and (ii) External Reviews. In respect of (i), the updated GBP considers that issuers should explain the alignment of their Green Bond or Green Bond programme with the four core components of the GBP in a Green Bond Framework or in their legal documentation. In respect of (ii), it is recommended that issuers appoint (an) external review provider(s) to assess through a pre-issuance external review the alignment of their Green Bond or Green Bond programme and/or Green Bond Framework with the four core components of the GBP.

In June 2022, Appendix 1 of the GBP was updated to make a distinction between “Standard Green Use of Proceeds Bonds” (unsecured debt obligation) and “Secured Green Bonds”, as well as to provide further guidance on green covered bonds, securitisations, asset-backed commercial paper, secured notes and other secured structures. Additional Q&As related to Secured Green Bonds complement the updated June 2022 Appendix 1.

The following new guidance has also been issued by the ICMA:

Illustrative examples for the selection of Key Performance Indicators (KPIs) for Sustainability-Linked Bond issuers, underwriters and investors

A Pre-issuance Checklist for Social Bonds/Social Bond Programmes

Guidelines for Green, Social, Sustainability and Sustainability-Linked Bonds’ Impact Reporting Databases

Impact reporting metrics for circular economy and/or eco-efficient projects

Update of the Green Project Mapping to GBP Environmental Objectives and other Green Classifications

Update to the comprehensive GBP Guidance Handbook

The Sustainability-Linked Bond Principles, first published in June 2020, have not yet been updated.

EBA recommendations for ESG-linked capital issuances

On 24 June 2021, the EBA published its updated Report on the monitoring of Additional Tier 1 instruments.

On 24 June 2021, the European Banking Authority (“EBA”) published its updated Report on the monitoring of Additional Tier 1 instruments. The Report included the EBA’s considerations on ESG capital bonds. The EBA has identified differences in the clauses of the ESG issuances made for capital/loss absorbency purposes. In this regard, the EBA has issued recommendations which in particular impact the disclosure of risks associated with the ESG elements in relevant documentation. In respect of sustainability-linked features, the EBA currently takes the view that step-up and/or fees based on missing ESG targets or other performance indicators should not be allowed or encouraged. The EBA will continue to monitor developments in this area and may provide further guidance in the future.

EBA publishes binding standards on Pillar 3 disclosures on ESG risks

On 24 January 2022, the EBA published its binding standards on Pillar 3 disclosures on ESG risks

On 24 January 2022, the EBA published its final draft implementing technical standards (“ITS”) on Pillar 3 disclosures on ESG risks. The final draft ITS put forward comparable disclosures to show how climate change may exacerbate other risks within institutions’ balance sheets, how institutions are mitigating those risks, and their ratios, including the green asset ratio (“GAR”), on exposures financing taxonomy-aligned activities, such as those consistent with the Paris agreement (“Paris Agreement”) goals.

The technical standards aim to ensure that stakeholders are well-informed about institutions’ ESG exposures, risks, and strategies and can make informed decisions and exercise market discipline. The standards put forward comparable disclosures and KPIs, including a GAR and a banking book taxonomy alignment ratio (“BTAR”), as a tool to show how institutions are embedding sustainability considerations in their risk management, business models and strategy on their pathway towards the Paris Agreement goals. In developing this framework, the EBA has built on the recommendations of existing initiatives, such as those of the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB), but has gone beyond this by defining binding granular templates, tables and instructions, to ensure enhanced consistency, comparability and meaningfulness of institutions’ disclosures. Following amendments proposed by the European Commission on 31 August 2022 and the acceptance thereof by the EBA in its opinion of 17 October 2022, the obligation of in scope institutions to disclose BTAR-related information and the obligation for counterparties to provide requested information have been somewhat limited.

European Parliament publishes its report with respect to the proposed EU Green Bond Standard

On 16 May 2022, the European Parliament published its report on the proposed EU Green Bond Regulation

The proposed European Green Bonds Regulation is part of the broader European Commission agenda on sustainable finance and lays the foundation for a common framework of rules regarding the use of the designation “European green bond” or “EuGB” for bonds that pursue environmentally sustainable objectives within the meaning of the Taxonomy Regulation.

A key change between the original proposal by the European Commission and the European Parliament’s amended version is an increase in the scope of the regulation to all bonds marketed as environmentally sustainable and sustainability-linked bonds in the EU. In the European Parliament’s report, for all bonds that are marketed as environmentally sustainable in the EU, including sustainability-linked bonds, transparency requirements are introduced, including disclosure in accordance with the EU taxonomy legislation. This would allow investors to compare EuGBs with other green bonds. In addition, all issuers of green bonds must have safeguards in place to ensure they do not harm people or the planet. The requirement to have environmentally sustainable use of proceeds remains unchanged, however, and sustainability-linked bonds can therefore not obtain an EuGB label.

Some other noteworthy amendments proposed by the European Parliament are:

the requirement that issuers of EuGBs and sustainability-linked bonds have an auditor-verified transition plan with the objective of achieving climate neutrality by 2050 at the latest if disclosure by the issuer of sustainability reporting is required under the Accounting Directive (as amended by the CSRD);

issuers from countries that are on the EU’s grey or blacklist of tax havens are prohibited from issuing EuGBs; and

if applicable, a prominent statement on the required factsheet that use of proceeds are intended to be allocated to nuclear energy or fossil gas-related activities.

The next step is the trilogue negotiation between the European Commission, European Parliament and the Council of the EU during which inter alia the topics above will be discussed.

ECB takes further steps to incorporate climate change into its monetary policy operations

On 4 July 2022, the European Central Bank (“ECB”) announced the taking of further steps to include climate change considerations in the Eurosystem’s monetary policy framework. It decided to adjust corporate bond holdings in the Eurosystem’s monetary policy portfolios and its collateral framework, to introduce climate-related disclosure requirements and to enhance its risk management practices.

These measures are designed in full accordance with the Eurosystem’s primary objective of maintaining price stability. They aim to better take into account climate-related financial risk in the Eurosystem balance sheet and, with reference to its secondary objective, support the green transition of the economy in line with the EU’s climate neutrality objectives. Moreover, its measures provide incentives to companies and financial institutions to be more transparent about their carbon emissions and to reduce them.

In respect of corporate bond holdings, the ECB aims to gradually decarbonise its corporate bond holdings, on a path aligned with the goals of the Paris Agreement. To that end, the ECB will tilt these holdings towards issuers with better climate performance through the reinvestment of the sizeable redemptions expected over the coming years. Better climate performance will be measured with reference to lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures.

Tilting means that the share of assets on the Eurosystem’s balance sheet issued by companies with a better climate performance will be increased compared to that of companies with a poorer climate performance. This aims to mitigate climate-related financial risks on the Eurosystem balance sheet. It also provides incentives to issuers to improve their disclosures and reduce their carbon emissions in the future. On 19 September 2022, the ECB has provided further details on how it will tilt its corporate bond holdings towards issuers with better climate performance. In essence, each corporate issuer will receive its own "climate score" which will be based on a backward-looking emissions sub-score, a forward-looking target sub-score and a climate disclosure sub-score. The ECB applies the measures from October 2022 and will start publishing climate-related information on corporate bond holdings regularly as of the first quarter of 2023.

ICMA Green, Social and Sustainability Linked-Bond Principles

EBA recommendations for ESG-linked capital issuances

EBA publishes binding standards on Pillar 3 disclosures on ESG risks

European Parliament publishes its report with respect to the proposed EU Green Bond Standard

ECB takes further steps to incorporate climate change into its monetary policy operations

Financial Regulation

Regulatory

Requirements for periodic reporting to investors are applicable and apply as of January 2022.

Prudential supervision

The Dutch Central Bank (De Nederlandsche Bank) (“DNB”) promotes a sustainable economic development and is committed to promoting financial stability and sustainable prosperity. DNB advocates accelerating and scaling up climate investment.

DNB expects financial institutions to incorporate climate risks into their operations. DNB’s Sustainable Finance Platform is a co-operative venture which brings together the Dutch financial sector, the Dutch government and the supervisory authorities to find ways of preventing or overcoming constraints for sustainable funding and to boost sustainability by working together.

A key priority of DNB’s supervision is the financial sector's management of climate-related and environmental risks. Financial institutions should be aware of sustainability risks and be able to manage them. Commitment to sustainability and future orientation is one of three focus areas in DNB’s Supervisory Strategy 2021 – 2024. For 2022, DNB will specifically focus on embedding sustainability in its supervisory methodology, making sustainability risks an integral part of regular supervision and the frameworks it uses for its supervision. DNB will, among other issues, include climate risks in periodic risk assessments and will use supervisory interviews, deep dives and on-site investigations to get a better picture of how institutions manage climate risks.

Climate-related risks are already part of DNB’s fit and proper assessments of (co)policymakers of banks, insurers and pension funds. The financial undertaking in question must include in its screening application the candidate’s knowledge and experience with regard to such risks. DNB has amended its suitability matrices to explicitly include this. Moreover, climate-related and environmental risks take a more prominent role in DNB’s screening interviews. When conducting its assessment, DNB takes a proportional approach. This means that DNB takes into account the candidate’s proposed position, the financial undertaking’s nature, size, complexity and risk profile, and the composition and functioning of the board as a whole. On 15 July 2022, DNB and the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) (“AFM”) launched a consultation to seek views on the draft of an amendment to the Suitability Policy Rule 2012 (Beleidsregel geschiktheid 2012). The Suitability Policy Rule 2012 describes the framework that DNB and the AFM use when assessing the suitability of policymakers in the financial sector. The explanatory notes of the draft amendment to the Suitability Policy Rule stipulate that a management body should also have sufficient knowledge of the effects of climate change and the relevant regulations applicable in the financial sector aimed at sustainability (e.g. the Sustainable Finance Disclosure Regulation (“SFDR”)). The consultation closed on 15 September 2022.

DNB has published guidance documents on climate-related and environmental risks, inter alia:

In addition, DNB launched a consultation to seek views on its ‘Guide to managing climate and environmental risks’ (the “Guide”) on 24 October 2022. The Guide consists of cross-sectoral focal points for the integrated management of climate and environmental risks, which oversee the focal areas of business model and strategy, governance, risk management and information provision. In addition, the Guide consists of sector-specific good practices, as example of a possible implementation of a selection of the focal points. The consultation closes on 18 December 2022.

Conduct of business supervision

The AFM is committed to promoting fair and transparent financial markets. Contributing to sustainable financial well-being in the Netherlands is part of the AFM’s mission as reflected in its Strategy 2020 – 2022. In this context, among other things, the AFM supervises the reporting of sustainable developments, climate-related issues and oversees that sustainability principles are being adhered to in an honest and transparent manner. In the AFM Agenda 2022, the AFM emphasised, among other matters, that it will in 2022: (i) continue to assist the financial sector in implementing new legislation and regulations in order to achieve (greater) transparency on the degree of sustainability of investments; (ii) review compliance with the SFDR; and (iii) contribute to the development of sustainability reporting, especially the CSRD.

Finally, the SFDR has required financial service providers to be transparent since 10 March 2021 about investment decisions and advice with negative impacts on sustainability factors. Requirements for periodic reporting to investors have been applicable since January 2022. Primarily, SFDR is a set of EU rules which aim to make the sustainability profile of funds more comparable and better understood by end-investors. This will focus on pre-defined metrics for assessing the ESG outcomes of the investment process. Among the SFDR’s key parts is its focus on preventing “greenwashing”. The AFM also expects market parties to prepare for compliance with the SFDR Regulatory Technical Standards (“RTS”), which aims to provide additional detail on the content and presentation of the disclosure requirements under the SFDR. On 25 July 2022 the final RTS under the SFDR and its Annexes were published on the OJEU. The RTS will apply from 1 January 2023.

On 12 April 2022, the AFM presented its conclusions of a preliminary review of a number of sustainable funds offered by Dutch fund managers. The AFM noted that funds interpret “sustainable” in a different manner. It found that, for example, many shares in funds that are advertised as “sustainable” are also part of “regular” funds. As the AFM wondered whether this corresponds with the expectations of retail investors, it started conducting research into the expectations of retail investors when it comes to sustainable investments. On 3 November 2022, the AFM published the results of this research. The research shows that making an impact is the main motivation behind sustainable investing, although sustainable investors are often unable to select a suitable offer. Sustainable investors use subjective sources of information and appear to be uninformed. The research confirms the previously identified risk that the interpretation of a sustainable investment by offerors and the expectations of investors may diverge. The AFM considers it important that these insights are used, and suggest that, by mapping investors' preferences and objectives and adjusting the product range accordingly, future disappointments could be avoided. In its Trend View 2023 (Trendzicht 2023), the AFM, among others, indicates in this respect that it is important for offerors to communicate transparently about the objectives of their products and their associated impact implications.

On 10 November 2022, the AFM published reports on the implementation of the requirements of the SFDR and the Taxonomy Regulation by (i) managers of Dutch collective investment schemes, (ii) pension funds and PPIs and (iii) banks, investment firms and insurers. On the basis of its review in respect of managers of Dutch collective investment schemes, the AFM concluded that managers have made improvements with regard to the information they provide about sustainability after their previous report in 2021. The AFM’s main findings concern the following three points:

(i) transparency about integrating sustainability risks into policies for the investment decision process and remuneration policy could be more concrete;
(ii) many managers have reclassified their fund from a fund with a sustainable objective to a fund that promotes sustainable characteristics; and
(iii) the vast majority of funds report that 0% of their investments are in line with Taxonomy criteria, as there currently is a lack of reliable data to determine whether the Taxonomy criteria are met.

The AFM’s main findings in respect of pension funds, PPIs, banks, investment firms and insurers are largely the same:

(i) information disclosed under the SFDR (and the Taxonomy Regulation) is often difficult to understand and general in nature;

(ii) sustainability information about investment policy could be more concrete;

(iii) pre-contractual information can be provided more concretely; and

(iv) little to no information about Taxonomy was found on the websites of the selected parties.

Sustainable Finance Sources: survival guide

It can be hard to find in one place the legal, regulatory and industry sources you need when navigating the fast-moving and ever-developing sustainable finance landscape.

Our document provides you with a one-stop shop for this. The document is updated on a quarterly basis. Starting with the EU legislative package, working through the Level 2 technical details and impacts on related sectoral legislation like MiFID II or UCITS, moving to local developments in the UK, and always with an eye to our UK future regulatory framework post-Brexit transition, this document brings all of the key sources and resources together with answers for each:

Netherlands ESG

With an upfront timeline that is kept regularly updated, this resource will help you keep an eye on what is on the horizon in sustainable finance.

Please click here for the latest edition. Of course, if you would like to discuss any of the sources or issues identified in this publication, please do get in contact with us.

Regulatory

Sustainable Finance Sources: survival guide

Dispute Resolution

Supply chain due diligence and human rights

Fines for breaches under the Child Labour Due Diligence Act could be up to EUR 900,000 or 10% of the company’s total worldwide revenue.

In 2019, the Child Labour Due Diligence Act (Wet Zorgplicht Kinderarbeid) was adopted by the Dutch Senate (Eerste Kamer der Staten-Generaal) and published in the Dutch State Gazette (Staatsblad). The Act compels companies to perform due diligence to their supply chains and to investigate whether their goods or services have been produced using child labour. Also, companies must develop a plan to prevent child labour in their supply chains. The obligations arising from the Act will apply to all companies that sell or supply goods or services to Dutch consumers, regardless of where those companies are based or registered, without exemptions for legal form or size. In addition, companies must affirm to a regulator, yet to be appointed, that they have exercised an appropriate level of supply chain due diligence to prevent child labour. Fines for breaching the Child Labour Due Diligence Act could be up to EUR 900,000 or 10% of the company’s total worldwide revenue.

Upon adoption of the Act for Responsible and Sustainable International Business Conduct (Wet verantwoord en duurzaam internationaal ondernemen), the Child Labour Due Diligence Act will be revoked. The legislative proposal will be further discussed in the House of Representatives at the end of January 2023.

Upon adoption of the Act for Responsible and Sustainable International Business Conduct qualifying companies under the Act are required by statutory law to take measures to prevent their supply chain from (i) employing child and/or forced labour, (ii) having unsafe working conditions, (iii)being involved in any kind of slavery, discrimination or exploitation, (iv) creating environmental damage or (v) breaching freedom regarding the right to form trade unions.

Climate litigation

On 26 May 2021, the District Court in The Hague ordered Shell to reduce its global carbon emissions by 45% by 2030 compared with 2019 levels – that is, the emissions of the Shell group, its suppliers and its customers.

This was considered a ground-breaking decision as, for the first time, a court has intervened to force a company to reduce its carbon emissions and bring its strategy in line with the goals of the Paris Agreement. For the Netherlands, this decision was as important as the Urgenda Ruling (see above).

Undoubtedly, this is another important decision in the field of climate litigation that is on the rise on a global scale. Commentators have stated that the Shell decision is a “tipping point” in climate litigation but time will tell if that is indeed the case. However, this decision is the latest in a series of cases and investor decisions that, together, have very significant implications for companies’ climate strategies, not just in the oil and gas or energy sector.

On 20 July 2021 Shell confirmed that it would appeal the judgment, starting appeal proceedings on 23 August 2021. On 22 March 2022, Shell filed its statement of appeal with the Hague Court of Appeal.

The next step in the proceedings is that Milieudefensie will file its statement of defence, ultimately on 18 October 2022. An oral hearing is expected to take place in early 2023 or, if Milieudefensie files a cross-appeal on certain elements of the judgment, in early 2024. A decision is expected to be rendered at least five months after the hearing.

It is likely that the case will then progress to the Dutch Supreme Court, similar to the Urgenda Ruling. It is also possible that the case will be referred to the Court of Justice of the European Union in Luxembourg by either the court of appeal or the supreme court for a prejudicial ruling on the EU law issues raised by Shell (Article 267 TFEU).

On 13 January 2022, following the Shell judgment, Milieudefensie sent letters to 29 Dutch companies demanding the companies to submit their climate plans, being ‘climate just’ before 15 April 2022 to Milieudefensie, who in turn will have all climate plans evaluated and assessed on quality and practicality by the New Climate Institute. On July 5, the New Climate Institute published the results of the evaluation in ranking summary in English.

Shell climate decision: companies’ climate plans and targets under fire

Spotlight on... climate and ESG action plans | Sustainable Futures | Linklaters

Greenwashing in the Netherlands

In the Netherlands, climate activism focusses more regularly on greenwashing. Following inter alia the claims filed against Shell and Robeco before the Dutch Advertising Code Committee, environmental groups find their way to the judiciary of the Netherlands. On 6 July 2022, after demanding (sommeren) KLM on the annual general meeting to stop the ‘misleading advertisements’ that it is on the path to sustainable flying, Fossielvrij NL, an NGO, filed a legal claim against KLM in the District Court of Amsterdam.

In the writ of summons, Fossielvrij NL alleges that KLM, through its disputed advertising campaign "Fly Responsibly", claims that the public is invited to join KLM in creating a sustainable future, making the advertising campaigns of KLM are misleading and unlawful on the basis of a violation of the principles of (i) dishonest market practices (oneerlijke handelspraktijken), (ii) misleading market practices (misleidende handelspraktijken) and (iii) wrongful act (onrechtmatige daad).

In short, Fossielvrij NL seeks:

a declaratory decision that the following claims made by KLM through advertisements are misleading and/or unlawful:
(i) flying could be sustainable, and
(ii) by purchasing or contributing to a compensation effect, the effect of flying to the climate could be lowered, partially absorbed or partially compensated;

an order that KLM deletes all the disputed advertisements of all media channels; a prohibition of KLM to repeat or publish the disputed advertisements in the future;

an order that KLM rectifies the advertisements by, inter alia, sending letters to all purchasers that purchased since 1 December 2021 KLM tickets and publishing an advertisement in five national newspapers; and

an order that KLM publishes a warning text on its product and its website.

EU proposal for a Corporate Sustainability Due Diligence Directive

On 23 February 2022 the European Commission published its proposal for a Directive on Corporate Sustainability Due Diligence (the “Proposal”), aimed at imposing on companies of a certain size operating in the EU due diligence obligations covering the adverse human rights and environmental impacts of their own operations, and those of their subsidiaries and their upstream and downstream value chain. Through the Proposal, the European Commission seeks to advance respect for human rights and the green transition, create a level playing field for companies within the EU and avoid fragmentation resulting from voluntary standards and/or EU Member States acting on their own

Scope

The Proposal would apply to both companies incorporated in the EU and companies incorporated outside the EU. Whether a company would be subject to the provisions of the directive would depend on its size, sector and source of revenue.

Climate change action plan

Certain in-scope companies (both EU and non-EU) must adopt a plan to ensure that the company's business model and strategy are compatible with the transition to a sustainable economy, including limiting global warming to 1.5 °C in line with the Paris Agreement. The plan must identify the extent to which climate change is a risk for, or an impact of, the company’s operations. If this is the case (or the company ought to have reached this conclusion), the company must include emission reduction objectives in its plan.

Directors’ duties

Directors of in-scope EU companies are responsible for putting in place and overseeing their companies’ due diligence actions and policies and for adapting their companies’ strategy accordingly. In addition, and more broadly, when fulfilling their duty to act in the best interest of the company, they are required to take into account sustainability matters including the human rights, climate and environmental consequences in their decision-making. EU Member States are required to ensure that a breach of the above-mentioned duty of care is considered a breach of director’s duties under their domestic laws.

Human rights and environmental mandatory due diligence

Companies’ due diligence requirements are set out in Article 4 to 11 of the Proposal and include the following: (i) integration of due diligence into companies’ policies (Article 5); (ii) identification actual and potential adverse human rights and environmental impacts (Article 6); (iii) prevention, mitigation and remediation (Article 7); (iv) bringing actual adverse impacts to an end (Article 8); (v) complaints procedure (Article 9); (vi) monitoring (Article 10) and (vii) publication (Article 11).

Public and private enforcement of the due diligence obligations

The Proposal contains a number of enforcement mechanisms, but it expressly provides that taking all appropriate measures to set up and carry out due diligence measures is considered an obligation of means, not of result.

EU Member States are required to designate one or more authorities to supervise compliance with the obligations laid down in their transposing act. They will have the power to request information and carry out investigations, on their own motion or as a result of substantiated concerns submitted to them by any natural or legal person who has reasons to believe a company is not complying. They will also have the power to order the cessation of infringements, impose administrative fines and adopt interim measures to avoid the risk of severe and irreparable harm. Decisions of the supervisory authority shall be published and a judicial remedy against these decisions shall also be provided for under national law.

Next steps

The adoption of the proposal for a Directive by the European Commission only marks the beginning of the legislative process. The European Parliament and Council will now need to scrutinise and will likely amend the European Commission’s proposal. Once they have defined their respective positions, they will try to reach a political agreement before the two institutions can formally adopt the Directive.

The earliest the new rules are likely to be adopted is mid-2023. Given the political sensitivity of the Proposal and divergent views among Member States and EU institutions (as well as industry), intense negotiations and possible delays are expected. If and when adopted, Member States will then have to transpose the Directive into national law within two years (or four years, for in-scope companies involved in high-risk sectors) of the Directive coming into force.

Early December 2022, a political agreement was reached on the EU Deforestation Due Diligence Proposal. Essentially, this proposal obliges operators and traders who place, make available in the EU or export from the EU certain commodities to verify and issue a due diligence statement which confirms that those goods have not led to deforestation and forest degradation anywhere in the world after 31 December 2020. In particular, products from cattle, cocoa, coffee, palm oil, palm oil derivatives, rubber, charcoal, printed paper products, soya and wood, as well as products that contain, have been fed with or have been made using those commodities (such as leather, chocolate and furniture) are within the scope of the EU Deforestation Due Diligence Proposal.

Supply chain due diligence and human rights

Climate litigation

Greenwashing in the Netherlands

EU proposal for a Corporate Sustainability Due Diligence Directive

x

ESG Flyer

Our team at Linklaters Netherlands is actively involved in a wide scope of ESG related matters and can present a variety of topics that are relevant in the Netherlands to you and your business. Download the flyer and read more on our expertise. Topics include renewable energy (solar, wind, EV), hydrogen, energy transition, green/sustainability-linked bonds and loans, climate litigation and (sustainable) corporate governance and disclosure requirements.

Download

Our lawyers are enthusiastic, committed people who relish the challenges and opportunities that they encounter every day.

Search for a lawyer by name or use one of the filters.

Our business team members are enthusiastic, committed people who relish the challenges and opportunities that they encounter every day.

Search for a business team member by name or use one of the filters.

ESG in the Netherlands

Ignoring ESG could impact businesses’ profitably and governments’ credibility.

Explore our Corporate M&A topics related to ESG in the Netherlands

Explore our Banking topic related to ESG in the Netherlands

Explore our Capital markets topics related to ESG in the Netherlands

Explore our Financial Regulation topic related to ESG in the Netherlands

Explore our Dispute Resolution topics related to ESG in the Netherlands

Ignoring ESG could impact businesses’ profitably and governments’ credibility.

Explore our Corporate M&A topics related to ESG in the Netherlands

Explore our Banking topic related to ESG in the Netherlands

Explore our Capital markets topics related to ESG in the Netherlands

Explore our Financial Regulation topic related to ESG in the Netherlands

Explore our Dispute Resolution topics related to ESG in the Netherlands

Corporate M&A

Climate Policy in the Netherlands

Renewable Energy and Incentive Schemes

Hydrogen

Sustainable companies and collaboration by companies for sustainable objectives

Corporate governance

Banking

Green loans and sustainability-linked loans

Capital Markets

ICMA Green, Social and Sustainability Linked-Bond Principles

EBA recommendations for ESG-linked capital issuances

EBA publishes binding standards on Pillar 3 disclosures on ESG risks

European Parliament publishes its report with respect to the proposed EU Green Bond Standard

ECB takes further steps to incorporate climate change into its monetary policy operations

Financial Regulation

Regulatory

Sustainable Finance Sources: survival guide

Dispute Resolution

Supply chain due diligence and human rights

Climate litigation

Greenwashing in the Netherlands

EU proposal for a Corporate Sustainability Due Diligence Directive

ESG Flyer

You may also be interested in

You will need to log in or register to view the content

Register

Reset password

Log in