ESG and class actions

Currently, three letters are a hot topic in the legal, business and financial world: ESG (Environmental, Social & Governance). Simultaneously with the rise of ESG, so-called "ESG disputes" emerged. Two notable examples within this context are the legal battles between Urgenda and the Dutch State (the "Urgenda case") and the case initiated by Milieudefensie against Royal Dutch Shell (the "RDS case"). In both cases, successful class actions were taken to enforce responsible climate policies in the courtroom.

In practice, a wide range of claims can fall under ESG, including disputes relating to climate change, human rights abuses, securities and consumer disputes arising from allegations that companies have misrepresented the sustainability of their products or services, and other environmental or social issues.

Class actions under Dutch law

In 1994, the Class Action Act ("Wet collectieve actie" or "WCA") entered into force. This codified the case law on collective actions by associations and foundations in Article 3:305a of the Dutch Civil Code ("DCC").[1] Under the WCA, foundations or associations with full legal capacity were allowed to bring an action for to protect the similar interests of other persons to the extent that they represent those interests in accordance with their articles of association.

In 2005, the Class Settlement of Mass Damages Act ("Wet collectieve afwikkeling massaschade" or "WCAM"), as a complement to the WCA, made it possible for an agreement reached between the parties to a collective claim settlement to be declared binding on the entire group of disadvantaged persons.

Subsequently, the Act on the Settlement of Collective Damages ("Wet afwikkeling massaschade in collectieve actie" or "WAMCA") entered into force on 1 January 2020. With the implementation of the WAMCA, it became possible to consolidate a large number of individual claims into a single claim on behalf of a group of individuals and to seek compensation at the same time.

In addition, the WAMCA provided for an amendment to Article 3:305a DCC. Associations or foundations (“representative organisations”)  can - still - bring an action on behalf of their members if, in short, they represent the interests of their members in accordance with their articles of association and these interests are sufficiently protected. Representative organisations must be sufficiently representative. Representative organisations must also meet certain requirements and demonstrate that they possess or have access to sufficient relevant expertise. There is an exception to this last requirement (Article 3:305a(6) DCC). Representative organisations do not have to meet the requirements of representativeness if the action is brought with an idealistic purpose and a very small financial interest, or if the nature of the action is such that this is not necessary (as in the Urgenda case).

ESG disputes in The Netherlands

One of the most notable legal cases initiated in the Netherlands to address an ESG dispute is the case in which the Dutch foundation Urgenda (“Urgenda”) sought to compel the Dutch government to reduce carbon emissions.[2] The case eventually reached the Supreme Court, which, like the lower courts, affirmed that failure to further limit emissions constitutes a breach of the government's duty of care to its citizens, resulting in an act of tort under Dutch law.

The Urgenda case drew attention to ESG, and after Urgenda, other parties initiated class actions to address ESG issues. Several examples are provided below.

For example, Milieudefensie, Stichting Adem Rotterdam and 57 individual plaintiffs filed a lawsuit to force the Dutch government to improve air quality.[3] Both the District Court and the Court of Appeal in The Hague rejected the claims of Milieudefensie et al.

And in 2019, Milieudefensie, on behalf of co-claiming organizations and more than 17,000 individual co-claimants, filed a lawsuit against Shell. Milieudefensie et al. demanded that Royal Dutch Shell be compelled to become more sustainable. On May 26, 2021, the District Court of The Hague ruled that Royal Dutch Shell must reduce its emissions by 45% by 2030 compared to 2019.[4] Royal Dutch Shell has appealed this decision, and the appeal is currently pending.

The latter case against Shell is an important step forward in the development of ESG justice in the Netherlands and abroad. It shows that companies can be held accountable for the harm they cause to people and the environment. It also highlights the importance of care and responsibility in the way companies conduct their business.

The WAMCA enables the possibility of not only claiming a declaratory judgment but also seeking damages in a class action. A central register for class actions indicates that since 2020, almost eighty class actions have been initiated under the WAMCA. The majority of these can be classified under ESG. Some examples of cases related to ESG issues are provided below:

• Early 2022, a Dutch claims foundation, on behalf of a group of international investors, filed a claim for damages against aircraft manufacturer Airbus. The group of 130 investors alleges to be harmed by Airbus' misleading publications regarding its involvement in and financial settlement of corruption, bribery, and other forms of fraud. The investor group brought its claim to the District Court The Hague.[5] Such a claim can be classified under the governance pillar of ESG.
• In 2022, the foundation promoting the Fossil-Free movement filed a case against KLM. Fossil-Free sought, among other things, a declaratory judgment indicating that KLM's suggestive statements — that flying can be sustainable — are misleading and unlawful, with KLM thereby acting in violation of fundamental rights and guidelines. On 7 June 2023, the Amsterdam District Court allowed the admissibility of the claims against KLM.[6] The hearing takes place on 19 December 2023. A verdict is expected in February 2024. Such a claim can be classified under the governance pillar of ESG.
• This year, on April 3, the Essure foundation, along with health insurers CZ and VGZ, held Bayer liable for injuries allegedly caused by a sterilization spring. Health damage can be classified under the social pillar of ESG.

The future of ESG disputes under the WAMCA in the Netherlands

According to the Grantham Institute, as of May 31, 2022, there were 2,002 global lawsuits related to climate change.[7] Two significant cases, the Urgenda case and the RDS case, occurred in the Netherlands. Climate-related disputes represent just one facet of the broader category of ESG disputes. ESG, being a comprehensive concept, encompasses disputes ranging from labor standards, product safety, data protection, to privacy. It can be concluded that ESG is now an integral part of the business landscape and, consequently, the legal domain. Moreover, the rise and awareness of ESG have given rise to various trends, including greenwashing, sustainability efforts in products and companies, and new guidelines addressing ESG topics.

On one hand, one can expect a trend in the increase of ESG disputes filed under the WAMCA. Factors such as the success of the Urgenda case, growing awareness of climate change, and increased focus on ESG within companies may play a role in this trend. Additionally, the WAMCA, introduced to provide collective means for individuals with relatively limited damages to seek redress from both companies and governments, seems poised to contribute to this rise.

On the other hand, a recent interim ruling by the Amsterdam District Court on October 25, 2023, emphasizes the requirement for sufficient conformity among individual claims under Article 3:305a DCC (the "TikTok case").[8] This ruling pertained to a collective action brought by three claim foundations against TikTok for privacy violations. In this interim judgment, the court deemed these damage claims inadmissible in a class act due to insufficient 'bundling,' as TikTok is used in various ways, resulting in different negative experiences for users.

The ruling in the TikTok case suggests that quantifying ESG-related issues, such as climate damage, may be challenging and may not qualify for compensation. Consequently, this decision could impact the volume of ESG disputes, although class actions may still proceed, albeit with reduced financial incentives in certain cases. The impact of the TikTok case will become apparent in the future.

Despite the WAMCA being in effect for almost four years, very few cases have been 'successfully' litigated in favor of the claimants. Most WAMCA cases are still ongoing without clear outcomes. The VMA argues that the WAMCA provides ample opportunities for defense, even on seemingly insignificant details, potentially contributing to the prolonged and costly nature of legal proceedings.[9] The extent to which this will have an impact on the number of ESG disputes brought to court will be seen in the coming years.