Sustainable entrepreneurship is a hot topic. (Introducing) an ESG (Environmental, Social and Governance) policy is high on the agenda of many companies. On the one hand because investors want to invest in a socially responsible way and on the other because an increasingly large number of regulations in this area are becoming effective, partly as a result of the Climate Agreement. By introducing the CSRD Directive (Corporate Sustainability Reporting Directive), as from 2024 onwards, a growing number of companies will be obliged to report on the company's impact on society and the environment. In addition, the Dutch legislators are also developing regulations requiring companies to focus on sustainability, social interests (such as gender equality) and governance.
As an entrepreneur, you need to introduce sustainability targets, review the social aspects within your company and work on various governance aspects. From an employment law perspective, social aspects in particular are relevant. In addition, from a governance perspective, directors’ remuneration requires attention and, as far as environmental aspects are concerned, 'green employment conditions' can be considered. In this article, we will zoom in on some of these labour law aspects that can or should be addressed when developing a proper ESG policy.
As far as environmental aspects are concerned, from an employment law perspective, incentives for employees to travel greener can be considered. A registration obligation for employees' commuting and business travel will be introduced for companies with 100 employees or more, in order to reduce C02 emissions. Its implementation has been deferred for now and is expected to take effect from 1 January 2024.
Encouraging greener travel (or travelling less or in a different way by encouraging cycling, use of public transport and working from home) certainly does not have to be limited to commuting. Of course, the environmental aspect of your ESG policy can go beyond that. For instance, you could consider encouraging sustainable holidays or making individual sustainability budgets available to reward and/or support other green initiatives by employees.
Looking at the social aspects that are important from an employment law perspective in the context of your ESG policy, you could consider working conditions, diversity, gender equality, privacy protection and the personal development of employees. The multiplicity of legislative proposals that are being drafted in this area shows that also the legislator has a particular focus on these issues. We refer to the Bill on Equal Opportunities in Recruitment and Selection, the Bill on Working Where You Want, the Bill on the Right to Inaccessibility and the Bill on a Mandatory Confidential Adviser.
Another topic of interest in the context of the social aspect of ESG policy is the Act to achieve a more balanced male-female ratio on Management ans Supervisory Boards (the Gender Balance Act), which came into force from 1 January 2022. This law stipulates, inter alia, that major limited liability and private limited liability companies must set appropriate ambitious target figures in order to ensure a more balanced ratio in the number of men and women on the Boards of Directors and Supervisory Boards and in categories of employees in management positions to be determined by the company. In this respect, these companies must report to the Social and Economic Council (SER). All major companies are required to report in the directors’ report on the actual state of affairs per financial year, the target figures that have been set, the progress towards these target figures, the plans to achieve them and the extent to which the target figures have been achieved. This information, to be included in the directors’ report, is equivalent to the information to be reported to the SER. This obligation does not apply to group companies if the holding company sets target figures for these group companies and plans and reports on them. Also, the obligation does not apply to the Supervisory Board and non-executive directors of listed companies, as these are subject to the ingrowth quota pursuant to Section 142b (2) and (3) of the Dutch Civil Code.
Finally, the Bill on Equal Pay for Women and Men and the Directive on Equal Pay for Men and Women have an important part in this context. This bill aims to ensure more pay transparency through, inter alia, an obligation to provide information, the right to access pay data, a complaints procedure and a certification system. Under the certification system, it is envisaged that companies with more than 250 employees will have to submit figures on employee pay every three years. It is mandatory to obtain the certificate again every three years. Failure to do so, after a warning and opportunity for improvement, may result in penalties being imposed by the Netherlands Labour Inspectorate.
Things to consider in terms of Governance include the fact that, with the introduction of the Whistleblowers Protection Act with effect from 18 February 2023, there is an obligation to better protect whistle-blowers within the company. Further consideration can be given to the legal possibilities for works councils to have a say on ESG-related issues and how this is arranged within your company. Moreover, from a governance perspective, it will be particularly important how the ESG goals can be achieved in practice. In order to actually achieve ESG objectives, increasing numbers of companies are including ESG criteria in executive remuneration plans. This triggers directors to actively work on the ESG policy because bonus targets are linked to the achievement of specific objectives. The difficulty is that ESG is relatively new and it is hard to monitor whether certain objectives have been achieved. Often, a performance-related bonus (and target) rather than a result-related bonus (and target) is therefore chosen in the first instance. This is an approach that also makes the objectives achievable initially. For the longer term, we advise to always work with result-related criteria in order to let the director actually strive for impact.