Due to the increasing significance of sustainability criteria in the economy as a whole, they are increasingly incorporated into corporate governance and are thus becoming an integral part of the activities of management and supervisory bodies. In the future, a large number of legislative initiatives at the national and European level will require companies to align their corporate governance (even more strongly) with a variety of sustainability goals.
Sustainable Corporate Governance
The European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD) on November 10, 2022, which marked a significant departure from the previous sustainability reporting rules, set out in a suite of directives and regulations, including the Non-Financial Reporting Directive (NFRD). With the CSRD, the previously mandated reporting on sustainability issues will be expanded, standardized in terms of content, and applied to a broader range of businesses. According to estimates by the EU Commission, some 50,000 businesses will be required to provide sustainability information in the future, whereas only about 11,700 businesses are currently required to do so.
The Directive as regards disclosure of non-financial and diversity information by certain large undertakings and groups (Directive 2014/95/EU), also referred to as the “NFR Directive,” introduced the requirement to include a non-financial statement in the management report, which also covers information relating to environmental, social and employee-related matters, respect for human rights, and anti-corruption and bribery matters.
In April 2021, the EU Commission presented a proposal to revise the NFR Directive, which the European Council modified in February 2022 (cf. our Compliance Update 9/2022). In June 2022, the Council and Parliament reached a political agreement that serves as the foundation for the adopted version of the CSRD. The adopted CSR Directive amendments significantly expand the reporting requirements. In this article, we have summarized the most significant modifications.
Proposal for the regulation of long-term and sustainable corporate governance and supervision
The regulation of long-term and sustainable corporate administration and supervision (Sustainable Corporate Governance) is another EU initiative. This could have a significant impact on Directive (EU) 2017/1132 (aspects of company law) and Directive 2007/36/EC (exercise of certain rights of shareholders in listed companies). Currently, it is unclear which specific action areas will be affected.
GCGC 2022 – Sustainability considerations gaining prominence
The new German Corporate Governance Code (GCGC) went into effect on June 27, 2022, upon publication in the electronic Federal Gazette. The GCGC was adapted to the Act on Strengthening Financial Market Integrity and the Second Leadership Positions Act. The primary focus of the new principles and recommendations, however, is the consideration of environmental and social sustainability in the management and supervision of listed companies.
In the future, the management board will have to identify and evaluate, among other things, the hazards and opportunities associated with social and environmental factors, as well as the ecological and social consequences of the company’s activities. In addition to long-term economic objectives, environmental and social objectives should also be appropriately considered in corporate strategy, and corporate planning should incorporate corresponding financial and sustainability-related objectives.
Unless already mandated by law, the company’s internal control and risk management system should cover sustainability-related objectives and include the appropriate systems and processes for recording and processing sustainability-related data.
In the future, the supervisory board’s monitoring and advisory activities will have to include a particular focus on sustainability issues. Consequently, the expertise of the members of the respective company’s supervisory board must now be commensurate with the significance of sustainability issues for that company.
With the reform of the Code in 2022, the growing importance of sustainability and ESG criteria is making its way into corporate governance, thereby becoming an integral part of management and supervisory board activities. This article provides a comprehensive presentation of the key adjustments and recommendations for practice.
The lawyers in our Corporate Social Responsibility (CSR) Taskforce advise businesses, public institutions, and organizations in all areas of the dynamic and contemporary business, environment, and human rights fields.
Our services include the following:
Ongoing advice and monitoring of the legal situation
Ongoing advice and monitoring of the legal situation
We provide an overview of the existing national, European, and international legal requirements for sustainable business and keep you abreast of all current legislative activities that affect your business.
In addition, we advise you on how to take the right steps early on to implement the legal requirements in the areas of CSR, human rights, social standards, sustainability, and the environment in your company effectively and economically, and to avoid (potentially sanctionable) violations.
Implementation of due diligence
Implementation of due diligence
We evaluate your due diligence obligations and assist you in establishing, implementing, and updating the appropriate measures so that your business does not have to face negative consequences such as liquidated damages, fines, or exclusion from public contracts.
We also offer training, workshops, and qualification schemes on the aforementioned topics for your company’s employees and managers who are responsible for and concerned with these issues.
Risk management and risk analysis
Risk management and risk analysis
We assist our clients with (updating) risk analysis and the establishment of an appropriate risk management system.
Together, we evaluate the steps your business has taken to date to meet legal and contractual sustainability requirements.
We examine the steps your company must take to comply with the new Supply Chain Act requirements and the requirements for sustainable corporate governance.
Complaint procedures and complaint management
Compliance, risk, and supply chain management system
Compliance, risk, and supply chain management system
We design and implement effective compliance and risk management systems to observe due diligence obligations in global supply chains, or we support the expansion of existing systems to include the “supply chain compliance” element.
We draft individualized sets of rules and codes of conduct (supplier codes of conduct, business codes, CSR agreements, statements of human rights principles).
In addition, we devise a concept for rule-compliant supply chain management for your organization, define your future supply chain policy, and implement early warning systems.
On request, we also assess and modify your distribution and supply contracts in accordance with compliance, CSR, and sustainability requirements.
Reporting and notification
Reporting and notification
We collaborate with you to develop and implement a suitable sustainability and CSR reporting and notification system to customers, authorities, and the general public that complies with legal requirements and supports the positive corporate communications of your business.
Corporate transactions
Crisis management and legal representation
Crisis management and legal representation
We represent you in court and out-of-court legal disputes, as well as regulatory proceedings involving human rights violations, due diligence violations, and supply chain disputes. This includes strategic advice prior to such disputes, so that you are always in the best position possible.
We advise you on matters concerning the liability of your general managers and board members in the event of due diligence violations. We also defend and represent companies and their management personnel in criminal or administrative proceedings, as well as in the event of a civil claim.
If there are indications that, for instance, one of your business partners has violated relevant obligations (possibly at your company’s expense), and you wish to take legal action, we will advise you on the filing of criminal charges or reports with the appropriate regulatory authorities.
We also advise you on all CSR-related issues pertaining to your company’s reputation and assist you with crisis management.