Under new ‘anti-look-away law’, large companies must make a climate plan, lawyers speak of a ‘landslide’

There is definitely no way back for the European Responsible Business Act. On Wednesday afternoon, the European Parliament approved the legal text. Normally a formality, but because the law was in danger of being dropped in February due to disagreement among European member states, proponents are relieved that the finish line has been reached.

The ‘anti-looking away law’ is one of the most heavily lobbied for in recent years. Much attention was paid to the obligation for companies to detect and address abuses in their production chain. Think of environmental pollution, deforestation or human rights violations.

But the law has a second, lesser-known pillar, which some lawyers believe is just as far-reaching. Large companies must draw up a climate transition plan (nickname: climate plan).

The law states that companies must draw up such a climate plan with the aim of making their business model and strategy “compatible with the transition to” a sustainable economy, the 1.5 degrees target from the Paris Agreement and the goal of becoming climate neutral in 2050. They have an ‘efforts obligation’ to implement that plan. “Among insider lawyers there is talk of a legal landslide,” says Tim Bleeker, climate lawyer and university lecturer at the Vrije Universiteit in Amsterdam.

The law was initiated by Dutch MEP Lara Wolters (PvdA). “It was a big fight to get this part into law,” she says. “This is why we negotiated for sixteen hours, all night, in December. There was a lot of resistance to it, but it was crucial for me to stick with it.”

Wolters thinks that the new obligation will “make a significant contribution to the transition policy of companies”. “This is of course the umpteenth time that we as EU remind companies of their responsibility when it comes to climate, but now we are also saying specifically that there must be a plan and what it must contain.”

Five thousand very large companies

The obligation will apply to approximately five thousand very large companies. In December, a political agreement was reached on the law, which at the time would apply to seventeen thousand European companies. But due to resistance from France and Germany, among others – where the liberal coalition party FDP was obstructive – one of the concessions was that the scope of the law was adjusted.

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Climate transition plans are not new, says assistant professor Bleeker. Companies such as HEMA, Vattenfall and Heineken, for example, have already written one. “It already existed in the so-called soft law. In the OECD guidelines [de denktank van industrielanden] for example, creating and implementing such a plan is already a condition for responsible entrepreneurship.” New European accounting rules also require large companies to be open about whether they have a climate transition plan. But the obligation to create one is new.

The text of the law states that companies must set scientifically substantiated targets and “where applicable” (according to the literal wording of the law) must set absolute targets for the reduction of greenhouse gases. This not only concerns the activities of the company itself, but also the emissions of customers (such as cars that burn your gasoline). Wolters says that companies must also formulate concrete objectives for 2030, as an interim assessment point. “I thought that was very important, so that companies do not say: we have a plan for climate neutrality in 2050, namely that we will only do something about it in 2049.”

The intention is to monitor companies’ climate transition plans. In the Netherlands, a supervisor (or more) must still be appointed for this. Regulators can impose sanctions if companies do not make a climate plan, or if the climate plan is not credible, says Wolters. “This concerns a fine related to turnover. In the most serious cases, this can involve at least 5 percent of turnover.”

And what if companies do not implement their own climate plan in practice? “There is no penalty for this in the law,” says Wolters. “Enforcement will partly depend on how seriously national supervisors take it.”

What does it mean in practice?

The new obligation immediately raises a number of questions among lawyers. “It is an obligation of best efforts,” says Bleeker. “What will that mean in practice? As a company, can you get away with only the low-hanging fruit? Such as just ensuring that no more methane leaks from oil and gas extraction, while you continue to drill as a company? What if a business model is inherently incompatible with climate goals; does the company have to reinvent itself?”

The climate lawyer also wonders how it will be determined whether a business model is compatible with the 1.5 degree objectives. “There is a lot of discussion about the distribution key to limit emissions to 1.5 degrees,” says Bleeker. “In other words: who does what? In an important calculation method that is already used for CO₂reduction, for example, it is assumed that aviation is allowed to emit more because it is more difficult for this sector to reduce greenhouse gases. While critics say: aviation should simply fly less. There is still discussion on many points.”

Davine Roessingh, partner at law firm De Brauw Blackstone Westbroek, points out the complexity of the climate transition plans. “The way in which you fulfill this obligation differs per company and per sector, just as the Green Deal is structured,” she says. “There isn’t one one size fits allapproach when it comes to CO₂-reduction. A company that produces solar panels may emit more and more CO itself₂ out, but still contributes to the transition.”

Despite all the questions, many lawyers call it an important step. Bleeker thinks it is “groundbreaking”. “Large companies that are now on a collision course with the climate must now show their true colors about how they want to become greener. The climate transition plans will be the starting point for the discussions we will have together in the coming decades. At the same time, it is fodder for NGOs that go to court in civil cases to hold large companies accountable for their CO₂emissions.”

Tineke Lambooy, professor of corporate law at Nyenrode University, also thinks that the law could have a lot of impact. “Not just for the five thousand companies that have to comply. This also has an impact on other companies in the sector, such as suppliers. They experience the consequences when the business models of large companies change.”

The new law will be introduced gradually from 2028.

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