The growing impact of ESG principles on contractual commitments

1. Introduction

Environmental, social and governance ('ESG') matters are rapidly becoming key factors in companies' decision-making processes. Companies are increasingly exploring a different playing field in which price and quality are not the only aspects used by customers and clients when making consumption decisions; companies' footprints on the environment and on other stakeholders are also taken into account. A similar approach would apply to investors and shareholders when making investment decisions or deciding how to vote at a shareholders' general meeting. In addition, new hard and soft-law instruments addressing ESG matters are reshaping how companies evaluate and make business and strategic decisions, with the decision-making process currently going beyond the classic “cost-effectiveness" or “lucrativeness" criteria.

These commitments ensure regulatory compliance as well as intangibles such as improved relationships with stakeholders and reputation management, which as already stated is now understood as having a measurable return on investment, economically or otherwise. Companies are now therefore forced to pay close attention to ESG matters, either from regulatory, reputational or growth perspectives, even if the magnitude of the ESG impact on companies may vary depending on their activity, location and size.

As indicated, ESG's growing impact is sustained by two main pillars: (i) new regulations and soft-law instruments; and (ii) actions taken by stakeholders such as lenders, employees, suppliers, subcontractors, business partners, investors, shareholders, proxy advisors, clients, customers, local communities and non-governmental organisations.

On one hand, governmental and supranational authorities are progressively developing a complex ESG regulatory landscape that applies across all different sectors and jurisdictions – with a special focus on environmental matters. One clear example is the regulatory framework that the European Union ('EU') has deployed in recent years. Among others, the EU Green Deal that the European Commission ('EC') launched to adopt various regulations and strategies at the EU level targeting specific, highly challenging climate goals, e.g. reducing greenhouse-gas ('GHG') emissions by at least 55% by 2030 (compared to 1990 levels), which will ultimately affect how companies perform and behave. Other regulations that may affect companies' conduct in the EU and serve as a model for other national and regional jurisdictions are the Low Carbon Benchmark Regulation,[1] the Sustainable Finance Disclosure Regulation[2] and the Taxonomy Regulation.[3] Changes in behaviour may include undertaking additional investments to improve the energy efficiency of buildings and premises or the mandatory disclosure of the proportion of turnover derived from taxonomy-aligned activities.

This regulatory landscape is nevertheless not limited to environmental and global warming concerns. Consider, for example, Directive (EU) 2022/2381 of 23 November 2022 on improving the gender balance among directors of listed companies and related measures, which requires that Member States ensure that, by July 2026, all members of the underrepresented sex hold at least 40% of non-executive director positions in listed companies, and at least 33% of all director positions (including executive and non-executive). Likewise, on 5 January 2023, the Corporate Sustainability Reporting Directive[4] ('CSR Directive') entered into force, which obliges companies of a certain size to report on environmental and social matters in their management reports. On 24 May 2024, the Council endorsed the Corporate Sustainability Due Diligence Directive ('CS3D Directive') previously approved by the European Parliament. Even though it is less ambitious than previous drafts, it provides a new regulatory framework applicable to large companies operating in the EU[5] including, inter alia, specific due diligence and mitigation obligations addressing the adverse impact of large companies – including their subsidiaries and business partners – on environmental matters and human rights.

On the other hand, ESG issues are also addressed in various pieces of soft law. For example, the Guiding Principles on Business and Human Rights[6] ('UN Guiding Principles') that the United Nations published in 2011, which makes reference to other instruments such as the International Bill of Human Rights and the International Labour Organisation's Declaration on Fundamental Principles and Rights at Work. Another important instrument is the Paris Agreement, which entered into force in November 2016. These soft-law instruments may also apply, in some cases, to specific sectors or activities, such as the Equator Principles[7] and the International Finance Corporation's Standards on Environmental and Social Sustainability[8] – both applicable in the financial sector –, or instruments whose application may be agreed by the main operators of a sector or jurisdiction to address specific concerns, such as the Accord on Fire and Building Safety,[9] signed in 2013 and applicable to Bangladesh's textile sector.

Stakeholders also play an important role in how companies reach a business decision or strategy. Indeed, a group of shareholders – or proxy holders – may cause the rejection of a business plan or a relevant strategic decision at a general shareholders' meeting if the plan runs afoul of specific ESG principles, e.g. if it entails more investments in GHG emitting activities or a merger with a company involved in oil or coal activities. There exist several precedents of ESG shareholder activism, as discussed in the article ClientEarth v Shell Plc: a Landmark Case on Climate Change Risk Management and Directors' Duties of this IAO edition. For that reason 'stakeholder engagement' is becoming increasingly relevant and companies are taking into consideration stakeholders' discussions and feedback in their decision-making processes. However, this influence is not merely from voting-rights holders as lenders; clients and business partners have also increasingly demanded more alignment with ESG principles. Companies may therefore miss out on financing and business opportunities if their operations fail to meet minimum ESG standards.

In light of the above, companies have made – and continue to make – extra efforts to adjust their internal structures and external operations to this complex ESG-aligned environment. Those efforts have resulted in an array of measures, including the creation of teams and departments to monitor other departments' compliance with internal and external ESG principles, the publication of reports in which companies disclose their ESG key performance indicators ('KPIs'), the adoption of roadmaps and policies to direct investments and new business opportunities towards ESG-driven activities or the incorporation of specific clauses on contracts with third parties to ensure that specific ESG-aligned goals are achieved – e.g. the funds provided in a loan transaction are used to finance investments in sustainable activities – and that those third parties may be treated as equals in terms of ESG compliance and alignment.

This article focuses on how companies can ensure that third parties comply with ESG-related contractual clauses and avoid disputes in connection with enforcing such clauses by applying ex ante measures – e.g. due diligence exercises to confirm that the third party will be capable of fulfilling the undertakings – and drafting techniques such as defining, with sufficient detail, the corresponding ESG KPIs and the contractual consequences (e.g. termination) if the ESG KPIs are not fulfilled.

2. Types of Contractual Esg Clauses

ESG clauses are most commonly found in supply contracts, M&A deals and financing agreements, and generally tend to achieve one of these roles: fulfil reporting, due diligence, compliance or monitoring obligations as well as provide ESG-related warranties and indemnities, set objectives for a net-zero transition or secure a minimum ESG rating for the specific contract.[10]

Some organisations have proposed model clauses protecting ESG concerns. For example, the American Bar Association has published model contract clauses that protect workers' rights to be included in supply-chain contracts[11] (the 'ABA MCC'). Also, the Chancery Lane Project, a global network of businesses and lawyers focused on developing environmental law clauses, has prepared over 150 clauses protecting environmental concerns contractually.[12]

Although it falls outside of the scope of this article, it is important to take into consideration that some clauses may also establish the consequences of ESG-related contractual breaches, such as remediation clauses (which, along with specific actions to remedy a ESG default, may or may not include financial compensation), indemnity clauses (which may require the payment of an indemnity for specific losses resulting from the breach), punitive clauses (e.g. increasing the margin payable by a borrower under a loan) or termination clauses (allowing a party to terminate a contract in the case of adverse impacts from ESG-related material defaults). Thus, in addition to determining the scope of the ESG obligation in as much detail as possible, it is also relevant to determine the consequences of any breach to ascertain that the obligations are enforced appropriately and that the desired incentives are created.

We now describe, without attempting to be exhaustive, specific ESG clauses that tend to be more common in contracts.

2.1 ESG Warranty Clauses

The typical warranty clause may also include ESG concerns in such a way that a breach may give rise to contractual termination and a claim for damages. This type of clause is usually included in transactional documents such as share purchase agreements but also, and of particular importance for our purposes, in commercial contracts in the product's value chain. Some examples include legal and tax compliance, anti-corruption and anti-money laundering protections, data privacy or, in the context of an M&A transaction, warranties regarding the target's adoption of ESG obligations or voluntary standards. Other ESG-specific warranties may involve ascertaining the absence of ESG-related incidents of a certain type in a given time period prior to the transaction. As regards supply contracts, businesses may require express environmental and climate change warranties from suppliers such as adherence to – and continued fulfilment of – international voluntary or compulsory standards.

2.2 ESG Due Diligence Clauses

The previously discussed proliferation of norms that require more ESG-related due diligence is reflected in contracts, which have also increasingly included references to human-rights due diligence. From both an operational perspective and that of fulfilling legal requirements and – despite their potential risk of vagueness in terms of drafting – these clauses seem, at least for the time being, to satisfy the [needs of contractual parties?] contractual parties to the contracts. For example, in the context of supply-chain contracting, the ABA MCC proposes a clause imposing mutual obligations on buyers and sellers regarding the prevention of human rights violations through due diligence that is 'appropriate to its size and circumstances to identify, prevent, mitigate, and account for how each of Buyer and Supplier addresses the impacts of its activities on the human rights of individuals directly or indirectly affected by their supply chains'.[13] Other stakeholders are also required to 'disclose information on all matters relevant to the human rights due diligence process in a timely and accurate fashion.'[14]

2.3 Clauses requiring performance, monitoring and reporting on specific ESG standards

In order to ensure that a product's entire value chain complies with ESG minimum standards (whether binding or voluntary), it is increasingly common for companies to include clauses requiring specific performance pursuant to applicable ESG targets, KPIs or metrics and monitoring and reporting on such ESG standards. These clauses serve corporations to ensure that suppliers agree to be bound to the same ESG requirements applicable to their customers and therefore securing a minimum ESG rating for the life of the contract. They may include the right to audit compliance of a supplier with specific ESG targets or KPIs. Other requirements may be related to reducing GHG emissions and setting a plan to reach net zero —or reporting such data— or, as mentioned, to extend to suppliers the requirement 'to measure, manage and report the Total Emissions in accordance with the provisions of this clause … and to develop and implement a plan of continual improvement with the objective of reducing the Total Emissions'.[15] In relation to financing agreements, the Equator Principles may require clients to provide compliance reports to show adherence to relevant social and environmental regulations.[16]

2.4 Compliance requirement clauses

The adoption of the CSR Directive and the CS3D Directive will invariably lead to an increasing number of contractual clauses regarding compliance with the requirements of both directives, especially since the CS3D Directive requires compliance in connection with the value chain. It is also important to take into consideration intra-company codes of conduct, which reflect compliance frameworks that customers impose on supplier's activities. Many codes of conduct refer to international standards such as the UN Guiding Principles;[17] however, even when they do not refer to specific codes of conduct, they may nevertheless include direct references to ESG obligations. The Chancery Lane Project includes such model clauses relating to compliance of operations with environmental and climate change laws and policies.[18] Some organisations, in turn, have developed sets of principles such as the Green Loan Principles or the Sustainability Linked Loan Principles, which facilitate the incorporation of already-developed and approved ESG frameworks into financing agreements. For example, a clause may specify the loan amount a borrower must apply to green initiatives or environmental sustainability strategies.[19]

3. Disputes over esg Contractual Clauses

3.1 Dispute resolution mechanisms for the resolution of ESG disputes

As stated, ESG matters are becoming a key factor in business' decision-making due to the proliferation of new regulations and customer awareness. However, the growing concern on ESG matters also may be the indirect result of a growing number of ESG disputes. According to Setzer and Higham, more than 2,341 cases of climate litigation have been recorded in the Sabin Center's climate-litigation databases, 190 of which were filed in the 12 months preceding the report's publication.[20] Given that climate litigation does not encompass all ESG matters, we can start to have some idea about the significant growth of ESG litigation.

However, despite the increase in ESG litigation, the portion of ESG disputes submitted to alternative dispute resolution mechanisms ('ADR') remains nominal. This could be due to parties' distrust of non-judicial remedies when there is asymmetry in power between the parties. This concern has been pointed out by, among others, the European Law Institute, which, although not dismissing the role of ADR, admitted that public options backed by sufficient coercive powers might offer more effective remedies for contractual breaches by companies.[21]

This view contrasts with the results of a survey by the International Bar Association in 2023[22] that found that confidentiality was the most important element in resolving both business to business and third party to business ESG-related disputes, which would act in favour" of ADR mechanisms. This is sensible commercially since, in terms of ESG-related infringements, reputational risk ranks high in the list of companies' priorities. Expertise – in the form of the ability to select the decision-maker to resolve the dispute – also ranked highly among the primary concerns in terms of resolving ESG-related disputes.

Additionally, new instruments that seem to promote ADR for resolving ESG disputes have been implemented. For example, as regards third party to business disputes relating to human rights infringements, the Bangladesh Accord[23] and the International Accord for Health and Safety in the Textile and Garment Industry[24] constitute framework agreements between multinationals and trade unions that include ADR mechanisms. The United Human Rights Office has also supported this trend, establishing in Principle 27 of the UN Guiding Principles that States should also resort to 'non-judicial mechanisms' to remedy human rights infringements.[25] In fact, in line with this recommendation, the Center for International Legal Cooperation ('CILC') published in December 2019 the Hague Rules on Business and Human Rights Arbitration (the 'Hague Rules'), inspired by the 2013 UNCITRAL Arbitration Rules, to 'provide a set of rules for the arbitration of business and human rights disputes.' The Hague Rules represent an effort to develop ESG-specific dispute resolution clauses which provide an improved framework when human rights issues are involved. As regards supply-chain claims, grievance mechanisms such as the Adidas Third Party Complaints Procedure set up at operational sites that allow different stakeholders (e.g. workers, community members with a legitimate interest) to file complaints.[26]

Either way, since the submission to ADR and, specially, to arbitration is consensual as a matter of principle, we can expect that most ESG disputes submitted to ADR in the next few years will emerge in the context of contractual business-to-business disputes. In most cases, the ADR clause will not be ESG-specific and will instead be tied to address the contract's subject matter, be it M&A deal, supply contract, or any other contract containing ESG obligations. In fact, we stated that most ESG disputes have not been submitted to ADR, but also most of them where promoted by NGOs or other players who did not have a contractual relationship with the alleged “offender". Therefore, considering the confidentiality offered by ADR, business-contractual parties might prefer to refer their dispute to ADR.

3.2 ESG litigation trends and their relationship to ESG clauses

In this subsection, we briefly address some of the current trends in ESG litigation that may significantly impact the future evolution of drafting ESG clauses.

3.2.1 Disputes resulting from breaches of ESG representations and warranties in M&A deals

As previously mentioned, ESG becoming key in companies' decision-making processes has led to the inclusion of representations and warranties regarding potential ESG infringements in M&A deals, a circumstance that could result in liability for the target company and its subsidiaries. When ESG issues arise after the company's acquisition, the buyer may seek remediation from the seller in cases, e.g., it misrepresents that the target company complied with current ESG regulations or standards.

A recent arbitration brought under the rules of the International Chamber of Commerce relating to an environmental warranty in a share purchase agreement is illustrative.[27] Solvay Specialty Polymers Italy purchased the shares of Agora S.p.A, a subsidiary of Edison S.p.A., which owned various subsidiaries operating in industrial sites. Edison warranted to Solvay in the share purchase agreement that both it and the subsidiaries were in “substantial compliance" with environmental laws. Solvay nevertheless claimed in the arbitration proceedings that Edison and its subsidiaries had been discharging hazardous materials into areas surrounding the industrial sites. This is why Solvay filed a claim against Edison for breach of the environmental warranties.

This is not an isolated claim. Indeed, we can expect more ESG clauses in M&A deals as well as more claims for misrepresentations in connection with such clauses.

3.2.2 Disputes resulting from ESG infringements in the value chain

In line with what was previously advanced, ESG clauses are also used in supply contracts to manage risks associated with ESG infringements by commercial partners, which can imply reputational damage and even exposure to civil actions filed by third parties. In fact, various claims have been filed against multinational companies due to human rights infringement in their value chain.[28]

Although most of these claims were unsuccessful, that trend might be reversed in the coming years. Indeed, in the well-known case Milieudefensie v. Royal Dutch Shell PLC,[29] The Hague District Court held that, according to the UN Guiding Principles, companies may be held liable for human rights infringements committed by their business partners,[30] establishing a new ground to demand the accountability of multinational companies.

To date, most claims for human rights infringements in the value chain have been initiated by third parties. However, companies may also start to monitor the fulfilment of human rights and ESG due diligence clauses and file actions against their defaulting commercial partners in view of their potential degree of liability.

3.2.3 ESG litigation in the context of financing agreements

NGOs and other actors are also targeting financing institutions in the so-called “turning off the taps" strategy to limit highly polluting companies' access to finance to impact their decision-making.[31] Due to the limited precedents, it is difficult to predict the financial entities' reaction, although we can at least expect more supervision in the fulfilment of ESG clauses established in financing agreements, specially, in light of the recently approved Sustainable Finance Disclosure Regulation and the Taxonomy Regulation.

4. Concluding remarks

The expanding ESG regulatory landscape suggests that there will be a steep increase in ESG-litigation and arbitration. In this context, new substantive law will arise that will need to be applied by expert decision-makers in both public and confidential proceedings. In this respect, delimiting the scope of the ESG obligation at stake will be essential to avoid interpretation gaps in contractual clauses, especially given that some will be analysed in confidential proceedings.

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[1]   Regulation 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks (Text with EEA relevance). 

[2]   Regulation 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (Text with EEA relevance). 

[3]   Regulation 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation 2019/2088 (Text with EEA relevance). 

[4]   Directive 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance). 

[5]   Please refer to our newsletter summarising the main aspects of the CS3D, M. Rios and J.A. Navarro, 'ESG: Directiva sobre la diligencia debida de las empresas en materia de sostenibilidad y derechos humanos' (24 May 2024) <https://www.uria.com/es/publicaciones/newsletter/1798-mercantil>. Many jurisdictions have also adopted domestic legislation to enforce companies' obligation to conduct ESG due diligence, including the 2015 United Kingdom Modern Slavery Act, the 2019 Australian Modern Slavery Act, the 2017 France Corporate Duty of Vigilance law and the 2022 Norway due diligence law. 

[6]   Office of the United Nations High Comissioner for Human Rights, 'Guiding Principles on Business and Human Rights' (2011) <https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf>, accessed 22 May 2024. 

[7]   Equator Principles <https://equator-principles.com/>, accessed 22 May 2024. 

[8]   International Finances Corporation's Performance Standards on Environmental and Social Sustainability (2012) <https://www.ifc.org/en/insights-reports/2012/ifc-performance-standards>, accessed 22 May 2024. 

[9]   Accord on Fire and Building Safety (2013) <https://bangladeshaccord.org/>, accessed 22 May 2024. 

[10]  ESG Subcommittee of the IBA Arbitration Committee, Report on use of ESG Contractual Obligations and Related Disputes, 2023, p. 10. 

[11]  American Bar Association, 'Balancing Buyer and Supplier Responsibilities: Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0' (28 April 2021), <https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/balancing-buyer-and-supplier-responsibilities/>, accessed 22 May 2024. 

[12]  The Chancery Lane Project, The Net Zero Standard for Suppliers <https://chancerylaneproject.org/clauses/>, accessed 22 May 2024. 

[13]  The full sub clause reads as follows: “(a) Buyer and Supplier each covenants to establish and maintain a human rights due diligence process appropriate to its size and circumstances to identify, prevent, mitigate, and account for how each of Buyer and Supplier addresses the impacts of its activities on the human rights of individuals directly or indirectly affected by their supply chains, consistent with the 2011 United Nations Guiding Principles on Business and Human Rights. Such human rights due diligence shall be consistent with guidance from the Organisation for Economic Co-operation and Development for the applicable party's sector (or, if no such sector-specific guidance exists, shall be consistent with the 2018 OECD Due Diligence Guidance for Responsible Business Conduct (the OECD Due Diligence Guidance). [...]". See American Bar Association, 'Balancing Buyer and Supplier Responsibilities: Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0' (28 April 2021) <https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/balancing-buyer-and-supplier-responsibilities/>, accessed 22 May 2024. 

[14]  The full sub clause reads as follows: (b) [Buyer and Supplier each] [Supplier] shall and shall cause each of its [shareholders/partners, officers, directors, employees,] agents and all subcontractors, consultants and any other person providing staffing for Goods 50 or services required by this Agreement (collectively, such party's “Representatives") to disclose information on all matters relevant to the human rights due diligence process in a timely and accurate fashion to [the other party] [Buyer]. See American Bar Association, 'Balancing Buyer and Supplier Responsibilities: Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0' (28 April 2021) <https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/balancing-buyer-and-supplier-responsibilities/>, accessed 22 May 2024. 

[15]  See The Chancery Lane Project, The Net Zero Standard for Suppliers: <https://chancerylaneproject.org/clauses/the-net-zero-standard-for-suppliers/> accessed 22 May 2024. 

[16]  A. Welsh KC, 'Navigating the ESG Labyrinth—What Role Will Arbitration and ADR Play?', in ICC Dispute Resolution Bulletin, 2024, p. 123. 

[17]  ESG Subcommittee of the IBA Arbitration Committee, Report on use of ESG Contractual Obligations and Related Disputes, 2023, p. 14. 

[18]  The Chancery Lane Projetc, Sustainability Clauses in Supply Chain Contracts, updated 10 May 2022 <https://chancerylaneproject.org/clauses/sustainability-clauses-in-supply-chain-contracts/>, accessed 22 May 2024. 

[19]  ESG Subcommittee of the IBA Arbitration Committee, Report on use of ESG Contractual Obligations and Related Disputes, 2023, p. 15. 

[20]  Setzer, J., and Higham, C. Global trends in climate change litigation: 2023 snapshot (The Centre for Climate Change Economics and Policy, The Grantham Research Institute on Climate Change and the Environment, LSE, Columbia Law School) 2023, p. 4. 

[21]  European Law Institute, 'Business and Human Rights: access to justice and effective remedies European Law Institute' (2022) <https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Report_on_Business_and_Human_Rights.pdf>, accessed 22 May 2024, p.65. 

[22]  ESG Subcommittee of the IBA Arbitration Committee, Report on use of ESG Contractual Obligations and Related Disputes, 2023. 

[23]  Accord on Fire and Building Safety (2013) <https://bangladeshaccord.org/>, accessed 22 May 2024. 

[24]  International Accord for Health and Safety in the Textile and Garment Industry, 1 November 2023. 

[25]  Not all disputes involving human rights are arbitrable. Parties could intend to seek remedies for human rights infringements, but it is necessary to understand the grounds for demanding accountability
in order to determine the arbitrability of the matter. As an example, an action seeking criminal liability would be non-arbitrable (De Luis García, E. Arbitraje de derechos humanos y empresas: utopía o realidad (2022)). 

[26]  Business & Human Rights Resource Centre, '3rd Party Complaint Process for Breaches to the adidas Group Workplace Standards or Violations of International Human Rights Norms'
(29 October 2014) <https://www.business-humanrights.org/en/latest-news/3rd-party-complaint-process-for-breaches-to-the-adidas-group-workplace-standards-or-violations-of-international-human-rights-norms/>, accessed 22 May 2024. 

[27]  Solvay Specialty Polymers Italy v Edison S.p.A., ICC Case No 18666/FM/MHM/GFG, Partial Award (22 June 2021). A similar case was brought before the England and Wales High Court for the breach
of environmental warranties in another share purchase agreement: MDW Holdings Limited v Norvill, [2021] EWHC 1135 (Ch); [2022] EWCA Civ 883.

[28]  Jane Doe I, et al v. Wal-Mart Stores, Inc., No 08-55706 (9th Cir. 2009); and Nestlé USA, Inc. v. Doe, 593 U.S. (2021). 

[29]  Milieudefensie v. Royal Dutch Shell PLC, District Court of The Hague, 25 May 2021, ECLI:NL:RBDHA:2021:5339. 

[30]  “The UNGP are based on the rationale that companies may contribute to the adverse human rights impacts through their activities as well as through their business relationships with other parties. The duty to respect human rights requires that companies:

a. avoid causing or contributing to adverse human rights impacts through their own activities, and address such impacts when they occur;

b. seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts" (emphasis added).

“On RDS rests an obligation of results as regards the Scope 1 emissions of the Shell group as well as a significant best-efforts obligation as regards the business relations of the Shell group, including the end-users, whereby RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by them, and to use its influence to limit any lasting consequences as much as possible" (emphasis added).  

[31]  Setzer, J. and Higham, C. Global trends in climate change litigation: 2023 snapshot. The Centre for Climate Change Economics and Policy, The Grantham Research Institute on Climate Change and the Environment, LSE, Columbia Law School: 2023).