ESG (Environmental, Social, Governance) has evolved from a moral mandate into a legal obligation. In our practice, we see that Dutch and European regulators are forcing ESG increasingly deeply into commercial contracts. A non-binding clause is no longer sufficient. Anyone who fails to structure their supply chain contractually bears liability for violations occurring many links down the chain.
What is the legal problem?
ESG affects human rights, the environment, anti-corruption, sanctions, and governance simultaneously. Vague ESG clauses are unenforceable. Strict ESG requirements without support lead to supplier resistance. At the same time, regulations such as CSDDD, CSRD, and EUDR mandate translation into contracts — failure to do so leads to immediate enforcement and fines.
What does the law say?
EU Directive (EU) 2024/1760 (CSDDD) mandates due diligence in supply chains, phased in from 2027. CSRD (Directive (EU) 2022/2464) requires extensive ESG reporting. The EU Deforestation Regulation (Regulation 2023/1115) and Conflict Minerals Regulation (2017/821) prohibit specific products. In the Netherlands, the Child Labour Due Diligence Act (2019) applies in addition.
OECD Guidelines, UN Guiding Principles, and sector labels (BSCI, RBA) provide the practical standard for due diligence.
What risks do companies face?
Fines under Section 27 CSDDD of up to 5 percent of global turnover. Civil liability for damage in the supply chain under Section 29 CSDDD. Exclusion of government markets. Reputational damage affects financing and insurability. Activist shareholders and NGOs initiate proceedings. Without translation into supply chain contracts, factual control is lacking.
Practical example from our practice
We represented a Dutch food producer with ESG requirements only in general terms and conditions. A Malaysian supplier turned out to be supplying palm oil from deforested areas. Under EUDR, an import ban loomed. During contract renegotiation, we incorporated: a concrete ESG clause referencing EUDR and CSDDD, an audit, RSPO certification, a remediation pathway, and the right to terminate in the event of a serious violation.
What can you do?
Work with a Supplier Code of Conduct containing measurable obligations. Incorporate ESG clauses into every contract with audit, reporting, and termination rights. Refer to CSDDD, EUDR, and conflict minerals. Agree on cascading for subcontractors. Provide for remediation pathways for termination. See also our article on Supply chain contracts from a legal perspective.