WR ESG Alert: Key decisions by Norwegian and French courts relating to the environment and crimes against humanity
In this month's ESG alert, we describe the recent decision by France's highest court which paves the way for charges to be brought against Lafarge for complicity in crimes against humanity and a decision by Oslo District Court which invalidates three Norwegian oil and gas field permits on environmental grounds.
In other developments, within Norway we note that the Norwegian Financial Supervisory Authority will propose rules for implementing EU regulations on ESG ratings, that the Food Waste Committee has issued a proposal for reducing food waste, and that political agreement has been reached on a resource rent tax on onshore wind power. At the EU level, the European Parliament has adopted a directive on empowering consumers for the green transition and EU institutions have reached provisional agreement on the Urban Waste Water Treatment Directive.
Oslo District Court invalidates three Norwegian oil and gas field permits on environmental grounds (Norwegian)
On 18 January 2023, Oslo District Court issued a verdict in what has been denoted as Norway's second climate case. The court ruled in favour of the claimants (Greenpeace Norden and Natur og Ungdom), declaring the government's decisions to approve the development and operation plans for three petroleum fields null and void. These decisions pertain to Breidablikk (29 June 2021), Tyrving (5 June 2023) and three decisions related to Yggdrasil (Hugin, Munin and Fulla) (28 June 2023).
The court based its decision on the majority's pronouncements in the Supreme Court's en banc decision of 2020 (HR-2020-2472-P). In that ruling, the majority asserted that a comprehensive impact assessment of greenhouse gas emissions would be conducted in conjunction with the application for the Plan for Development and Operation (PUD). Authorities, relying on this assessment, would then be compelled to take into account the relevant greenhouse gas emissions connected with a project. Subsequently, a Supreme Court majority reiterated that the Petroleum Act § 4-2 must be construed in harmony with Article 112 of the Constitution. It affirmed that, if approving the extraction contravenes Article 112, the authorities possess both the right and the obligation to refrain from endorsing the plan.
The Supreme Court majority's pronouncement was critical to the District Court's determination, highlighting that the authorities may indeed possess both the right and the obligation to abstain from endorsing the Plan for Development and Operation if, at this juncture, climate and environment considerations dictate such restraint, as articulated in HR-2020-2472-P paragraph 223.
The District Court also granted the claimants' application for interim relief, thereby preventing the State from rendering any additional decisions presupposing valid approval of the plans for the three fields until the validity of the decisions has been finally determined.
The State, represented by the Ministry of Energy, has appealed to the Court of Appeals.
European Parliament adopts directive on enhancing consumer awareness of greenwashing and promoting sustainable products
On 17 January 2024, the European Parliament passed a "Directive as regards empowering consumers for the green transition through better protection against unfair practices and better information". The directive aims to enhance consumer awareness and promote environmentally responsible practices. It does this by, among other things, seeking to eliminate greenwashing and unfair commercial practices through provision of accurate information to prevent potential deception regarding a product's ESG- attributes. The underlying principle is to empower consumers to take better-informed decisions and thus stimulate demand for, and supply of, more sustainable goods. Furthermore, consumers should not be misled about a product’s environmental or social characteristics or circularity aspects, such as durability, repairability or recyclability, through the overall presentation of a product.
To achieve these objectives, the directive introduces amendments to the Unfair Commercial Practices Directive and the Consumer Rights Directive. These amendments specifically target marketing practices associated with greenwashing and the premature obsolescence of goods.
Primarily, the new rules aim to enhance the transparency and reliability of product labelling by prohibiting the utilisation of general environmental terms such as "environmentally friendly," "natural," "biodegradable," "climate neutral," or "eco" without substantiating evidence.
Furthermore, the directive will govern the use of sustainability labels to address the confusion stemming from their widespread adoption and inadequate reliance on comparative data. Henceforth, only sustainability labels rooted in official certification schemes or established by public authorities will be permissible within the European Union.
Moreover, the directive will ban claims that a product possesses a neutral, reduced, or positive impact on the environment due to emissions offsetting schemes.
The directive is set to be complemented by the Green Claims Directive, currently under negotiation by the European Parliament and Council. The forthcoming Green Claims Directive will offer additional specifications on substantiating and communicating environmental claims, complementing the goals of the Directive on Empowering Consumers for the Green Transition.
The Directive on empowering consumers for the green transition requires formal approval from the Council before publication in the Official Journal of the EU. Upon approval, member states must transpose it into national law within 24 months.
On 29 January 2024, the European Parliament and Council reached a provisional political agreement to revise the Urban Wastewater Treatment Directive. Revising the directive is a key deliverable under the EU's zero-pollution action plan.
The proposed scope of the directive is extended to include agglomerations with a population equivalent ("p.e.") of 1,000 and above, as opposed to the current threshold of 2,000. As a point of departure, all discharges of 1,000 p.e. and above shall have secondary treatment by 2035. More advanced treatments ("tertiary" and "quaternary") will be mandatory for plants with agglomerations over 10,000 p.e., no later than 2045. The provision agreement also introduced some derogations from these requirements.
Additionally, all treatment plants must achieve energy neutrality by 2045. The introduction of extended producer responsibility is a notable inclusion, with pharmaceuticals and cosmetics obligated to cover the costs of micropollutant removal from wastewater, in accordance with the polluter pays principle.
Currently, only one out of three Norwegian treatment facilities comply with the requirements of the existing directive from 1991. Addressing this backlog and aligning with the renewed requirements of the revision will be costly. In the Norwegian Ministry of Climate and Environment's feedback 13 March 2023, the government advocated for a reduction in ambitions, questioning the cost efficiency of meeting the proposed standards.
Norwegian Financial Supervisory Authority (Finanstilsynet) to propose rules for implementing EU regulations on ESG ratings (Norwegian)
On 13 June 2023, the European Commission proposed new regulations to improve the reliability and transparency of ESG rating activities. In January 2024, the Norwegian Ministry of Finance asked the Financial Supervisory Authority to propose new legislation to implement the EU regulations, even though these have not yet been finally agreed upon in the EU.
ESG ratings provide an opinion on a company or financial instrument's sustainability profile or characteristics, exposure to sustainability risks or impact on the environment or society. These ratings have a growing influence on capital markets and on investor confidence in sustainable products, and the ESG ratings market is anticipated to undergo substantial growth in the coming years.
According to the Commission, the current ESG rating market suffers from a lack of transparency, including with respect to methodologies and data sources, as well as the operations of ESG rating providers more generally. The new EU regulations seek to improve this. Also, the proposal will require ESG rating providers offering services to investors and companies in the EU to be authorised and supervised by the European Securities and Markets Authority (ESMA).
The Financial Supervisory Authority will revert with a proposal in mid-November this year.
Norway has a goal of reducing the amount of edible food waste with 50 percent from 2015 to 2030. A food waste committee was established by the Ministry of Climate and Environment and the Ministry of Agriculture and Food in February 2023, to propose new measures to reach the overall goal.
The Norwegian food value chain consists of a substantial number of stakeholders and is characterised by complex work processes, long supply lines, and comprehensive regulations aimed at ensuring food safety. The committee underlines that there is no single policy instrument or measure that alone will lead to reaching the 2030 target.
The committee's main proposal involves the introduction of a legal due diligence requirement that would be applicable to both private and public enterprises. This should be combined with a strengthening of the existing Industry Agreement on Food Waste Reduction. It will require companies to conduct risk assessments and implement tailored measures to reduce food waste within their own operations and across their value chain, including consumers, when relevant.
On 4 January 2024, the Norwegian Parliament adopted a resource rent tax on onshore wind power. A proposition was put forward to the Parliament in October 2023, followed by some adjustments and a broad settlement in Parliament in December 2023.
The main takeaways of the agreement are:
- Effective resource tax rate of 25%
- Calculated on cash flow, not profit
- Tax value of negative resource rent is paid out
- Transitional arrangements for existing wind farms
The broad settlement reduced the effective tax rate from 35% to 25%. Consequently, the tax level aligns with that of aquaculture and is lower than that of hydropower (45%) and petroleum (56%). As a point of departure, the income shall be based on the hourly Nord Pool spot price in the bid area. There are exceptions for PPAs between independent parties entered into before 28 September 2022 (physical and financial), long term PPAs between independent parties entered into from 2024 to 2030 and the government's standard fixed-price agreements to end-users. For these exceptions, taxation of resource rent shall be based on the contract price.
Unlike the tax regimes for hydropower and petroleum, the tax value of negative resource rent will not be paid out in the construction phase. Instead, negative resource rent can be carried forward with a risk free interest, and paid out after the wind farm commences operations. This is an important change from the original proposition, where negative resource rent was proposed deducted from future positive resource rent, and not paid out. The scheme is conditional on approval by ESA.
For existing wind farms, the input value of historical investments shall be calculated based on the ordinary depreciation rules (on a declining balance basis). However, the calculated value is then increased by 40 percent, increasing the deductible amount for historic costs, which is another important change compared to the government's proposal. The 40 percent increase of entry value is capped at 85 percent of the historical cost.
The new tax became effective from 1 January 2024, being three days before the second reading in Parliament.
In 2018, Lafarge and several of its former executives and employees were accused of financing terrorism and of complicity in crimes against humanity committed by Islamic State and other armed groups in Syria. French prosecutors have alleged that, Lafarge – primarily through its subsidiary which operated a cement plant in Syria -- made payments amounting to millions of dollars to ISIS and other armed groups in the period between 2012 and 2014, in the midst of the Syrian civil war.
Lafarge argued that the charges were inadmissible, claiming that neither the French parent company nor its executives could be held accountable for acts of the Syrian subsidiary, and further that the payments were not made with an intent to support violent acts, but to pursue a commercial activity.
On 16 January 2024, France's highest court, the Cour de cassation, found that the charges were admissible and confirmed the jurisdiction of French courts over international crimes committed abroad by persons (natural and legal) with a connection to France.
It is important to note that this is not a ruling on the merits, i.e. not a ruling on the extent to which Lafarge is guilty of complicity in crimes against humanity, but rather a procedural ruling that the investigation into Lafarge can continue and that charges may in due course be brought. Human rights groups have described the ruling as "crucial for corporate accountability".
Wikborg Rein's monthly ESG alerts will cover key developments on topics of relevance under the ESG umbrella. The WR ESG alerts intend to offer a focused perspective on environmental and social issues, emphasising material developments and their implications. However, this may not encompass all aspects of the broader ESG spectrum and will generally not cover governance-related updates.
The WR ESG alerts primarily cover regulatory developments within Norway and the EU. We endeavour to keep you informed about the evolving landscape of ESG regulations, although it is essential to verify and cross-reference information, considering the dynamic nature of regulatory environments. Please note that the information shared in the WR ESG alerts is for informational purposes only and should not be construed as legal advice.