ESG Agenda and Climate Litigation: Is Soft Law a ‘Thing of the Past’?

Image: Pascal Bastien - Global Legal Action Network.

Regulatory environment and climate litigation bring new perspectives to norms, treaties, and obligations historically interpreted as "soft law".

The recent wave of ESG-related duties and judicial decisions in major climate litigation worldwide appears to be moving increasingly toward the “hardening” of a familiar legal term: soft law.

With the global expansion of regulation, large multinationals, value chains, and market sectors will be required to refine their practices of mapping, monitoring, and mitigating human rights violations, as well as environmental and climate-related harms, alongside potential breaches of duties regarding risk management and compliance.

What until recently remained confined to conventions, recommendations, frameworks, guidelines, or international treaties — largely devoid of binding force and sanctioning effects — is now evolving toward stronger enforcement, both in the marketplace and vis-à-vis nation-states.

Soft Law

According to the Organisation for Economic Co-operation and Development (OECD)¹, the term soft law is associated with cooperation mechanisms based on instruments that are not legally binding, or whose binding force is weaker than that of traditional law. It is a construct of international law referring to the creation of normative instruments without legal force, as they do not generate sanctions.

Nevertheless, standards produced by soft law are not without effect. Examples often include codes of conduct, guidelines, roadmaps, peer reviews, and recommendations issued by national or international authorities.

Much of international law — both public and private — has historically been rooted in soft law. These are provisions that seek to shape socioeconomic conduct, but which typically lack binding and sanctioning power.

It is precisely because of such flexible and non-compulsory characteristics that soft law standards often face criticism. Many corporations enjoy the reputational benefits of being signatories to these commitments, even though international bodies usually lack the authority or capacity to monitor and verify corporate practices². This creates space for violations of basic socio-environmental and climate rights, both in the private and public spheres.

ESG Agenda and Climate Litigation vs. Soft Law

More recent regulatory movements, particularly those linked to the so-called ESG (Environmental, Social, and Governance) agenda in companies, projects, and investments, reveal that soft law — once understood merely as voluntary recommendations and guidelines — is increasingly taking on hard law features.

This is especially evident with respect to corporate ESG obligations, as well as international agreements and conventions on human rights and climate.

This trend is reinforced by the escalating consequences of the global climate emergency. Many treaties, agreements, rules, and climate standards — previously grounded in soft law — are being reinterpreted. In certain cases, such provisions are now enforced as if they were hard law, with binding legal or economic consequences, through systematic interpretation in conjunction with other norms.

Another example of this “hardening” can be seen in the approach and treatment of corporate governance, socio-environmental, and climate standards recently adopted by the European Union³.

Until recently, many of these standards carried little binding force. Today, however, they are endowed with enforceability, potentially impacting relevant economic sectors — including Brazil — particularly those engaged in European and global markets.

Among these new European measures, special attention is drawn to the Corporate Sustainability Due Diligence Directive (CSDD)⁴. This directive reshapes market expectations, setting new parameters for responsible corporate conduct in human rights, as well as environmental standards focused on business operations and corporate governance.

Member States will be required to implement this directive within two years from 2024. Importantly, the directive mandates the adoption of effective, proportionate, and dissuasive sanctions for non-compliance.

Another notable development is the Corporate Sustainability Reporting Directive (CSRD)⁵, which will significantly affect corporate regulation. Beginning in 2024, companies will be required to publish Sustainability Reports addressing ESG impacts.

The refunctionalization of soft law can also be observed in judicial and extrajudicial actions tied to global climate litigation.

A recent example is the decision of the European Court of Human Rights⁶,

which held that the Swiss government violated its citizens’ human rights by failing to take adequate measures to combat climate change, through a strict interpretation of the European Convention on Human Rights.

Another landmark case is Milieudefensie et al. v. Royal Dutch Shell, decided by the District Court of The Hague⁷. The court ordered Shell to reduce its net carbon emissions by 45% by 2030, holding that the Paris Agreement (soft law?) could also apply to a private oil corporation.

In Brazil, the Supreme Federal Court (STF), in ADPF 708 concerning the Climate Fund⁸, concluded that the Paris Agreement qualifies as a human rights treaty, thereby enjoying the status of “supralegality.” This places it above ordinary national legislation, though below the Federal Constitution. Furthermore, it is worth noting that, in Brazil, the Paris Agreement is regulated by Federal Decree No. 9,073/2017 and integrated into Federal Law No. 12,187/2009 (National Climate Change Policy).

In addition, Brazil’s ESG regulatory environment has advanced considerably. Recent sectoral regulations from the Central Bank (Bacen), the Private Insurance Authority (Susep), and the Securities Commission (CVM) demonstrate that ESG issues can no longer be viewed as mere recommendations. Instead, evidence points to a gradual conversion of soft law into firm commitments, enforceable through accountability mechanisms⁹, with significant repercussions for the Brazilian economy.

Soft Law Today, Hard Law Tomorrow?

As an applied social science, the law must continually interrogate its own effectiveness. Periodically, this entails a refunctionalization of legal instruments and concepts — if not the very role of the state itself. At present, the ESG agenda is catalyzing such a reinterpretation. The rising demands of ESG and climate targets are provoking profound legal reflection in fields such as international law, environmental law, and corporate law.

This process suggests a potential rupture of established patterns, rooted in a growing awareness of the close interdependence between state, market, and civil society (economic democracy). Such a shift may even reposition the very legal concept of the corporation and its duties.

Without delving into the complex questions of economic sovereignty, jurisdiction, or extraterritorial application, it is not an exaggeration to suggest that, in the near future, norms once regarded as soft law will increasingly be “hardened” and formalized. This transformation is expected to occur both through climate litigation and regulatory innovation, progressively assuming the attributes of binding hard law — particularly in relation to private organizations and corporations.

In short, the market is not a spontaneous order, despite the persistence of such views in certain economic sectors. The open question, however, is the extent to which this shift will foster genuine structural change in the economy and its relationship with the planet. Whether as hard law or soft law, one conclusion remains clear: capitalism presupposes the state — whether to preserve it or to redefine it.

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Article adapted from the original, published on 17 September 2023, on the JOTA website. Also published on LinkedIn.

Authors: Bruno Teixeira Peixoto and José Augusto Medeiros