Grocer’s Plastics Breach Highlights EU Firms’ Disclosure Risks

Legal challenges by campaigners to pressure for change on polluting practices becoming more common.

Environmental law charity ClientEarth has warned firms to adapt quickly to regulatory reforms or risk business disruption and losses to investors, after reporting Dutch grocery chain Ahold Delhaize for failing to disclose the extent of its single-plastic use.

Ahold Delhaize, one of the world’s largest grocery retail groups, was referred to the Dutch financial regulator, AFM, for failing to disclose key information on its use of plastics and for failing to report plastic-related risk to its investors, in breach of its legal requirements. According to Dutch media, the AFM has no obligation to act on the complaint.

ClientEarth and Dutch NGO Plastic Soup Foundation filed the complaint, which is the first of its kind in the Netherlands.

“Grocery retailers like Ahold Delhaize are a major source of plastic packaging, which is the largest single use of plastics and makes up an even greater proportion of plastic waste,” said the statement from the groups.

Challenges to firms for breaching legal responsibilities with adverse environmental consequences have increased in recent years. In May, a Dutch Court ruled that Shell must slash its CO2 emissions more dramatically than has been promised in its Energy Transition Plan following a lawsuit filed by a group led by Dutch environmental organisation Friends of the Earth Netherlands.

In the UK, the British government was taken to court by Greenpeace earlier this year to block the expansion of oil drilling by BP in the North Sea.

“Ahold Delhaize relies on single-use plastics to make its business work,” said ClientEarth’s plastics lawyer, Rosa Pritchard. “But the regulatory landscape is changing, threatening business models dependent on single-use plastics and leaving companies like them exposed to financial headwinds. Yet Ahold Delhaize has not disclosed this information to investors – which is a breach of EU law.”

Speaking to ESG Investor, Pritchard said that Ahold Delhaize caught the charity’s attention due to scant mentions of plastic in its disclosures under the European Non-Financial Reporting Directive (NFRD).

“Companies are contradicting the name of the law, which requires them to report on material environmental issues, and what kind of financial impact that might have on the company,” she added.

ClientEarth argues that NFRD’s requirements could be regarded as sustainability reporting obligations. “Pursuant to the sustainability reporting obligation, companies need to disclose the material impact on the environment and material risks they face,” said Pritchard.

The NFRD is due to be replaced by the Corporate Sustainability Reporting Directive in 2024, which will cover a wider range of companies than the existing directive.

Breach of disclosure requirements

Research by Plastic Soup Foundation found that more than 80% of Albert Heijn – one of Ahold Delhaize’s supermarkets that has a huge market share in the Netherlands – products are packaged in single-use plastic, the statement added. The company also operates in seven other countries in Europe, as well as the USA and Indonesia under nineteen brands.

Ahold Delhaize was recently ranked the leading food and staples retailer in the Dow Jones Sustainability World Index and has committed to being net zero for Scope 1 and 2 emissions by 2040.

ClientEarth and Plastic Soup Foundation allege that Ahold Delhaize is breaching its legal requirements under the NFRD on several grounds: that it does not disclose the amount of plastic it uses; that Ahold Delhaize does not mention the impact the plastic it uses has on the environment, the climate and people’s health; that the company provides notably less information on its use of plastic packaging than many of its peers; and that it does not acknowledge that its use of plastic packaging generates financial risks to its business.

In September, ClientEarth published a report on the rise of plastic-related financial risks, which said: “when it comes to plastics, the traditional triad of transition, reputational and litigation risks are related to three key impacts: waste, climate and human health.”

ClientEarth has previously reported Balfour Beatty, Bodycote, EnQuest and EasyJet to the UK Financial Reporting Council and Just Eat and Carnival to the UK Financial Conduct Authority for their failure to report climate risk.

The groups added that the supermarket’s reliance on plastics means that it is vulnerable to regulatory and cultural changes. These included new EU laws and policies aimed at reducing plastic waste and carbon emissions that would affect companies whose business model relies on plastics, as well as increasing public awareness of the negative impacts of plastics on the environment, the climate and health and new legal action on plastic pollution.

In their complaint, ClientEarth and Plastic Soup Foundation explain that these trends amount to material financial risks and as such, need to be disclosed to investors.

Reputation and litigation risk

Pritchard said that the lack of compliance with EU laws also has a broader reputational risk, which could ultimately affect the profits of companies like Ahold Delhaize and their investors.

“There is the kind of reputation or litigation risk for these consumer-facing companies. The success of their business depends on consumer opinion. Needing to be trusted by consumers makes them particularly vulnerable because plastics is an issue that consumers want action on.”

She said litigation risk tends to increase in tandem with changes in regulation and public perception, manifested in higher fines from regulators and pressure from consumer interest groups and NGOs on the environmental impact of products. These could include claims of greenwashing.

“There are multiple concerns here. For the investors, it’s whether this business is preparing its business model for these fundamental changes that are going to be happening in the next five years,” said Pritchard. “Are they protecting shareholder value by foreseeing what these changes are going to be? And as market leaders, are they preparing for these changes?”

“Many of these investors now have their own disclosure obligations so are they getting the information they need to ensure that they are complying or is there a potential reputational risk of the investors being associated with these companies?” she added.

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