Following the implementation of Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers, Slovakia will soon introduce its first ever class action mechanism. Such a significant change in civil procedure could soon result in greenwashing class actions becoming a reality and not just a talking point.
First class action mechanism in Slovakia
ESG compliance has become a buzzword, but businesses touting their environmental bona fides often fail to implement their claims in reality. Companies are seeing various greenwashing class actions filed by consumers due to misleading and untrue sustainability marketing, false safeguarding of the environment, etc.
Introducing the class action mechanism into Slovak law will give consumers the opportunity to join forces in litigation against businesses that seek to profit by falsely claiming ESG compliance to entice environmentally conscious customers. As decreased energy consumption and the use of renewable energy sources are among ESG principles, the current energy crisis could likely motivate consumers to sue businesses that deceptively claim to have decreased their energy consumption.
Given the strong consumer protection laws and jurisprudence in Slovakia, the class action mechanism will likely prove immensely popular as soon as the new law becomes effective on 25 June 2023. Once the class actions mechanism is adopted, with subsequent implementation of the forthcoming EU directives on corporate sustainability due diligence and reporting, companies will need to put a lot more effort and money into complying with ESG principles and avoiding litigation from consumers.
Risk for executives
So how will businesses deal with the expected rise in greenwashing actions? Class actions will be mainly directed against the companies, which will naturally want to recover damages from their statutory representatives, who are obliged to exercise their function with professional diligence.
The professional diligence of statutory representatives will come under the spotlight in the area of ESG compliance once forthcoming EU directives on corporate sustainability reporting and due diligence have been adopted and implemented in Slovakia. These will introduce mandatory corporate sustainability due diligence requirements, such as the obligation to integrate due diligence into policies, update it annually, and publicly communicate on due diligence. Another important aim of the directives will be to secure that companies publish adequate information about the risks, opportunities and impacts of their activities on people and the environment.
The planned concept of direct liability of statutory representative will put a lot of pressure on businesses. Therefore, many companies in Slovakia are already thinking about how to comply with the new requirements, once implemented. Many are seeking to introduce adequate systems to collect relevant ESG compliance data and to automate these as far as possible.