N-EXTLAW Working Paper Series No.1
Taking the Green Transition Seriously: A Proposal for a ‘Transition Reserve’
Enabling Transition of Large Emitters in the Netherlands
Prof. dr. Marija Bartl and mr. drs. Nena van der Horst
N-EXTLAW Working Paper Series, No. 1 (1/2022)
Download working paper
Abstract: Large emitters, more so than any other company, are exposed to the risk of transition. If they do not transition, they will end up with unsustainable business models and stranded assets in the not-so-distant future, eventually going bankrupt as a result. One would hope that large emitters would take this risk seriously and invest into their own transition - but this is not necessarily the case. The incentives inherent in the contemporary model of financial markets and corporate governance, alongside the possibility of public ‘bail out’, motivate companies to distribute their funds to shareholders or managers instead of investing into the green transition. In this short note, we propose to introduce two new legal obligations for large emitters, both aimed at ensuring that these companies do their part in the transition. First, we argue that large emitters should be required to keep enough money on their accounts to actually be able to pay for the costs of the transition. In order to achieve that, we propose to introduce a legal requirement to establish a new mandatory reserve: a transition reserve. Second, we argue that the best way to establish the height of such reserves, as well as outline necessary steps toward such transition, is to formalize transition investment plans. We make some suggestions as to how to formalize these transition investment plans in law, building on the current developments at national and EU level around such plans.