De Gaulle Fleurance, in partnership with HEC Paris, has published the 4th edition of the Observatory of Societal Transitions dedicated to new regulations and litigation trends related to sustainability issues. Strengthening of the duty of vigilance, gradual implementation of the CSRD directive, sustainable finance, and more… De Gaulle Fleurance’s lawyers, HEC professors, and Schneider Electric’s Chief Citizenship Officer decipher these issues and their implications for businesses.
- In 2023, only 3 new proceedings were instituted addressing French duty of vigilance obligations, i.e. 4 times less than last year.
- The proposed European directive on the duty of vigilance, the CS3D, is expected to affect 20% of companies (vs. 5% under French duty of vigilance requirements).
- Economic penalties for non-compliance with duty of vigilance obligations may be as great as 5% of a company’s overall turnover.
- The CSRD directive will enter into force progressively starting from 1 January 2024.
- 12 is the number of ESRS (Environmental and Social Reporting Standards) that all large companies, whether listed or not, subject to the CSRD, will be required to use preparing their sustainability report.
- 2026 is the year in which listed SMEs, subject to the CSRD, will be required to prepare their sustainability report according to separate standards, subject to the possible simplification of their obligations.
- According to the Grantham Research Institute’s Report, in 2022 more than 2,000 lawsuits were filed in over 40 different countries addressing matters related to global warming, 25% of which have been filed against Companies.
- Green bonds represent 7% of the global bond market, compared to 5% the previous year.
Louis de Gaulle, President of De Gaulle Fleurance
« These regulatory developments have spurred changes to companies’ business models. Those of us who monitor such developments on a daily basis have witnessed this directly. Executive officers are being specifically assigned to manage sustainability policies, and these issues – which have now become strategic – are being closely watched by executive and management committees. And for good reason. The consequences of a failure in this regard can be serious – it may cause reputational damage, leading customers, shareholders and financiers to turn away from sanctioned companies; financial penalties of up to 5% of overall turnover; increasing efforts to hold executive officers liable in human and environmental rights matters…»
Bénédicte Faivre-Tavignot, associate Professor at HEC Paris, co-founder of the S&O (Society & Organizations) Institute
« Reporting obligations can be appropriate and beneficial, provided they do not entirely monopolise stakeholders’ energy and can become a driver of transformation. Experimenting with new approaches to integrating environmental and social dimensions can help explore new possibilities and test out more effective ways of responding to the immense environmental and social challenges we face. All this has an essential role to play in the kind of comprehensive and systemic approach to transformation that can rise to today’s challenges. »
Arnaud Van Waeyenberge, associate Professor at HEC Paris
« This phenomenon of climate litigation has been growing in scale and is enjoying spectacular success. According to a Report from the Grantham Research Institute, in 2022 more than 2,000 lawsuits were filed in over 40 different countries addressing matters related to global warming. 75% of these lawsuits were filed in the United States. However, this very Anglo-Saxon type of litigation has tended to spread globally; it is now on the rise in the European Union and in the countries of the Global South. Over the course of 2023, many countries will be newly impacted by this kind of litigation, including Bulgaria, China, Finland, Romania, Russia, Thailand, and Turkey. »
Gilles Vermot Desroches, Chef Citizenship Officer at Schneider Electric
« Transparency is one of the elements of progress, contributing to energize relationships among stakeholders. With the CSRD, Europe is adopting by far the most ambitious approach at the international level. This could enable European actors to attract investors and capital from around the world which seek to have the highest level of ESG impact. This approach will be even more virtuous as it will not weaken companies that need to keep confidentiality on certain data categories, which their international competitors could use to undermine them. It will adapt to the situation of companies, their size, and their form, for avoiding burdening them with costs to comply with this regulation, which could increase their operating expenses, reduce their profits, and weaken their ability to seek investments and innovate. It is through innovation that they will lead the agenda of solutions, essential for the ongoing and accelerating transitions. »
Marieke Huysentruyt, associate Professor of Business Strategy and Policy at HEC Paris
« The standards might also encourage companies to cooperate more, to share information and best practices on how to improve the life balance of their employees, their impact on communities and so on. Such information-sharing will allow companies to be more effective in positively changing their practices. »
Bruno Deffains, Attorney with De Gaulle Fleurance
« An interpretation of the duty of vigilance through an economic lens offers an interesting perspective. Indeed, this duty may be rooted in a recognition of negative externalities. The risks of harm to human rights and the environment constitute a problem of negative externality, i.e., a “debt that is not readily compensated.” The concept of externality refers to a situation where the costs or benefits of an economic activity are not fully taken into account by the parties directly involved (…) To resolve this problem, it is necessary to internalise these externalities, i.e., to ensure that the costs are borne by those who generate them. »
Pierrick Le Goff, Associate attorney at De Gaulle Fleurance
« While the period 2019 – 2022 proved relatively active in terms of new proceedings (service of formal notice and/or summons) instituted against multinationals based on the duty of vigilance law, 2023 showed a clear downward trend in such proceedings. By December 2022, 23 proceedings had been instituted based on the duty of vigilance law since its creation, i.e. twice as many compared to March 2021. However, according to our research, only three new lawsuits have been instituted on this basis so far in 2023 (…) We can therefore legitimately conclude that the number of such proceedings is dwindling. It seems that two main causes may be at the root of this trend. One plausible explanation may have to do with the serial dismissals of petitions filed by NGOs in early decisions issued with regard to the duty of vigilance. It is likely that this would not tend to readily encourage NGOs to launch new proceedings. Another explanation could be that NGOs are taking a wait-and-see position in regard to the European directive to be enacted on the duty of vigilance, which as is well known looks to be much more strict and restrictive than the French law. »
Alexandra Nowak, Attorney with De Gaulle Fleurance
« Though interoperability between the ESRS and the ISSB standards on the climate issues was part of the goal, significant differences of magnitude remain concerning the principle of double materiality advocated by the EU. Thus there is a conflict underway between these two competing standards, which may lead to the European model being compromised if it is not upheld internationally, ultimately impacting the weight of EU companies in the global economy. »
Jordan Le Gallo, Attorney with De Gaulle Fleurance
« In order to standardise the legal framework relating to green bonds while allowing comparability of bond issues with the aim of accelerating the energy transition, the European Council announced on February 28 that a provisional agreement had been reached in interinstitutional negotiations with the European Parliament on a draft regulation addressing green bond issuances, also known as the EUGB Regulation. This agreement will be submitted to the institutions for ratification in fall 2023. According to a press release from the European Council, this agreement is expected to enter into force 12 months after its approval. In order to ensure consistency between the texts, the EUGB Regulation provides for concordance between sustainable initiatives arising from green bond issues and European taxonomy. »
For more information, De Gaulle Fleurance and HEC Paris’ Observatory of societal transitions « Sustainability and new business models » is accessible here: Link to the Observatory