Corporate due diligence: We are all concerned

On 28 January 2020, 14 French local authorities and five civil society organisations (Notre Affaire à Tous, Sherpa, Eco Maires, France Nature Environnement and ZEA) sued the petroleum giant Total for its “climate inaction” and the inadequacy of its commitments under the Paris Agreement objectives. A French civil court has decided that the case can proceed under its jurisdiction.

The judicial action relies on the pioneering French law on the duty of vigilance, requiring large French companies to identify and prevent the risks their activities cause to human rights and fundamental freedoms, the health and safety of individuals and to the environment.

In response to Total’s argument that the matter should be decided before a commercial court, the Tribunal de Nanterre found itself competent to render a decision: The tribunal found that the duty of vigilance is not limited to a business management issue; by its very nature and the risks it hopes to prevent, it is meant to have an impact on society as a whole, and the law calls for a broad judicial review of vigilance measures. 

As initial enforcement actions of due diligence get underway and issues are ironed out, the decision sets the positive precedent of insisting that diligence concerns all of society, and therefore cannot be shunted off to possibly business-friendlier commercial tribunals. The national example underscores the importance of creating, at the European level, an enforceable corporate duty to identify human rights and environmental risks, and to prevent violations in companies’ value chains − as opposed to a mere obligation to adopt and publish risk-management processes.

In October 2020 the European Commission opened a public consultation on how to incorporate sustainability into the corporate governance framework; recently closed, the results should soon be available. For the Commission, sustainability in corporate governance should encourage “businesses to consider environmental social, human and economic impact in their business decisions, and focus on long-term sustainable value creation rather than short-term financial value”.

MEP Lara Wolters’ report adopted in the JURE Committee (FW 262) calls for an EU due diligence regulation that obliges companies, including financial institutions, to address human rights, environmental and governance risks and impacts throughout their global value chains. The corporate due diligence obligation should be complemented by a product-based due diligence requirement reducing the risk of imported deforestation (FW 260). Both proposals are expected in June 2021.

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