EU CSDDD: lessons learnt from the French Duty of Vigilance law

KEY TAKEAWAYS

1. France is at the forefront of CSDDD

• On 27 March 2017, the French legislative enacted the DVL, creating an obligation for large corporates (subject to specific thresholds based on their turnover and number of employees) to define and implement a “vigilance plan”, seeking to identify and prevent serious violations of human rights and fundamental freedoms, health and safety of individuals and damage to the environment resulting from the corporates’ activities, as well as of those of its subcontractors and suppliers down the value chain (for more information see our publication). 

The requirements under the DVL are similar to the due diligence obligations currently being discussed at a European level (for more information on the status of the CSDDD proposal, listen to our webinar). 

As a reminder, EU law already sets specific sectoral due diligence regimes, such as the Conflict Minerals Regulation, the Timber Regulation, as well as the Deforestation Regulation (replacing the Timber Regulation) (for more information on the Deforestation Regulation, see our blog post). The CSDDD proposal would take the form of a standard EU regime on due diligence obligations, which does not have a sector focus. 

Companies within the scope of the French law must establish and implement “effectively”, “in association with the company stakeholders involved” a vigilance plan. 

Any such vigilance plan must include measures to allow for risk identification and prevention of severe (i) violations of human rights and fundamental freedoms, (ii) health and safety risks and (iii) environmental damages, resulting directly or indirectly from the operations of the company and of the companies it controls, as well as from the operations of the subcontractors or suppliers with whom it has an established commercial relationship, when such operations derive from this relationship. 

In practical terms, a vigilance plan should include: 

1. a mapping that identifies, analyses and ranks risks; 
2. procedures to assess regularly, in accordance with the risk mapping, compliance of subsidiaries, subcontractors or suppliers with whom the company maintains an established commercial relationship; 
3. appropriate actions to mitigate risks or prevent severe violations; 
4. a whistleblowing mechanism that collects reporting of risks; and 
5. a monitoring programme of the implemented measures to assess their efficiency.

Companies subject to the law must publish the vigilance plan and report of its effective implementation in their annual report. 

• These requirements echo the draft CSDDD, to the extent that the latter also intends to set out, in the field of human rights and environment, obligations including (i) identification of potential adverse impacts, (ii) measures to prevent, cease or minimise the latter, (iii) measures to assess effectiveness, as well as (iv) communication obligations. To some extent, the draft CSDDD is however more ambitious than the DVL (see below for more details). 
• Similar due diligence obligations recently entered into force in Germany on 1 January 2023 (Lieferkettensorgfaltspflichtengesetz - see our blog post), though differences with the DVL can be noted insofar that the German law is more limited in content – environmental considerations are only covered to the extent there is a direct impact on human rights – but broader in scope due to a lower employee threshold (minimum of 3,000 employees, as of 2024 to be reduced to 1,000 employees). Furthermore, the German law provides for more detailed guidelines on how to comply with due diligence obligations and creates an obligation to designate a person within the corporate responsible for risk management. In addition, the German legislation provides for different remedies than the DVL, with an administrative body – the BAFA, – being responsible for enforcement and guidance (see our blog post), while the DVL only provides for compensation and a possible court injunction.  
• With enforcement in Germany only at its debut and the trilogue at the EU level ongoing a European bill is not expected to take effect prior to 2026 at the earliest – lessons can be learned from the French experience of the due diligence obligations under the DVL.

2. Activists do not see the ESG due diligence obligations as a formality. 

• Activists do not see the ESG due diligence obligations as a formality. They are already using the due diligence requirements in the field of human rights and environment as an opportunity to take corporates to court and challenge the way they operate their businesses and engage in specific projects. 
• NGO are driving this litigation, alongside trade unions, French municipalities (collectivités territoriales), foreign cities (such as the City of New York), and employees or individuals.
• Activists use the DVL to challenge actors in all industries, not just ‘high-risk sectors’ (within the meaning of the European CSDDD). The litigation brought by the NGOs seems to focus on the energy, banking, food/distribution and cosmetics industries.
• Activists use the law to promote both climate change and human rights: 
  • Climate change: activists challenge notably the fossil fuel industry and its financing, as well as deforestation and use of plastic in the food industry; 
  • Human rights: in particular workers’ rights and right to property;
  • Some cases might see a combination of the two. For instance, we see activists challenge deforestation alongside alleged abuses of peoples' right to a land. 
• As such, the DVL gives rise to a wide breadth of possible litigation, including arising out of current geopolitical tensions. NGOs have also sent a formal notice under the DVL to a French corporate, asking it to end its activities in Russia. 
• Only a small portion of in-scope companies are reported to have failed to draw up a vigilance plan (17%, according to studies made in 2021). Litigation is focused on amending these vigilance plans and eventually, forcing corporates to act on it. 
• More precisely, activists are mainly seeking the Courts to order injunctions (possibly under penalties, in case of non-performance) against corporates to issue amended vigilance plans and eventually, force them to act and make a business shift. Only one identified case is exclusively seeking compensation, after having failed to obtain an injunction. Activists plead against a purely formal interpretation of the due diligence obligations and advocate in favour of a "teleological and in concreto interpretation” of the DVL by Courts, meaning that the latter need notably – according to them – to take into account the objectives of the legislator. 
• Activists claim against the activities of parent companies, subsidiaries, and subcontractors. They go against either specific projects (e.g., oil projects in Africa) or general behavior (use of plastic in the industry). Activists act against activities that are not limited to French territory but that are conducted all around the globe (Brazil, Russia, Tanzania, Mexico…). 
• Other type of actions intertwined indirectly to the DVL are also starting to emerge:
  • at the end of 2022, a discovery claim was successfully brought by 145 individuals against a number of corporates. The discovery measures are seeking to demonstrate the link between a French group and legal entities in relation to their business activities in Cameroun, thus allegedly enabling the claimants to seek compensation based on the DVL. 
  • on 22 September 2023, four environmental NGOs reportedly filed a criminal complaint against a French corporate in the energy sector on the charges of “failure to combat a disaster likely to endanger the safety of people”, “unintentional injury”, “destruction, degradation or deterioration of property belonging to others likely to create a danger to people”, and “manslaughter”. The non-public criminal complaint is reported to generally criticise the corporate’ impact on the environment over the past years. The case illustrates that NGOs are willing to litigate ESG outside the scope of the DVL to pursue criminal in parallel to civil routes. 
• More generally, we are seeing an increasing number of ESG criminal, civil and regulatory claims being brought in the French courts against corporates. On 6 and 11 September 2023, French criminal courts found two companies criminally liable for having breached the specific due diligence obligations under the EU deforestation regulation. And the litigation is not one-sided: one French corporate has already filed a counterclaim against certain NGOs for delivering what it says to be false and misleading information on its carbon footprint.

3. French Courts’ insights 

• Companies have raised a number of procedural issues arising from the DVL during Court proceedings, notably relating to (i) which Court has jurisdiction, (ii) the right procedural route to be used, (iii) the contents of the writ of summons in comparison with the mandatory formal notice that must be sent before taking on legal action (whether it must be similar) and (iv) which group legal entity must be brought to trial.
• 4 cases were declared inadmissible on procedural grounds, leading activists to believe that the Courts “doors were being shut” with regards to bringing DVL litigation (see for instance our posts on the Total Uganda and Total Climate cases).
• No decision on the merits has yet been rendered by French Courts since the DVL’s enactment in 2017.
• Yet, some take-aways can already be drawn from the last 6 years of litigation before French courts and more particularly, the Paris Court decisions of February 2023:
  • On a conceptual level, the Paris Court sees the DVL as setting “monumental goals” for corporates. In its decisions dated 28 February 2023 on the Total Uganda case, the Paris Court mentioned that the DVL sets “monumental goals” for corporates – a term inspired by the works of Law Professor Marie-Anne Frison Roche who had been invited as amicus curiae to the hearing (Pr. Marie-Anne Frison-Roche, Les buts monumentaux de la Compliance, Ed. Dalloz, Sept. 2022).
  • Courts seem to be feeling lonely. Prior to rendering the same decisions, the Paris Court invited law professors as amici curiae to discuss the reach of the law, in a move almost unprecedented in French proceedings to date, showing that the Court needed – in the absence of clarity from the legislator – to be supported in interpreting the exact reach of the law. 
  • Courts seem to be encouraging dialogue. In its decisions on Total Uganda case, the Paris Court stressed that the DVL requires the vigilance plan to be developed through a collaborative process with the company’s stakeholders, to ensure its efficiency. 
    Corporates have heavily criticised the behavior of certain NGOs unwilling to enter into negotiations or mediation discussions in relation to their vigilance plans. However, it was announced on 18 September 2023 that one of the corporates being sued under the DVL was to enter into judicial mediation with NGOs. 
    On 30 November 2023, the French Bar Society and the Journal of Regulation & Compliance has invited the French legal community to debate how mediation under the DVL can contribute to promoting environmental and social change.
  • The reach of the law seems to appear vague and unclear. Even where the claim was declared inadmissible, the Paris Court noted that “no Decree has been published by the French government to supplement the legal obligations under the Law, as initially provided by the Law. The DVL provides for general obligations, without precise limitations and reference to guiding principles or international norms. There is no independent control body or key performance indicators provided for either by the Law”.

It must be noted that the DVL indeed does not provide further guidance as to how corporates should approach their obligations. The French administration never published its decree detailing the extent of the obligations under the DVL. The DVL does not either refer to the soft law standards adopted by international institutions and spontaneously adhered to by certain corporates (e.g., the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights). 

This Paris Court statement on the generality of the DVL echoes the decision of the French Constitutional Council in 2017, which had censored the DVL in its earlier draft version, as far as it was seeking to impose a penalty (rather than providing for a possible injunction from the Court and civil damages, which are the current available remedies under French law) in the event of a company’s failure to comply with its obligations under the DVL. Indeed, the French Constitutional Council determined that those provisions violated the principle of the legality of criminal offences and penalties as the legislator had not defined the obligations of the subjected companies in sufficiently clear and precise terms (Decision of the French Constitutional Council of 23 March 2017, §13).

The above does not prejudge how French courts might approach the Duty of Vigilance when ruling on the merits. 

• These insights echo the criticisms drawn by the legal profession on the DVL. In July 2023, the French thinktank Club des Juristes, composed of law professors and in-house and external French lawyers, issued a report drawing criticisms against the DVL, criticizing notably: 
  • the insufficient stakeholder consultation that is being seen in the French context (raising a debate as to whether the involvement of stakeholders in the drawing up of the due diligence plan should be made mandatory); 
  • the legal uncertainty created by the DVL for corporates due to vague concepts, unclear scope and insufficiently precise obligations. 

A more realistic approach is being promoted by the thinktank, suggesting to incorporate a risk-based analysis. The thinktank also believes that incentives and support to corporates should be strengthened in the future (such as introduction of tax incentives, the award of public contracts or preferential treatment for companies, financial support…). 

• French judges are also querying how the DVL will affect their role and their traditional methods of working. In June 2023, the two French Supreme Courts (Cour de Cassation and Conseil d’Etat) organized their annual colloquium on the role of courts in matters of compliance, giving powerful insights as to how they would foresee the future of regulation in this field. 

Along these lines, in a recent article, Mrs Chantal Arens, First Honorary President of the French Cour de cassation, noted that “the legitimacy and credibility of courts will depend on their ability to change the judge’s role. More than in any other field, it will thus be possible to measure to what extent does the consideration of fundamental rights contribute to the authority and credibility of justice”.

Mrs Chantal Arens suggests, inter alia, that the judges limit what could be perceived as a use of discretionary powers in matters where legal notions are vague, increase recourse to amici curiae, and raise questions to the ECJ and ECHR when needed.

• To date, there appear to be 12 ongoing public proceedings brought under the DVL against French corporations currently pending before French Courts. This number does not include the numerous formal notices sent to French corporates since 2017 (without further legal action being reportedly taken), or a case where an amicable end was put to the dispute (settlement announced by one corporate on vigilance plan improvements on 1 August 2023).
• The Paris Court is supposed to render a new decision on the DVL on 5 December 2023. A company is being sued by its trade union for having allegedly breached its due diligence obligations in relation to its subcontractor, which is said to have employed undocumented workers. No procedural questions are being reported to the press, which commentators have taken to mean that this may be the first case where a decision on the merits will be rendered by the Paris Court on the DVL.

4. Upcoming decisions by the Paris Court and the EU CSDDD

• The Paris Court will eventually have to decide how the “monumental goals” assigned by the French legislator to private entities have to be enforced in practice. The way in which French courts decide to enforce the DVL, and the debates that it will continue to spark among French judges will be particularly important to follow ahead of the EU’s implementation of its CSDDD. 
• While the CSDDD trilogue remains ongoing, it is clear that Europe intends CSDDD to be even more ambitious than the DVL, to the extent that CSDDD may (by contrast to the DVL):
  • capture a larger number of companies. While the DVL is estimated to concern more than 250 companies, according to the EU Commission’s draft justification, CSDDD may impact over 16,000 companies in total, including more than 1,500 French companies; 
  • have an extraterritorial reach to non-EU legal entities conducting business in Europe. CSDDD should in principle apply to approximately 4,000 non-EU companies;  
  • refer to existing guidelines in the field of human rights and environment, without being exhaustive (in particular, OECD and United Nations Principles,); 
  • require concerned companies to establish a climate transition plan aligned with the targets set in the Paris Agreement, which is not provided for in the French Vigilance law; 
  • grant significant enforcement powers to regulators (rather than only compensation and court injunctions), with investigation powers and high penalties being attached (with a penalty up to 5% of the global turnover in discussion);  
  • introduce directors’ duties to implement and supervise the implementation of the due diligence obligations. 
• In this context, French stakeholders – corporates, the legal community, and NGOs – are active in their advocacy regarding the CSDDD trilogue, since in addition to the Club des juristes report referred to above: 
  • in June 2023, the French Parliament issued an information report on the discussion on CSDDD; 
  • in September 2023, a collective of NGOs (including Sherpa and Amnesty International) issued a report advocating for a more ambitious European bill, drawing on the lessons taken by the French experience of the DVL. In particular, the collective is advocating for the bill to provide for a reversed burden of proof on the corporates in the context of the litigation or, at least, to include measures that would facilitate access to proof to third parties. 
  • in September 2023, the Vice-President of the MEDEF (largest French union defending corporate interests) stated in a Linkedin post that the lack of integration of the business reality leads to “catastrophic legislation”, referring in particular to CSDDD. 

5. Conclusion 

• The CSDDD demonstrates that the EU intends to drive environmental and social change across the globe, while also trying to assert its power to regulate non-EU entities in this area and balancing the need to protect the competitiveness of the Single Market and take into account the business constraints of its companies.
• In discussions about potential penalties breaching EU due diligence obligations (such as penalties up to 5% of a group turnover), European institutions must keep in mind other fundamental EU law principles, such as legal certainty and the legality and proportionality of offences and penalties protected by Article 49 of the European Charter of Fundamental Rights and Article 7 of the European Convention of Human Rights, as enforced by the European Court of Justice (ECJ) and the European Court of Human Rights (ECHR). French representatives will not forget that, as mentioned above, the French Constitutional Council has already censored the imposition of a penalty in case of breach of the due diligence obligations, testing the vagueness of the DVL against the principle of the legality of offences and penalties. 
• The discussions as to whether the draft directive will be of minimum or maximum harmonisation (i.e., whether or not EU Member States will have the liberty to adopt stricter standards in matters of due diligence obligations) is also directly relevant to the French DVL. At this stage of the trilogue negotiations, the Council seems open to discussing full harmonization on certain aspects of the draft CSDDD, such as due diligence steps and specific definitions. The Parliament is also pushing to maintain a mandate for the Commission to assess, at a later stage, the possibility of turning the draft directive into a regulation that would therefore directly apply within the Member States (without a transposition being required). 
• The challenge is greater given that, in the upcoming months, European institutions are also set to discuss other important pieces of ESG-related legislation, such as the draft directive on the protection of the environment through criminal law. 

Listen also to our podcast (in French) on the results and lessons to be learned from the last six years of application of the French law on the duty of vigilance.

For more information on business & human rights materials, see our Business & Human Rights webpage.