Preparing for CS3D: Early Lessons From France

After a somewhat turbulent adoption process, on 25 July 2024 the Corporate Sustainability Due Diligence Directive (“CS3D”)^[1] finally entered into force.  The CS3D requires certain companies operating in the EU/EEA, to identify and address adverse impacts on human rights and the environment as regards their actions both inside and outside of Europe. This includes obligations for companies to issue publicly available annual statements on human rights and environmental issues, and to adopt and put into effect transition plans for climate change mitigation.

EU Member States now have two years to transpose the CS3D into national law.  But a number of questions remain.  How will EU Member States transpose CS3D into national law – particularly those that already have similar requirements in place (e.g. France and Germany)?  Will other non-EU countries (e.g. Canada, UK) follow the EU’s lead?  Will there be legally binding instruments in this area at the UN level?  And how will the CS3D requirements themselves be interpreted, and apply, in practice? On this last question – recent Court rulings in France may shed some light – particularly on CS3D access to justice and enforcement provisions.

Background: French ‘Loi sur le Devoir de Vigilance’

In 2017 France adopted the Loi sur le Devoir de Vigilance.^[2]  That national French law requires, amongst other things, certain companies operating in France to “establish and implement an effective vigilance plan” including measures to identify risks concerning the “severe violations of human rights and fundamental freedoms, serious bodily injury or environmental damage or health risks”.  Its scope includes: (1) the operations of companies which, themselves, fall within the scope of the Loi sur le Devoir de Vigilance; (2) operations of entities which are controlled by those companies; and (3) “operations of the subcontractors or suppliers with whom [relevant companies] maintain […] an established commercial relationship”.  The French Loi sur le Devoir de Vigilance therefore shares a number of factors in common with the CS3D, and in many ways can be seen as one of the forebearers of the CS3D itself.^[3]

In June 2024, the newly created ‘emerging litigation’ chamber of the Paris Court of Appeal handed down rulings in three separate cases^[4] - all of which related to the Loi sur le Devoir de Vigilance, particularly on legal standing and admissibility issues.  The cases related to multinational companies active in a number of different industrial sectors.^[5]  Those rulings may give an insight into how the EU and national courts interpret similar requirements under the CS3D in the future.

French case regarding the alleged violation of indigenous peoples’ rights (Mexico)

The first case relates to the construction of wind farms in the South East of Oaxaca, Mexico – home to the Zapotec indigenous community.  The Claimants allege, amongst other things, that the French multinational failed to involve the community in the planning and decision-making process.  Moreover, the claimants allege that although the French multinational’s 2018 Vigilance Plan did identify “risks of violation of the rights of indigenous peoples” in connection with industrial projects in Latin America – it did not include “…specific action to analyse, prioritise, and remedy these risks”.  The claimants also alleged that the French multinational’s Vigilance Plans issued in subsequent years (2019, etc) were also incompliant.  The claimants requested the Court to, amongst other things, declare that the Vigilance Plan is non-compliant, order the French multinational to publish a new diligence plan in compliance with the Loi sur le Devoir de Vigilance, and pay damages to compensate for the loss suffered as a result of the breach of duty of vigilance. 

The questions for the French Court at this stage were whether, French legal standing and admissibility requirements were met particularly vis-à-vis Formal Notices, Writs of Summons, Applications for Injunctions etc.  More specifically, whether, by not specifically referring to the relevant Vigilance Plan(s) – the claimants’ allegations of non-compliance were admissible.

The Court held that the claimants’ arguments were admissible.  More particularly, the Court held that the requirements concerning Formal Notices or Writs of Summon etc could not mean that claimants were required to refer to the exact Vigilance Plan(s) in contention, as the entity required to comply with the Vigilance Plan obligations may address a specific issue in subsequent Vigilance Plans – but that did not necessarily have the effect of eliminating a previous incident of non-compliance.  Instead, the Formal Notices or Writ of Summon must refer to the same risks, serious harm, and obligations to be complied with under the Loi sur le Devoir de Vigilance. The Court also noted that as the Loi sur le Devoir de Vigilance introduced a requirement for parent companies to intervene in the affairs of subsidiaries^[6] the traditional notion of legally independent entities could not per se be applied to prevent a defendant entity from having legal standing. 

French case regarding an oil spill and impact on drinking water (Chile)

The second case relates to an oil spill in Chile on 10 July 2019. That spill culminated in the contamination of a drinking water treatment plant catchment source, and subsequent breakdown in access to drinking water for local residents.  The operator of the drinking water treatment plant – was a subsidiary of the French multinational.  From 2018 onwards, another entity within the French multinational had published Vigilance Plans pursuant to the Loi sur le Devoir de Vigilance. 

The claimants brought an action against one of the legal entities forming part of the French multinational company.  Following the initiation of Court proceedings, the legal entity against whom the claimants brought the case – contended that the legal action was inadmissible as that legal entity did not have legal standing to defend the action.  In reply, the claimants argued that the French entity’s procedural objection was: raised some 22 months after the initial exchange of correspondence; after the claimants had addressed the Formal Notice to the joint registered addresses of the two relevant (and joint) French multinationals of relevance; and after the claimants had received a reply from the entity before the Court – which did not deny that it was the author of the Vigilance Plan. Despite these arguments, the Court dismissed the case as inadmissible. 

The Court stated that the root cause of the confusion regarding which specific legal entity within the French multi-national company, the claimants should address and pursue – was due to the “imprecise designation of the addressee [of the Letter of Formal Notice]” by the claimants.  The Court stated that even in these circumstances where the French multi-national company could be regarded as having given a “misleading appearance” as to which entity was the relevant legal entity within the company against whom the claimants should bring the action – claimants were still required to bring the legal action against “…the company that actually drew up and published the disputed [Vigilance Plan]”.

French case regarding climate change and GHG emissions (French municipalities)

The third case relates to an alleged breach by a French multi-national petrochemical company. The claimants alleged, in essence, that global warming affecting the planet was due, in particular, to the French multi-national petrochemical company’s activities in various parts of the world. They argued that the Vigilance Plans issued by the French multi-national petrochemical company from 2018 onwards did not comply with the Loi sur le Devoir de Vigilance as, amongst other things, they: (1) did not adequately or sufficiently identify the risk but merely characterize the risk in general terms as “…a global risk to the planet resulting from various human actions including energy production and consumption…”^[7] and (2) failed to establish actions to prevent serious harm and to limit rise in temperature to 1.5°C.^[8]  The core question for the Court at this stage, was whether the multitude of applicants  - many of which were localities and municipalities - each had legal standing to bring the case.  On this point, the Court held, in large part, that the territories of local authorities are affected “indiscriminately” by the harmful effects of global warming and that this was “not sufficient” to establish an interest in bringing the case.  The Court stated that only by “demonstrating that global warming is having a particular impact on the territory of the local authority concerned can a local public interest be established” and therefore an interest in them bringing a legal action be established.  An interesting aspect of this case, was the claimant’s request for the Court to set aside the pre-trial Judge’s order on the basis that the Judge’s cousin held a managerial position within the French multi-national petrochemical company.  The Court rejected this request on, amongst other grounds, that there was “no evidence of any close relationship” between the individuals, that the Judge’s cousin was a manager in a subsidiary not involved in the case, and that there was “no evidence to show [the Judge’s cousin had] any connection with the present dispute.” 

Lessons to learn

These cases illustrate a number of points – which companies preparing for CS3D in particular should note. 

Firstly, as the CS3D has now entered into force, French law, together with other national regimes in other EU Member States, will have to be reviewed and brought in line with this area of EU harmonized law.  This should, in principle, mean fragmentation of the Single Market in this area desists.  It will also mean rights of access to justice under EU law, including legal standing and admissibility issues, currently applicable under national regimes – may need to be revised and reviewed in this context.

Secondly, as and when companies publish annual statements under the CS3D, or report under the CSRD, they should prepare for litigation and consider where (which EU Member States) actions are most likely to be initiated, by whom, and on what grounds (taking into account the arguments raised by claimants in these early French cases).  There appears to be a strong desire from civil society and beyond to take actions before the courts vis-à-vis climate change, human rights and other issues – and the CS3D (and the CSRD) will enable EU persons, natural and legal, to bring actions in certain situations.  Companies will need to understand how to mitigate against the chances of litigation which go above and beyond merely assessing the content of CS3D/CSRD statements and reports.  

Lastly, companies may wish to consider how legal standing rules might assist them in defending rights and positions. To stem the potential flood of cases, Courts may take strict views on legal standing, as has been the case in some of these early recent French cases.  However, the first test cases concerning the French Loi sur le Devoir de Vigilance have equally given NGOs and civil society organisations the chance to learn how to avoid problems concerning legal standing and admissibility issues, and become more sophisticated in their approach - ensuring they do not face the problems concerning legal standing they have done as regards the Loi sur le Devoir de Vigilance. 

For more information on the CS3D, Loi sur le Devoir de Vigilance, or related law please contact Marcus Navin-Jones at mnavinjones@crowell.com and Jean-Baptiste Blancardi, at jblancardi@crowell.com. Please also see our previous alert on the CS3D and the recently FAQ published by the Commission. If you would like to find out more about how CS3D and green claims legislations intersect, join us on September 19, 2024 for a webinar on Green Claims and Greenwashing Risk.