Environment and compliance: new fertile ground in the EU?

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Thomas Lapierre
Navacelle, Paris
tlapierre@navacellelaw.com

Martin Méric
Navacelle, Paris
mmeric@navacellelaw.com

Julie Zorrilla
Navacelle, Paris
jzorrilla@navacellelaw.com

Implemented in 2016 in France by the anti-corruption Sapin II law,^[1] compliance is the requirement by corporate entities to conform to a rule, a standard or a law, by adopting a preventive stance minimising an entity’s exposure to a risk.^[2] Over the years, this preventive attitude, initially aimed at corruption, has expanded into other areas including recently, the field of human rights. Compliance is now concerned with all risks that may be incurred due to the behaviour or activities of corporations.

Given that a general constitutional duty of vigilance towards environmental damage had been recognised by the French Constitutional Supreme Court in 2011,^[3] environmental law appears to be new fertile ground for compliance to preserve ‘the resources, natural spaces, biodiversity marine and terrestrial life, landscapes, the quality of air, and life itself.’^[4] Although the legislative basis for environmental compliance is limited, it is expected to expand over the next few years.

The lack of a general, binding and enforceable framework for environmental compliance in France

Soft law initiatives in favour of an environmental compliance

The idea that companies should make efforts to prevent and detect their negative effects on the environment originates in international soft law instruments.^[5] In that regard, the 2011 updated Organisation for Economic Co-operation and Development (OECD) Guidelines provide for a compliance-like environmental preventive approach for companies, including:

• evaluation of the environmental impact of their activities, with regular monitoring and verification of progress toward environmental goals;^[6]

• assessing and addressing, when making decisions, the foreseeable environmental impact of their processes, goods, and services with a view of avoiding them, or mitigating them;^[7]

• continually seeking to improve corporate environmental performance at the level of the enterprise and its supply chain; and^[8]

• providing adequate training to workers in environmental matters.^[9]

Some private soft law initiatives also press for environmental compliance, such as the general ISO 26000:2010 Standards on Social Responsibility^[10] and the specific ISO 14001 on Environmental Impact.^[11] These ISO standards provide companies with frameworks and guidelines to develop both environmental as well as corporate social responsibility policies which can be voluntarily applied by a company as part of its general policy.

However, it should be noted that these soft law guidelines are non-binding, and voluntary due diligence standards are, as a result, limited in their effectiveness to prevent environmental harm.

Sectorial and specific yet incomplete environmental compliance mechanisms

To date, sectorial environmental compliance regimes aim at mitigating business activities’ adverse effects on the environment and public health.

An example is provided by the Seveso European Union directives on major-accident hazards of certain industrial activities,^[12] which was transposed into French law in 2013.^[13] With a view of preventing and controlling major-accidental hazards involving dangerous chemicals, companies operate in heavy industries and with dangerous substances must frequently identify and update substances, preparation and mixtures presenting a risk.^[14]

The operator must draft a document defining its prevention policy, specify the role of organisation and managers, and commit to continual improvement of the control of major hazards.^[15]

Regarding the most dangerous substances, the policy must be incorporated in the company’s annual report.^[16] Companies must adopt a compliance-like approach through risk-mapping and preventive measures. Furthermore, companies with over 500 employees must introduce extra-financial information into their annual report regarding the consequences of their activities, the use and production of goods and services on climate change, the social commitment in favour of sustainable development, circular economy, or fight against food waste.^[17]

A trend in favour of a general and enforceable environmental compliance

Environmental compliance falling under the general duty of vigilance: an ineffective mechanism

On 27 March 2017,^[18] France introduced a Corporate Duty of Vigilance Law for parent and outsourcing companies established in France with over 5,000 employees in France or 10,000 employees worldwide.^[19]

The French Corporate Duty of Vigilance Law establishes a legally binding obligation for parent companies to identify and prevent adverse human rights and environmental impact resulting from their own activities, from activities of companies they control, and from activities of their subcontractors and suppliers, with whom they have an established commercial relationship.^[20]

The legislation requires companies to implement a risk-mapping, take appropriate actions to mitigate risks, prevent violations, implement assessment of third parties and adopt an internal whistleblowing policy.^[21] A multinational may be compelled, through an injunction before commercial courts,^[22] to complete its vigilance plan.^[23] Before judicial courts, it may be required to pay compensatory damages, should its failure to draft a proper vigilance plan lead to environmental harm.^[24]

While welcomed for its innovative character, the corporate duty of vigilance law was criticised from the outset for its lack of clarity. In the same vein, the duty of vigilance also has pitfalls undermining environmental compliance. First, its applicability is hard to meet. Unlike anticorruption compliance supervised and sanctioned by the French Anti-Corruption Agency,^[25] its monitoring is not left to a government agency, but de facto to proactive NGOs that sue companies that have not established such a report.^[26]

In practice, in June 2019, Total became the first company in France to receive a formal notice for failing to comply with its duty of care regarding climate change and the human and environmental impacts of its subsidiary and its suppliers in Uganda.^[27]

The case regarding Total was taken to Court, in December 2019. However, debates regarding the competent court (civil or commercial courts) to hear such claims are ongoing.

Moreover, the law lacks effective remedies, the civil fine is a maximum of €10m,^[28] which was initially implemented in the law but was struck down by the French Constitutional Supreme Court due to its vagueness in defining human rights and fundamental freedoms.^[29]

As for civil damages for environmental harm caused by the failure to draft a comprehensive vigilance plan,^[30] it could be difficult to demonstrate the causal link between the absence of a plan and the harm caused, although the way French courts will interpret the law has yet to be decided.^[31]

Towards a mandatory EU environmental compliance legislation?

On 29 April 2020, European Commissioner for Justice Didier Reynders announced EU legislation requiring businesses to carry out due diligence on the potential human rights and environmental impacts of their operations.^[32]

The report was adopted by the European Parliament’s legal affairs committee on 27 January 2021. The plenary vote is scheduled for March 2021.^[33]

The proposed directive, if enacted, would apply to all undertakings governed by the law of a Member State or operating within the EU. Companies would be required to identify, prevent, cease, mitigate, monitor, disclose, account, address and remediate the human rights, environmental and governance risks that their activities may pose.^[34] To this end, a due diligence strategy must be made public.^[35] It specifies inter alia the risks likely to be present in an undertaking’s operations, sets up a prioritisation policy, and takes reasonable efforts to identify subcontractors and suppliers.^[36]

Unlike the French Duty of Vigilance Law, the contemplated directive provides that Member States would designate one or more competent national authorities responsible for the supervision of the due diligence obligations^[37] with investigative powers to ensure their compliance.^[38] Should the undertaking infringe its compliance obligations, it would be subject to penalties and may compensate damages if it caused harm.^[39]

The drafting and implementation of a binding directive on Members States is therefore becoming a possibility which would effectively take environmental compliance to a new level although the implementation would take several years, and Member States would be responsible for the determination of effective, proportionate, and dissuasive penalties for non-compliance by companies with environmental due diligence obligations.

The French Environmental Deferred Prosecution Agreement (‘Convention judiciaire d’intérêt public’): the stammering recognition of an environmental compliance

Environmental compliance made a step forward in France in December 2020, thanks to the recent extension of Deferred Prosecution Agreements (CJIP)^[40] to environmental offences.^[41]

Despite NGOs' opposition to this environmental CJIP,^[42] it may strengthen environmental criminal law by overcoming the difficult demonstration of a causal link,^[43] allowing a more rapid sanction of serious environmental harm and encouraging companies to collaborate.

Among the obligations of the environmental CJIP (payment of a fine, restoration of the damage, compensation to the victims), the entity may be imposed to implement an environmental compliance programme under the control of the Ministry of Environment.^[44] The monitoring of environmental compliance may be left to the regional directorates for the environment, planning and housing. Consequently, the implementation of environmental compliance programmes in application of CJIPs, will not be supervised by a specific government agency such as the French Anti-corruption Agency (AFA) in corruption matters.^[45] Guidelines for environmental compliance programmes and their implementation have yet to be published.^[46]

In any event, the environmental CJIP is undoubtedly a signal of a greater willingness on the part of authorities to punish violations of environmental law committed by companies. The latter will de facto have to strengthen their compliance programmes in this area, whether it is to avoid the commission of an infringement or to try to obtain a CJIP. Furthermore, it is certain that given the increasing concern over climate change and environmental harm in recent years, environmental compliance will become a field of law which will expand in the near future.