French Financial Legal Committee Report Reflects on Climate Change Liability

On July 19, 2020, the Legal High Committee for Financial Markets of Paris ("HCJP") issued a report on social and environmental responsibility of companies and their managers under French law. This report was initiated based on an amendment to the Civil Code by the PACTE law adopted on May 22, 2019, related to corporate law principles provided by the French Civil Code. In particular, these principles require companies to be managed in a way that takes into consideration the social and environmental effects of their activities. The PACTE law also created the "raison d'être": a corporate purpose that can be enshrined in the company bylaws and that should govern the management of the company's activities.

The HCJP report comments in particular on the consequences of this legal amendment on climate change issues and climate change litigation recently initiated before French tribunals. The report notes that certain of those climate change claims challenge the mere existence of economic activities, which seem difficult to cease on a short-term basis. Quoting recent analysis issued by the Autorité de Contrôle Prudentiel et de Resolution ("ACPR"), a body in charge of the supervision of French banks and insurance, the HCJP report notes that the banking and financial sectors are particularly subject to an expectation that they will identify and address social and climate risks in order to facilitate a transition toward a low-carbon economy. According to the ACPR, climate change creates a risk for financial institutions; these institutions should identify such risk and put in place a management structure in order to ensure financial stability. Climate change litigation also creates a risk for companies, including banks, even though the HCJP report considers that, at this stage, it may remain difficult to demonstrate a causal link between the activity of a specific company and climate change. The report includes a very useful analysis focused on this causal link issue. See Annex 4 of the HCJP Report.

However, the HCJP notes a recent trend that considers voluntary environmental statements made by companies through internal reports or contractual charters as binding; this trend, coupled with the introduction under French law of a "vigilance duty," may trigger a rise in climate change litigation and an evolution of case law on these matters. In social and environmental litigation such as climate change claims, French judges may have to take into consideration third-party interests in order to assess the social and environmental responsibility of companies.

In this context, the HCJP recommends that French judges assess the consequences of the corporate decisions that are challenged in light of the company's responsibility toward contractual or third parties. The judge cannot, however, invalidate the corporate decision itself without creating a precedent of interference with the management of companies. In addition, the HCJP recommends that managers and board members of companies benefit from better training and information with respect to social and environmental issues in order to be in a position to take them into account when structuring corporate management policies.

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