French banking giant sued for financing fossil fuel companies
This is another post in our series of blog posts on Value Chain Sustainability laws.
Several non-governmental organizations (NGOs) filed a summons against BNP Paribas on February 23, 2023. At issue is whether the bank’s climate risk plan is inadequate, in violation of the French Duty of Vigilance law.
The plaintiffs want a court order enjoining the bank to do the following:
- Immediately terminate financing or investing in companies that develop new fossil projects.
- Use its voting power and influence to force portfolio companies to renounce new fossil projects and take actions to limit global warming to 1.5°C. If that is not possible, BNP Paribas must divest those positions.
- Take actions, in its financing and investing in activities that emit greenhouse gases, to be compatible with the 1.5°C goal.
Background
- Access to credit is critical to the fossil fuels industry.
- Bank financing of, and institutional investing in, the fossil fuels industry has become a newsworthy topic.
- There is a significant global movement to pressure banks to cease lending to fossil fuels companies.
- Many institutional investors have committed to cut ties with fossil fuels companies.
- BNP Paribas is a major lender to the global fossil fuels industry.
Why this matters
- This case opens a new front in the war against climate change.
- Private climate litigation like this will be a major new weapon in the arsenal of environmental and human rights activists.
- This case creates new interest in the French law, enacted in 2017. It is likely to inspire in-scope companies to do more to comply with the law.
- The French law was the first Value Chain Sustainability (VCS) law. It was followed by the German Corporate Due Diligence Obligations in Supply Chains law, and then by the European Union Corporate Sustainability Reporting Directive (CSRD). Next up is the emerging EU Corporate Sustainability Due Diligence (CSDD) Directive. The VCS concept gets stronger with each such law.
- The draft CSDD Directive shares with the French law the idea that private litigants, such as NGOs and trade unions, can sue companies for violating human rights and environmental wrongs. NGOs and trade unions would not normally have standing to sue.
- This case will be studied, for lessons learned and precedential significance, around the world.
Specific allegations
The specific allegations are that the bank’s plan:
- is weak on binding commitments,
- does not clearly identify climate risks arising from BNP Paribas’ activities, both for fossil fuel projects in which BNP Paribas is directly involved and for the companies that it supports through its financing and investments,
- is not transparent about the bank’s financing and investment activities, dealing only with some sectors and not including scope 3 emissions, and
- does not commit to cease all financing and investments that support the expansion of fossil fuels.
What companies need to do now
- In-scope companies (those that are directly affected by the Act) need to become compliant as soon as possible. Even if they not in-scope, both direct and indirect suppliers will be under pressure to help their in-scope business partners become compliant – and to show that they will be reliable suppliers.
- All this will be a big job, a defensive necessity, but also a great opportunity to generate new business.
- All sizable companies should (i) educate themselves systematically about VCS laws and (ii) develop strategies to survive and thrive under the rules that will come from CSDD and other rules that be forthcoming in other countries.