French banking giant BNP Paribas sued for fossil fuels financing

Several non-governmental organizations (NGOs) sued BNP Paribas on February 23, 2023, for allegedly violating the French Duty of Vigilance law.

The plaintiffs want BNP Paribas to be ordered to:

• Terminate funding for new fossil projects. 

• Use its power as a shareholder to force portfolio companies to renounce new fossil projects and take actions to limit global warming to 1.5°C., or to divest those investments. 

• Take other actions compatible with the Paris Agreement 1.5°C goal. 

Why this matters 

• This case will be studied for its historic, precedential significance.

• There is a global movement to pressure banks and institutional investors to cut ties with the fossil fuels industry.

• Private climate litigation like this will be a major new weapon in the arsenal of environmental and human rights activists.

• The French law was the first Value Chain Sustainability (VCS) law. The VCS concept becomes more developed and stronger with each new VCS law.

What companies need to do

• Companies directly affected by the French law need to become compliant at once. 

• Direct and indirect suppliers to such companies will be under pressure to cooperate with the compliance demands of their supply chain partners.

• Sizable companies should (i) educate themselves systematically about VCS laws and (ii) develop strategies to survive and thrive under existing and future VCS laws.

This article is only a quick summary of the BNP Paribas case, its context and significance. For more detailed information, see Groundbreaking lawsuit against BNP Paribas, https://mcalan.com/groundbreaking-lawsuit-against-bnp-paribas.

©Allen Campbell 2023
Written Mar 09, 2023
By Allen Campbell, JD, MBA
www.linkedin.com/in/allencampbelljdmba
Email: AC@McAlan.com
Tel. 972-402-5300

Part II: Are All Carbon Emissions (And Credits) Created Equal?

by Mike Kraten and Jason Dodier

Author’s Note: On January 6, 2023, we authored an Insights post entitled Are All Carbon Emissions (And Credits) Created Equal? The Need To Consider Sources Of Energy. We concluded that post by challenging the reader to consider how a Chief Financial Officer should evaluate her options. We also promised a follow-up post that presents a case example involving biomass energy.

We keep our promise by authoring this post. Our comments (below) conclude by recommending an evaluation process that focuses on the classic Value – Risk paradigm.

If you ever find yourself gasping for breath as you dash from gate to gate in New Delhi’s Indira Gandhi International Airport, you might wish to visit India’s latest innovation in healthy breathing: the Oxy Pure Oxygen Bar.

What is an Oxygen Bar? It’s a bar that serves various “flavors” of oxygen instead of liquor or coffee. Given that New Delhi is plagued by one of the most polluted atmospheres on Earth, it’s no surprise that its entrepreneurs have developed this innovative business concept.

India’s intractable air pollution serves as an unfortunate reminder of the costs of utilizing its “dirty” energy sources. The nation is currently the world’s second largest consumer of coal (after China) and third largest consumer of oil (after the United States and China).

Fossil fuels like coal and oil impose significant environmental costs. Upstream extraction processes, for instance, lead to the destruction of mountain-tops and the atmospheric release of toxic methane gas. And downstream energy generation processes, for example, produce a wide variety of pollutants, ranging from coal ash to carbon dioxide.

And what of natural gas? Although it is a relatively cleaner energy alternative to coal and oil, its methane composition significantly damages the environment. Gas fracking is also responsible for seismic instability in regions that have never previously experienced earthquake activity.

What about alternative energy solutions that don’t produce waste substances? For instance, what about solar, wind, and hydroelectric power? Without feasible battery technologies to store power for extended periods, these solutions can frustrate energy users when the sun doesn’t shine, when the wind doesn’t blow, and when drought dries the rivers.

Biomass and Biochar

Biomass energy solutions avoid or minimize many of these problems. In addition, their production processes can generate biochar, a unique resource that provides value in a form that is lacking among other alternatives.

Biomass energy is generated from plant-based material; it is not reliant on intermittent sources like the sun, the wind, and the currents. Thus, there is no need for battery equipment – which is constructed with potentially toxic resources that are extracted from the earth – to store power during quiescent periods.

Furthermore, when biomass is exposed to high temperatures, it decomposes into a substance known as biochar. This material serves two environmentally healthy purposes: (1) it can fertilize agricultural soil, and (2) it can capture carbon in a storable physical state.

Thus, unlike the carbon ash that is produced by burning coal, the biochar carbon that is produced by biomass energy processes can improve the health of the environment. And unlike oil and/or gas based energy production processes, biochar does not produce any methane emissions or earth tremors.

Value vs. Risk

Is biomass energy the ideal choice for all energy users? Not necessarily; after all, your ideal choice is dependent on how you assess value vs. risk.

Let’s imagine that you live downstream from an area of groundwater that has been polluted by coal ash. In addition, let’s imagine that the climate is relatively temperate. For you, the value of a power source like solar or wind may lie in its total absence of any carbon generation, and in the lack of significant meteorological risk during intermittent energy shortages.

Now let’s assume that you live in an isolated and wintry Arctic climate. The value of the technological reliability of traditional oil and gas powered equipment may significantly exceed any risk of long-term damage to the environment.

For many of us, though, biomass offers an attractive mix of value and risk factors. As the economic, social, and environmental costs of climate change continue to escalate, the need to manage our carbon streams through end products like biochar will keep biomass solutions in the conversation.

European Council Advances Corporate Sustainability Due Diligence Directive

The European Union draft Directive on Corporate Sustainability Due Diligence (“CSDD”) took a big step forward on November 30, 2022, when the Council of the European Union (the “Council”) adopted a “negotiating position” on the European Commission’s CSDD proposal, and delivered it to the European Parliament. It is now ever more likely that CSDD will become law. 

The Council’s proposal includes the Commission’s climate change provisions. 

The Council proposes several noteworthy changes:

1. The financial services sector would enjoy a privileged position. When they individually “transpose” the Directive into their national laws, EU Member States would have the right to choose whether or not to apply CSDD to financial services companies.  

2. In-scope companies would not be responsible for the human rights or environmental shortcoming of their customers, as would have been required under the Commission’s draft – which would have made companies responsible for how their products and services are used and disposed of. 

3. Companies would have more time to comply with the legislative regime. 

4. Directors’ duties would be removed from the Directive. (Directors’ duties would remain within the purview of individual countries.)

5. There would be stiff government penalties for violating company duties. 

6. Civil liability would be retained and clarified. Significantly:

1. A company would not be held liable if the alleged damage was caused only by its business partners in its “chain of activities”.

2. The complaining party would be entitled to “full compensation” but not to “overcompensation”, such as punitive damages. 

Next Steps in the Legislative Process

The draft Directive is now under consideration by the European Parliament to determine its initial negotiating position, as per standard EU legislative procedure. Once that is done, the Parliament and the Council will negotiate to reach a final version of the Directive. Vigorous lobbying can be expected before the final version is agreed upon. Once the Directive enters into force, EU Member States will have two years to “transpose” the Directive into their national legislation.

What Should Companies Do at This Time?

CSDD will change the rules of the game and the business environment in which companies operate. CSDD directly targets companies with significant footprint in the EU. CSDD will indirectly affect companies in their value chains. 

Companies need to begin preparing for the days when CSDD gets enacted in Member States’ laws. Before then, smart, agile companies will have been at work to do what will be required of them, and beyond that, to find and/or create competitive advantages. 

This article is only a brief synopsis of the Council’s action. For more detailed information, see European Council Adopts Negotiating Position on Corporate Sustainability Due Diligence Directive at https://mcalan.com/european-council-adopts-negotiating-position-on-corporate-sustainability-due-diligence-directive.

Written Jan 06, 2023

©Allen Campbell, JD, MBA

www.linkedin.com/in/allencampbelljdmba

Email: AC@McAlan.com

Tel. 972-402-5300

New German Supply Chain Due Diligence Act Is Now Effective

Germany’s landmark Act on Corporate Due Diligence Obligations in Supply Chains went into effect January 1, 2023. It will require in-scope companies to monitor human rights and environmental due diligence obligations internally and in their supply chains. The Act will apply to all companies whose head office, main branch or statutory seat is in Germany, if the company has at least 3,000 employees. As of 2024 it will be extended to companies with more than 1,000 employees.

Risk Management is at the Heart of the Act

The Act requires companies to identify, analyze, prioritize and remediate specific types of internal and supply chain risks. The Act creates a duty of effort, but not a duty of success. 

Penalties and Civil Liabilities

The Act is enforceable by punitive government action, including hefty fines.

Generally, companies that violate the Act are not civilly liable, but there are exceptions.

Value Chain Sustainability Laws in the New Economic World Order

This Act is the most significant Value Chain Sustainability law enacted to date anywhere in the world. Other, stronger, more comprehensive laws are expected, with even greater global consequences.  The biggest of these will be the European Union Corporate Sustainability Due Diligence Directive.

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. Although they will not be in-scope per se, both direct and indirect suppliers will be under pressure to help their in-scope business partners become compliant – and to demonstrate that they will be reliable suppliers.

This article is only a brief synopsis of the new Act. For more detailed information, see German Supply Chain Due Diligence Takes Effect January 1, 2023 at https://mcalan.com/german-supply-chain-due-diligence.

Written Jan 03, 2023

©Allen Campbell, JD, MBA

www.linkedin.com/in/allencampbelljdmba

Email: AC@McAlan.com

Tel. 972-402-5300