🧱The Sustainability Report, a Tool and Object of Systemic Litigation
Marie-Anne Frison-Roche (𝒎𝒂𝒇𝒓)
Director of the Journal of Regulation & Compliance (JoRC) - Professor of Regulatory & Compliance Law - ComplianceTech®
In the series of conference-debates exploring Emerging Systemic Litigation (ESL), organised by the Cour d'appel de Paris (Paris Court of Appeal), the Cour de cassation (French Court of cassation), the Cour d'appel de Versailles (78) (Versailles Court of Appeal), the Ecole nationale de la Magistrature (French National School for the Judiciary) and the EFB (Paris Bar School),
under the scientific direction of Marie-Anne Frison-Roche (𝒎𝒂𝒇𝒓),
🔴see the 🧱English presentation of this cycle of conferences-debate Emerging Systemic Litigation (ESL)
following the conference-debate of March 29, 2024 on the very definition of Emerging Systemic Litigation,
🔴see the 🧱article reporting in English this conference 🧮Importance and specificity of the Emerging Systemic Litigation
the conference-debate of April 26, 2024 on Vigilance, a new field of Emerging Systemic Litigation,
the conference-debate of May 27, 2024, which focused on the technical control of risks on platforms and the resulting Systemic Litigation,
🔴see the 🧱article reporting on this conference 🧮Technical risks controls on platforms and disputes arising from them
and the conference-debate of 24 June 2024, which focused on Artificial Intelligence, a new field of Systemic Litigation,
The conference-debate of 9 September 2024, held at the Paris Court of Appeal, focused on:
THE SUSTAINABILITY REPORT: EMERGING SYSTEMIC OBLIGATION AND LITIGATION
The speakers were Marie-Anne Frison-Roche (𝒎𝒂𝒇𝒓) , Professor of Law and Director of the Journal of Regulation & Compliance (JoRC), Florence PEYBERNES , President of H2A - Haute autorité de l'audit (French High Audit Authority) and Alexis Gazzo , Partner Climate Change & Sustainability, EY France.
This article reports the three presentations, while the debate with the audience remains a spontaneous affair between the speakers and the large number of people who attended these face-to-face events.
The speeches were divided into 4 parts, before the debate with the audience began:
In the general presentation on the theme itself, I highlighted
Why the texts and practice on sustainability reporting will give rise to Systemic Litigation
I presented a panorama to correlate what at first sight seem remote: on the one hand the Sustainability Report and on the other Systemic Litigation.
I. SUSTAINABILITY REPORT AND SYSTEMIC LITIGATION: TWO LINKED LEGAL REVOLUTIONS
A. The 2 terms of the Legal Revolution: Systemic Litigation and the Sustainability Report
1. Systemic Litigation refers to a specific category, proposed in 2021 : "systemic cases", ie. ‘cases’ brought before the courts, sometimes specialised, sometimes of ordinary Law, in which not only parties clash in their dispute but also a system is itself involved. The interests of the system or systems involved must be ‘taken into account’. However, its own interests may be distinct from those of the parties to the dispute. The procedure and the judge must therefore allow the interests of the system to be taken into consideration.
These systems may be diverse: banking, financial, transport, energy, digital, climate, etc. systems. But their interests are always the same. They have often been dealt with by Regulatory Authorities, which deal with disputes that are systemic disputes, through their sanction and dispute settlement commissions. Today, these cases are brought before the judge of ordinary Law. They will be increasingly so: this is Systemic Litigation.
For the Judge, the institutional and procedural stakes and the transformation of his office are considerable. This is the subject of this series of conferences-debates.
For more on the definition of Systemic Litigation:
🔴M.-A. Frison-Roche, 🚧Systemic Litigation, 2024
Among the systems' own interests, which will be raised before the judge, is the sustainability of the systems (we often talk about the climate system, but this can be raised for each of the systems, for example energy, banking).
It has been said that this is a ‘Legal Revolution’. Yes. The article in question shows that Systemic Litigation is the consequence of Compliance Law, which is the source of all this by internalising in compagnies the custody of systems and the future of systems, i.e. the Monumental Goals.
2. Let us now turn to the Sustainability Report. This too is a new terminology, and we're going to talk about it in detail. Let's stay with the sustainability term and what brings it into contact with Systemic Litigation.
It also comes into contact with a new terminology, namely the ‘sustainability report’.
There is a ‘Legal Revolution’ and it is the same Legal Revolution.
Through the Sustainability Report, the firm must be able to assess not only its economic and financial performance, which is the subject of accounting, but also its development in terms of what it is doing externally in terms of ESG and what the outside world is doing to it, what it is doing in the world, and what it can do for the future of the world. This founding idea of the Sustainability Report is found in Systemic Litigation, since in this case it is the systems, claiming their own interests, i.e. their interest in not collapsing in the future, in being solid and liveable, i.e. their sustainability, that are before the judge.
With this Sustainability Report, in Europe's conception of it, which is not the same as that developed in the United States, it is action that is required of firms: in this respect, it is the future that is the subject of the Sustainability Report and not just information about the past and the present.
In reality, therefore, these are two sides of the same Legal Revolution, because the object of Systemic Litigation is also the future.
🔴M.-A. Frison-Roche (coord.), 🧮Dans l'espace de justice, les pratiques juridictionnelles au service du futur (In the area of justice, jurisdictional practices serving the future), 2024
II. THE SUSTAINABILITY REPORT AS A SOURCE OF INFORMATION FOR SYSTEMIC LITIGATION
1. The Sustainability Report, a Treasure trove of Evidence
Systemic Litigation develops new evidentiary issues, often linked to Compliance Law, linked to the new Evidence System that this implies, particularly with regard to the burden of proof.
🔴M.-A. Frison-Roche, 📝The Judge, the Compliance Obligation and the Company. The Compliance Evidence System, in 📘Compliance Jurisdictionalisation, 2024.
🔴M.-A. Frison-Roche (coord.), 🧮Les techniques probatoires adéquates dans le Contentieux Systémique Émergent (Appropriate Evidentiary Techniques in Emerging Systemic Litigation), 14 octobre 2024.
But this sustainability report encounters what is already the fate of the internal investigation report implied by Compliance Law: this evidentiary treasure may contain information that does not have to be accessible to everyone:
🔴M.-A. Frison-Roche & M. Boissavy (eds.), 📕Compliance et droits de la défense. Enquête interne – CJIP – CRPC (Compliance and rights of the defence. Internal investigation – French Judicial Public Interest Agreement – French Guiltea plea procedure), 2024
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The question of secrecy will therefore be raised in systemic disputes which may only be brought for the purpose of obtaining information, and all the more so as, unlike internal investigation reports, the information in the Sustainability Report may be strategic information (we find this essential question in connection with the Vigilance Plan and the systemic disputes to which it gives rise and will give rise).
2. The importance of the assurance provided by the professional
The expert acts ex ante. The judge will take into account this ‘assurance’ contained in the accreditation.
But because this new extra-financial accounting, which is also concerned with the enterprise's strategy for the future, will involve anticipating the judge's Ex Ante office as part of the evidential issue.
The professional, his training and the Regulation of his certification activity by the French H2A are therefore essential because credibility (a key notion in the Evidence System, which will be studied at the October 2024 conference-debate) rests largely on the firm, the certifier and the Regulator.
The role of the Regulator is to act as amicus curiae for the benefit of the judge.
III. TWO EXAMPLES OF THE LINK BETWEEN SUSTAINABILITY REPORTING AND SYSTEMIC LITIGATION: VIGILANCE LITIGATION AND ALGORITHMIC LITIGATION
I take these two examples because two conference-debates have already taken place, one on the Vigilance Systemic Litigation and the other on the relationship between Systemic Litigation and the Algorithmic System. Other conference-debates have shown this for the sustainability of the Digital System or for the sustainability of the Algorithmic System, or for the sustainability of chains of activities.
In this respect, and to stay with the more specific theme of sustainability reporting, it is the entire information system that is being transformed, and in different ways depending on the standards adopted, in the United States, Europe or elsewhere, whether we are content with information so that third parties adjust their behaviour, principally investments, or, as in Europe, whether Contract and Tort Law imposes this obligation so that the firm itself adjusts its own behaviour, its governance, its position in the world, in a renewed relationship with the stakeholders: in this case, saying and doing are intertwined, with CSRD being the twin of CS3D.
Furthermore, we can consider that non-financial information, through the sustainability report, its assurance of credibility and the Regulation of the audit carried out on it, itself constitutes a system.
The system is then interwoven with other systems, which are themselves the subject of Emerging Systemic Litigation: firstly that of vigilance, which was examined in the series of conferences as a field of systemic litigation, then that of artificial intelligence, which was similarly examined.
Thus the duty of vigilance subjects firms to an Obligation of Compliance, the CSRD and the CS3D being twin texts: on the articulation between the CSRD and the CS3D, see intervention at the French H3C, 🔴M.-A. Frison-Roche, 🎥L'esprit des Lois en matière de vigilance (Spirit of Law in Vigilance matters), 2023.
Systemic Litigation will further articulate the 2 directives. On this articulation that judges will take into account in Systemic Litigation, 🔴M.-A. Frison-Roche, 🚧Duty of Vigilance: the way forward, 2024.
The sustainability report, insofar as it crosses the obligation of sustainability which reflects the duty of vigilance, will therefore be attracted to the Systemic Litigation to which Vigilance gives rise.
In the same way, algorithms can be a tool for accumulating and matching ESG data, which could lead to the same phenomenon of attraction. If this happens, this dimension will need to be present and understood, for example through amici curiae, in conjunction with the Regulators and the professions concerned.
In addition, as in any emerging mechanism, and as we have seen in the case of rating agencies, Tort Law could interfere if the liability of either the firm or the auditor were to be engaged, and the systemic perspective would then have to be integrated into the handling of the case, even before the ordinary judge.
After this first presentation, Florence PEYBERNES presented the CSRD, which introduced a new tool: the sustainability report.
Elaboration and Spirit of the CSRD
The speaker outlined the background to the adoption of the Corporate Sustainability Reporting Directive (CSRD).
The CSRD was preceded by the Non-Financial Reporting Directive (NFRD), which merely encouraged firms to publish extra-financial information in a declaration of extra-financial performance. However, this declaration was made compulsory in certain Member States, including France, Spain and Italy.
Given the inadequacies of this text, and in line with the approach to decarbonising the economy set out in the European Green Deal, the European Union has adopted a new text, the CSRD, requiring the largest firms to draw up and publish a sustainability report. This report is based on mandatory technical standards drawn up by the EFRAG: the European Sustainability Reporting Standards (ESRS). These standards make it possible to unify the reports produced, in order to create genuine comparability of reports and therefore greater transparency. She emphasised the revolution that sustainability reporting represents, as the ESRS can be compared to a new form of accounting.
ESRS is a new form of accounting
Finally, she explained that the information contained in the sustainability report produced by the firm must be certified, in France either by an auditor or by an independent third party certified by the OFRAC. This sustainability audit is then checked by the Regulator: the H2A.
After this initial overview, Alexis Gazzo spoke about the way in which the firm draws up its sustainability report.
How to build a Sustainability Report?
Following on from the previous speech, the speaker began by emphasising one of the main objectives of the CSRD: through transparency, to encourage the channelling of capital towards activities that will make it possible to achieve carbon neutrality in Europe.
To this end, and this is one of the innovations of this text, the information contained in the sustainability report relates not only to the past or the present, but above all to the future (transition plan, resources allocated to this plan over 3 years, etc.).
The speaker also pointed out that the CSRD had greatly extended the scope of firms subject to extra-financial reporting, with relative indifference to the territory.
He pointed out that the sustainability report was meant to be used by a large number of stakeholders: financiers, customers, regulators, employees and civil society.
The speaker then explained how the sustainability report is structured.
He emphasised the ambition and difficulties of ‘double materiality’.
The control of the audit of the sustainability report
Role of the Regulator and relations with Firms and their Certifiers
Florence PEYBERNES took the floor again to show how the Regulator, firms and certifiers are working together to produce a sustainability report that satisfies the purposes for which all this new machinery has been set up.
She began by presenting the new H2A - Haute autorité de l'audit (French High Audit Authority), which replaces the former Haut Commissariat aux Comptes (H3C) in order to regulate not only audit professionals but also the new activities linked to sustainability auditing.
The speaker showed how experts, representatives of public authorities and firms contribute to the work of the Regulator, particularly in drawing up guidelines to help firms and professionals.
A discussion between the 3 speakers showed how progress can and is being made to ensure that sustainability reports achieve what Europe designed them to do, i.e. actively involve firms in the major issues of our time.