Editorial - March 2023
Temps de lecture : 4 min
That bit extra:
is extraterritoriality the new frontier of extra-financial?
Are we unknowingly heading towards a European counteroffensive through the duty of vigilance? Or towards a double punishment?
For several years now, the concept of extraterritoriality mainly manifested itself as an instrument of US law, regularly and widely used punitively to penalise foreign actors accused of "doing business" with countries subject to US sanctions and de facto considered not fit to be associated with.
One of the most representative examples was the all-category record of the nearly $9 billion fine handed to BNP in 2014 for using the US dollar as a currency for transacting with countries under US embargo. Nearly ten years later, this resulted in BNP's near-complete withdrawal from US territory.
Here, extraterritoriality is a blatant example of the economic weapon used by the US to weaken European banks. Remember that the financing of the economy primarily takes place through banks in Europe and that European economies are far more open internationally.
« Will the European Union unintentionally take its extraterritorial revenge by introducing future legislation on the duty of vigilance for businesses? »
Also remember that France has been a pioneer in this area, with its Duty of Vigilance Act in 2017. Although the idea is nice, as is very often the case the economic reality could alter the initial intention.
Very recently we had a first concrete insight into the potential impacts of these new laws on businesses, with the legal proceedings brought against TotalEnergies by several NGOs.
Some would describe the NGOs' action as a stimulus to force businesses to move towards "more virtuous behaviour". In simpler terms, this significantly increases the legal risk for all businesses. At a European level, we can already imagine the overall social and financial cost that would be generated by courts backlogged with multiple cases of this kind. The subject is all the more important because, in a still highly globalised economy with fragmented supply chains, the scope of these laws is by nature and intentionally extraterritorial.
The similarity with US extraterritoriality is limited to the sanction aspect. Conversely, the main difference is that what could and even should be a powerful tool will very probably backfire on European businesses.
Indeed, European companies will soon have to demonstrate unparalleled transparency in their business dealings, which will undoubtedly be taken advantage of by their competitors, even before being of any interest to investors.
It is likely there will be little or no reciprocity, with concepts from the English-speaking world being imported into mandatory reporting on a one-way basis. One example is "affected communities", the notion of which is already included in future European reporting standards, and this was precisely one of the NGOs' angles of attack in their action against TotalEnergies. Essentially, this leaves room for infinite interpretation on the limitation of liability.
It is by no means clear that Europe will ultimately come out on top by adopting so many moralising extraterritorial virtues universal in their scope.
Yannick TATIBOUËT
Director of Strategic Intelligence, External Relations, and coordination on sustainable finance
March 8, 2023
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