A new lawsuit has been filed against the Casino Group, a major French supermarket chain with Latin American subsidiaries, claiming that the company’s supply chain practices in Brazilian and Colombian cattle are in violation of France’s Due Diligence law. The incident reflects the increasing legal, financial, and reputational risks that Casino and its peers are confronting due to deforestation risks.

The coalition that filed the suit, made up of indigenous groups and environmental organizations, argues that Casino sourced its beef from suppliers that are actively engaging in deforestation in Brazil and Colombia. Evidence from the Center for Climate Crime Analysis says that Casino sourced beef from three slaughterhouses that used 592 primary suppliers that are “responsible for at least 50,000 hectares of deforestation between 2008 and 2020.” Though the coalition is seeking comparatively little in damages ($3.7 million in comparison to Casino’s Latin American revenues of more than $15 billion last year), the lawsuit opens the door to increasing legal action against companies that violate deforestation laws.

In September 2020, a report from CRR assessed the accelerating legal and financial risks faced by Casino and Grupo Pão de Açúcar (GPA), its subsidiary and Brazil’s second-largest retailer. Though Casino states that 100 percent of GPA’s suppliers complied with its Responsible Beef Sourcing Policy, the report notes the limitations in Casino’s deforestation practices. Casino does not include indirect suppliers in its analysis and lacks timelines on its beef policy’s implementation, and it has also actively sourced beef from those responsible for deforestation.

Casino is vulnerable to legal risks under the 2017 Duty of Vigilance law, under which the lawsuit was filed. The Vigilance Law requires large companies (with 5,000+ employees) to develop plans that identify, prevent, and mitigate risks relating to human rights and environmental damages across their entire operations. The law aims to incentivize changes in supply chains by creating the binding legal obligation of mandatory due diligence. According to CRR’s previous analysis, if Casino loses such a case, it would result in major court-mandated changes to its beef supply chain.

Even a legal victory would leave Casino open to financial and reputational risks – which CRR values at USD 2.5 billion. Casino’s deforestation practices contrast with the increasingly stringent ESG policies of financiers, potentially leading to higher debt financing costs or struggles in acquiring necessary capital. Public commitments to end financing for those linked to deforestation are also growing– BNP Paribas, HSBC, Société Générale, the Natwest Group, and Deutsche Bank are all members of the Banking Environment Initiative, for instance. Even GPA’s own beef sourcing policies have resulted in 23 suppliers refusing to comply, leading to potentially higher costs of acquiring supplies.

BNP Paribas announced a stricter deforestation financing policy in February 2021, highlighting how financiers’ ESG policies themselves are increasingly coming under scrutiny. The company announced that it would only provide financing to customers with plans to achieve zero deforestation by 2025. The BNP Paribas policy is more ambitious than those of its competitors, but it has come under criticism for a lack of detail and rigor. Environmental groups criticized the 2025 timeline, arguing that it allowed “traders 5 more years to clear the forests with impunity.” The announcement also comes in the aftermath of a 2020 Global Witness report update which highlighted how BNP Paribas (along with Crédit Agricole and Natixis) is still financing controversial agribusiness companies. The report pointed to BNP Paribas funding a $500 million transition bond for Marfrig, a major Brazilian beef trader, which has “not systematically verified” its indirect suppliers for deforestation risks.

These developments are taking place in a wider policy context, where the ambition of French deforestation leadership is curtailed by the flaws in financier policies and a lack of political support from Brazil. In addition to the Duty of Vigilance law, France also published its National Strategy to Combat Imported Deforestation in 2018, which aims to channel development aid sustainably, create a national stakeholder platform to monitor zero-deforestation commitments, and adopt a zero-deforestation public purchasing policy by 2022. This has galvanized increased action from Europe: 2020 saw bills introduced by the UK and Germany to develop deforestation-free supply chains. Meanwhile, the EU is consulting stakeholders about a mandatory EU system of due diligence for supply chains. The Sustainable Financing Disclosure Regulation requires all financial market participants in the EU to disclose ESG issues, with additional requirements for products that promote ESG characteristics or that have sustainable investment objectives. For the EU due diligence law to protect human rights and the environment, the European Commission is expected to present a proposal in Q2 2021. The French Vigilance Law currently lacks robust reporting requirements, a framework for monitoring enforcement plans, and transparency on which companies are eligible. Also, it will be challenging for France and Europe to mitigate climate impacts resulting from the Amazon without the support of Brazil, where President Bolsonaro has actively enabled legal deforestation practices. Casino may lack incentive to transform its supply chains if its on-the-ground operations are allowed to continue unhampered.