Updated April 2024
CSR, the principle that aims to improve our wellbeing, our environment and a fairer redistribution of wealth, is becoming more binding in regulation. We will look at how it is put into practice through changes in the law and the multiplication of CSR labels. Regulation defines what is mandatory for companies: these rules may come from the Environmental Code, the Labour Code, the Commercial Code, and so on.
2001, the NRE Act (New Economic Regulations)
With the emergence of the internet and digitalisation, the economy took on a new face. CSR regulation in France really began in 2001 with the NRE Act, whose aim was to prevent the risks of globalisation. The NRE Act requires listed companies to publish the social and environmental consequences of their activities in their management report.
2010, the Grenelle 2 Act
The Grenelle 2 Act is meant to show the French State's commitment to protecting the environment. It imposes criteria that certain sectors must meet progressively up to 2050. The Act particularly affects construction and urban planning, transport, energy and climate, biodiversity, health risks, waste treatment and governance. It also widens the category of companies subject to reporting. It is no longer only listed companies, but also companies with turnover above 100 million euros or more than 500 employees that must now publish a non-financial report.
2015, the SDGs (Sustainable Development Goals)
In 2015, the United Nations set out 17 sustainable development goals for states and companies. Each country adopts a number of measures in line with expectations, and France drew up its roadmap with 98 indicators.
17 August 2015, the LTECV, the Energy Transition for Green Growth Act
In this global context of corporate accountability, regulation continues to assert itself in France. The Energy Transition for Green Growth Act strengthens reporting obligations on climate and energy issues, the circular economy and food waste.
Article 173 is a world first: it requires the 840 institutional investors (banks, insurers, mutual insurers, asset managers) to publish transparently their efforts to combat global warming and their contribution to the energy transition. These investors, who manage your savings, must also integrate environmental, social and governance (ESG) criteria into their investments.
9 December 2016, the Sapin 2 Act on "transparency, the fight against corruption and the modernisation of economic life"
The Sapin 2 Act notably protects the "whistleblower", in particular an employee who reports their company's failure to meet its legal obligations. The Act also penalises anyone who obstructs such a report. Detecting these breaches of corporate duty therefore relies on oversight by employees or associations.
27 March 2017, the Act on the duty of vigilance of parent and instructing companies
After the 2013 tragedy in Bangladesh, where 1,138 people died in unsafe garment workshops, the Duty of Vigilance Act was enacted. It requires companies with more than 5,000 employees in France or 10,000 worldwide to publish an annual report on how they prevent risks relating to the environment, human rights and corruption within their company. The report also requires companies to enforce these principles in their subsidiaries and among their subcontractors and suppliers, in France and abroad. Companies must also set up a monitoring system to assess the effectiveness of the preventive measures put in place.
In 2019, the PACTE Act (Action Plan for Business Growth and Transformation) adds yet more measures
The PACTE Act amends the Civil Code so that all companies "take into consideration" environmental and social issues in the management of their activities. A second part of the Act allows companies that wish to do so to define a corporate purpose. The corporate purpose officially sets out the contribution the company wants to make to society, beyond the pursuit of short-term profit.
A third part, finally, allows willing companies to become a mission-driven company. This legal status, imported from the United States, allows companies that want a strong social and environmental impact to put their obligation to generate dividends second.
The PACTE Act aims to develop the social and solidarity economy (SSE) by allowing employees to be directly involved in the company's management and financial results. The Act also provides for the publication of pay gaps in large companies, as well as a framework for "golden parachute" pensions, the top-up pension paid to certain senior executives.
2023, the CSRD, the Corporate Sustainability Reporting Directive
Adopted by Europe in July 2023, the text was transposed into French law by an ordinance in December 2023. This legislation, prepared by the "Big Four" (the main audit and consulting firms) and pushed at European legislative level, increases the number of companies in Europe required to publish a non-financial report. Following adoption of the texts, more than 50,000 companies in Europe and 7,400 in France would be affected from 2026.
The technical committee of EFRAG (the body in charge of drafting) took on board the comments about the lack of readability and effectiveness of this report-based methodology. Reports must now comply with 12 ESRS (European Sustainability Reporting Standards). Of these 12 standards, 2 precisely define the form and the elements to include in the report. This uniform presentation should make it easier to read and quicker to compare CSR initiatives and their impact.
In a few key points, the CSRD should above all make it possible to:
- quickly compare year-on-year improvements within the same company
- quickly compare CSR performance between similar companies in the same sector
- take into account companies' impact on society and the environment (double materiality)
- act on the value chain for a trickle-down effect
- submit the information for verification by a statutory auditor or an independent third-party body
- submit the information for scrutiny by civil society
The limits of CSR regulation
CSR regulation based on non-financial statements does not take real expertise into account
Regulation relies essentially on drafting reports known in France as DPEF (non-financial performance statements). These reports must set out the measures put in place to combat the forms of pollution and the unethical situations caused by the company. They are read by a third-party firm for a simple opinion to shareholders. Yet studies show that company accountants and the statutory auditors responsible for reviewing these non-financial reports are not necessarily competent on CSR and climate change. As a result, the data presented does not reflect the reality of the efforts required. With the CSRD, independent third-party bodies and statutory auditors are required to train for 20 hours a year and 120 hours over 3 years to be able to understand the information and issues involved in these reports.
The legal limits of non-financial reporting on CSR
According to legal journals, failing to report, or publishing only partially, carries no legal penalty. The case has to be brought before a court to possibly compel the company to publish. Finally, experts point out that these non-financial reports, although intended to bring new CSR solutions, often merely reflect regulatory obligations imposed by the Environmental Code, the Labour Code, the Commercial Code, etc., without taking any further initiative.
CSR regulation is getting tougher, without any beneficial effect
In 2020, the association Notre Affaire a Tous examined the 2019 vigilance plans of 25 French multinationals. The association scored the companies' human and environmental measures out of 100, "100 being the score that would merely mean being within the law". Only 5 of the 25 companies reached the halfway mark, i.e. 50 of the 100 points needed to be fully compliant with existing laws. The law is becoming so complex and changeable that companies struggle to keep up. Similar findings have been made regarding the GDPR since that law was created.
Non-financial reporting is far from unanimously supported by professionals. While the intention is to translate concrete actions into a report, many fear the administrative burden, the lack of clarity and the lack of verification of the figures. Ultimately, the lack of real positive impact.
In 2019, the government had asked the French Accounting Standards Authority to study the relevance of these reports; its finding was: "There is today real momentum in corporate non-financial reporting, but it is developing amid a proliferation of initiatives that lack coordination and consistency". Patrick de Cambourg, the author of that report, is also the chair of EFRAG and the current honorary chairman of Mazars, which he led for 28 years.
The regulatory framework creates interest around sustainable development but, as it stands, does not help companies, professional bodies and individuals to unlock the broad potential of CSR. On the contrary, the cumbersome nature of the system and its lack of clarity seem to have triggered a sense of rejection towards the principles of sustainable development, which are seen as cynical.
