Codification In Company Law of General CSR Requirements: Pioneering Recent French Reforms and EU Perspectives

This paper deals mainly with recent French and European developments regarding integration of CSR requirements into company law. The new provisions of French company law appear currently to be unique internationally. Indeed, for a number of years, France has purposefully positioned itself as a leading country in codifying CSR obligations, with the prospect that others might learn and take inspiration from the French experience.

France has adopted two company-law reforms, to decrease adverse external impacts of activities of covered French companies. The first, introduced in 2017, imposes an extensive so-called “duty of vigilance” on large French corporations. This consists of a legally binding obligation to implement a proactive plan to prevent serious adverse impact resulting from company, subsidiary, supplier and subcontractor activities throughout the world, to 1) human rights and fundamental freedoms, 2) human health and safety, and 3) the environment. The second, introduced in 2019 (the “PACTE law”), applicable to all companies registered in France, regardless of their form or size, imposes a broadly defined duty to take into consideration the social and environmental impacts of their activities. The PACTE law also contained two optional provisions, introducing into French law two new concepts: the “raison d’être” – company’s fundamental reason for being – that a company may define in its bylaws, to state its principles or core values; and the “société à mission” (“mission-driven company”), a new category of entity, conceptually similar to a “B-corp”.

These reforms are important regulatory developments. As lawyers, we have come to know that CSR norms of conduct no longer lie outside the law, but here they have made a significant breakthrough in our company law. The legal means to address CSR issues in France have evolved significantly, from disclosure (initially voluntary, then mandatory) to substantive and prescriptive legal requirements (initially narrower and more specific, then broader and more general).

As company lawyers, we can only be struck by the use and exploitation of company law for CSR purposes, the consequent politicisation of the role of companies, and the consequent “mix of genres” or confusion introduced between public interest and private interest goals. In terms of public policy, debate continues on the efficacy of these generalised precautionary measures intermediated by company leaders elected by shareholders, compared to direct regulatory measures targeting specific social or environmental issues.

Despite its shortcomings, and the initial scepticism, the French model is experiencing an important milestone, as it has largely inspired the European Commission in its directive proposal on Corporate Sustainability Due Diligence (“CSDD”). After years of discussion, this proposal, a 77 page-long document, has been published on 23 February 2022. Utilizing a similar dual structure to that of the French law, the proposed EU directive on CSDD contains for large companies both specific due diligence obligations and a general duty of care, requiring company directors and executives to take into account sustainability matters in fulfilling their obligations to act in the best interest of the company.

A comparison of the French and EU texts shows that while the general inspiration and orientation are common, there are significant differences between the two models, in terms of scope, content of the obligations and enforcement. The European proposal appears more comprehensive, elaborate, detailed and threatening to the corporate status quo. It contains a series of technical references that should be clarified or corrected during the negotiation process towards the final text. It also reveals a number of policy choices different than those in the French law. These include 1) its application to a larger array of companies, including non-EU companies operating in Europe, 2) its provisions on climate change and 3) its imposition of a general directors’ duty of care on various social and environmental matters, that are likely to raise strong national opposition.