The French Transposition of the CSR Directive or the Copernican revolution on corporate governance

April 17, 2018

academic law, Author Articles


Catherine Malecki on the turning point for corporate governance.

In the wake of the Paris Climate Agreement, the French Law LTECV (Law on Energy Transition and Green Growth 17th August 2015) introduced “climate change” in the extra-financial report of listed companies. Moreover, the French implementation of the Directive 2014/95/EU of the European Parliament and Council of 22 October 2014 modifying Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, known as the CSR Directive, by the order of 19 July 2017 is a big step towards sustainable corporate governance.

Indeed, this so called “CSR” European Directive transposed into national law by France – which has been one of the more virtuous members of the EU – offers a new framework for non-financial information with a major shift towards more potential responsibility for members of the governing bodies of the large undertakings concerned and also provides a description of the diversity policy: non-financial reporting is revised to favour the overall analysis of a principle of materiality and with respect to genuine, long-lasting compliance based on a clear analysis of the upstream risks. It puts the finishing touch to the direction given to CSR over the last 16 years in France. This law and its implementing decree have certainly arrived late in the transposition schedule: they must naturally be interpreted and coordinated in the light of other laws such as that covering duty of care, the French Law on Energy Transition and Green Growth and of course the “Sapin 2” Law (9th December 2016).

The Order covers the two main themes of the CSR Directive: the statement of non-financial performance and the disclosure of information about the diversity policy applied in the governing bodies of certain companies.

Precise, concise, useful extra-financial reporting

The spirit of the Order and the practices which are intended to be developed are very different from the French national laws relating to CSR and, above all, from Decree n° 2012-557 of 24 April 2012. They are based, logically, on the CSR Directive, which is the result of a long consultation and re-writing process: it concerns “certain large undertakings and groups”, public-interest entities (PIE), with the objective not of non-financial reporting but rather in-depth reflection, an analysis of (“adequate”) non-financial risks, anticipation of the latter, a policy of predictability, comparability and coherence through the establishment of a business model, all this with the objective of restoring stakeholder confidence. Everything will be based on an analysis of these entities’ strategy, and thus on men and women being made aware of the problems of the 21st century. Sustainable compliance is expressly established from the point of view of risks, which will also lead to problems of sincerity, adequate explanations and verification in a way by the AMF (French Market Authority) for listed companies, certainly, (but what about unlisted companies?). The previous revision in November 2016 of the AFEP/MEDEF Code (the French corporate governance code for listed companies) must be welcomed for having finally included CSR and indicating that it should form part of company strategy, which is not inconsequential with respect to Article L. 225-102-1, VI, Paragraph 2 of the Commercial Code referring to board members.

It is significant that the term “non-financial” has been used since it shows fidelity to the CSR Directive. In the same way, the idea of “statement”, which is an integral part of corporate governance, is more flexible and more motivating and once again very close to the spirit of the CSR Directive.

A question of non-financial “performance”

The term “performance” appears in the CSR Directive, [1] replacing the term “results” used in the April 2013 draft directive. The ethos and method of non-financial reporting have fundamentally changed: on the one hand, it is now a statement and no longer a non-financial report covering a list of items; on the other hand, it is now a question of non-financial “performance” which gives a new, positive dynamic, the strong signal being that the non-financial impact should contribute to better corporate governance and be a guarantee of confidence and growth.

Towards an e-sustainable corporate governance

Accessibility of non-financial information “to the public” on the company website : this is a significant innovation compared to the former version of Article L. 225-102-1 of the Commercial Code. This follows on directly from the CSR Directive which insists upon the widespread use of websites in order to make information available to the “public” within a “reasonable timescale.” [2] The new Article L. 225-102-1, III, paragraph 4, of the Commercial Code states that “this information will be published in such a manner as to be freely accessible on the company website”. This follows on directly from the CSR Directive which insists upon the widespread use of websites in order to make information available to the “public” within a “reasonable timescale.” The new Article L. 225-102-1, III, paragraph 4, of the Commercial Code states that “this information will be published in such a manner as to be freely accessible on the company website”. This Article is even more faithful to the Directive because it states that such information should be made available to the “public and made easily accessible on the company website” within “eight months of the balance sheet date and for a duration of five years”. It should be recalled that, since 2010, French listed companies have been obliged to make this information accessible on their website but this general statement shows that this information plays a particular role and that it should be made available to anyone who is interested.

The description of diversity policy to challenge “group-think” and the risk of a “positive” sustainable or ethical compliance

Article 3 of the Order faithfully transposes the CSR Directive with respect to this point, by replacing clause 6 of Article L. 225-37-4 of the Commercial Code. Henceforth, clause 6 states that “When the balance sheet total, the net turnover or the number of employees exceeds the thresholds fixed by Decree by the Council of State, a description must be given of the diversity policy applied to the members of the board with respect to criteria such as age, gender or educational and professional background, together with a description of the objectives of the policy, how it is implemented and the results obtained during the previous reporting period. If no such policy is applied, the statement shall contain a clear and reasoned explanation as to why this is the case.”

There again there is nothing new, this fits in with sustainable company governance, the CSR Directive clearly pointed out that it is a question of challenging group-think. The risks of “positive” sustainable compliance or of “positive discrimination” should not be neglected.

Nevertheless, corporate governance is at a turning point : the French Afep/Medef Code is to be revised including diversity on board after having included CSR in his late revision in November 2016, the future French Law PACTE (Action Plan for Growth and Business Transformation) is going to revise a famous civil 1833 Civil Code in order to take into account the social and environmental dimension in the social object.

Sustainable company governance is running fast…

Catherine Malecki, University Rennes 2, University Paris-Saclay, France and Durham University, UK

Malecki Corporate

Corporate Social Responsibility is available now

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