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March 14, 2002
New French Law Mandates Corporate Social and Environmental Reporting
by William Baue
French social and environmental rating agency offered both kudos and criticism for a new law requiring French companies to disclose social and environmental performance.
SocialFunds.com --
Late last month, the French Parliament published the requirements of a new law that mandates all
French corporations to report on the sustainability of their social and environmental performance.
Early this month, ARESE,
a social and environmental rating agency based outside Paris, released a statement assessing the
new law in depth. ARESE greeted the legislation with enthusiasm, but criticized specific aspects
of the stipulations.
The "new economic
regulations" law (nouvelles régulations économiques, or NRE), passed last year, completely
overhauled France's outdated corporate law structure. The NRE focuses predominantly on financial
issues such as increasing the transparency of take-over bids, improving corporate governance, and
fortifying antitrust regulation. However, several articles also legislated the disclosure of
companies' triple bottom line performance, which considers not only financial but also social and
environmental indicators.
The NRE divides social reporting into three categories: human
resources (including employment indicators, remuneration, equity, and diversity); community
(including the impact on and engagement with local populations and stakeholders); and labor
standards (including respect for and promotion of International Labour Organization conventions).
Environmental reporting covers issues such as air, water, and ground emissions as well as energy,
water, and raw materials consumption.
While the corporate social responsibility (CSR)
community may consider these reporting requirements a godsend, the devil is in the details,
according to ARESE.
"The legislation remains unclear on the definition of the different
topics to be addressed, on the perimeter of consolidation and on the way indicators should be
calculated," said Mr. Prudhomme. "There is no official KPI (key performance indicator) to
illustrate the compulsory disclosure."
ARESE enumerated specific shortcomings of the NRE.
For example, the law is silent as to whether a company must report on its international operations,
or merely its France-based operations. Also, the law overlooks several key environmental issues,
such as genetically engineered organisms and environmental remediation of existing polluted sites.
Furthermore, the law is limited in that it fails to consider the environmental impacts of products
and services throughout their entire life cycles, from raw material extraction to transportation to
recycling.
More broadly, ARESE criticized the NRE's failure to provide specific
indicators, auditing requirements, and sanctions for non-compliance.
"The major caps
will comply very quickly to the new text," said Mr. Prudhomme, though he expects less widespread
compliance elsewhere. "Without any sanctions specified in the text of the law, it is hard to
anticipate a massive compliance, especially among the services sector of industry which may not
find the text of law adapted to their businesses (IT software, banking, insurance, media,
engineering, tourism companies...)"
Nevertheless, ARESE acknowledges the precedent set by
the NRE, both within France and within the larger European and global communities.
"We
hope French companies will take [advantage] of this mandatory reporting to make up the gap with
their European counterparts on CSR," said Mr. Prudhomme. "We wish French companies will be
creative using GRI [Global Reporting Initiative] and other guidelines to comply with the French new
regulation."
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