The Directive (EU) 2022/2464 of 14 December 2022 or the Corporate Sustainability Reporting Directive (CSRD) was implemented into French law by Ordinance No. 2023-1142 of 6 December 2023 (the “Ordinance”), which was supplemented by Decree No. 2023-1394 published on 30 December 2023 (the “Decree”) and by two orders of 28 December 2023. Its application is staggered from 1 January 2024 to 1 January 2028. The CSRD reframes the sustainability reporting requirements resting on companies.

In 2024, the Paris Court of Appeal (cour d’appel de Paris) and the Judicial Tribunal of Paris (tribunal judiciaire de Paris) have both established specialised chambers to handle all litigations arising from Act No. 2017-399 of 27 March 2017 on the corporate Duty of Vigilance (devoir de vigilance) and more broadly emerging disputes involving sustainability matters.

The first ever first-instance decisions on the corporate duty of vigilance had dismissed the plaintiffs’ claims on procedural grounds. However, in 2024, the Paris Court of Appeal overturned these rulings, allowing the cases to be judged on their merits. Additionally, in 2024, the Paris Judicial Court delivered the first substantive decision under the 2017 law, noting deficiencies in the defendant company’s due diligence plan.

The European Union (EU) has replaced terms like Corporate Social Responsibility (CSR), non-financial, and ESG with “sustainability” to emphasise a comprehensive approach encompassing environmental, social (including workers’ rights), societal (such as local and indigenous community rights), and governance (like anti-corruption practices) issues. 

The French Civil Code and Commercial Code mention environmental and social matters, requiring companies to be managed in a way that takes into consideration environmental and social matters, thus adopting a broad definition of sustainability. 

This general requirement resting on companies is completed with specific regulations, such as the requirement stemming from the Environmental Code, which mandates companies to prepare a greenhouse gas (GHG) emissions report and a transition plan to reduce their emissions; the Rixain Act, which imposes gender diversity quotas in senior management and governing bodies; and the Sapin II law, which obliges companies to implement an anti-corruption compliance programme.

Disclosure frameworks

The CSRD requires in-scope companies to report on a wide range of sustainability matters relevant to their businesses in accordance with the European Sustainability Reporting Standard (ESRS). The main objective of this directive is to standardise and enhance the accuracy, robustness, and comprehensiveness of corporate sustainability reporting in the EU. France has transposed the CSRD without making significant amendments to it. 

Companies in scope are also required to report on their alignment with the EU Taxonomy, meaning they publish their proportion of turnover, capital expenditure (CapEx), and operating expenditure (OpEx) related to their “environmentally sustainable” activities.

Regulation (EU) 2019/2088 of 27 November 2019 on sustainability‐related disclosures in the financial services sector or the Sustainable Finance Disclosure Regulation (SFDR) provides a classification of investment products marketed by asset management companies based on the level of integration of sustainability factors into their investment strategy. SFDR requires an extensive disclosure of how the investment product promotes sustainability goals.

Companies with more than 500 employees are also required to prepare, every four years, (i) a GHG emissions report; and (ii) a transition plan to reduce their GHG emissions specifically dedicated to their French activities. They shall electronically submit those documents to the Agence De l’Environnement et de la Maîtrise de l’Énergie (ADEME) (public agency for the environment and energy management).

Corporate law

Article 1833 of the French Civil Code provides that “the company is managed in its corporate interest whilst considering the social and environmental issues related to its activity”. Article L. 225-35 of the Commercial Code specifies that, in limited companies, this responsibility rests with the board of directors.

The French corporate Duty of Vigilance Law (Loi Vigilance) requires large French companies to: (i) establish a Vigilance Plan to identify and prevent risks to human rights, fundamental freedoms, health, safety and the environment; and (ii) publish and implement it effectively. With the transposition of the Corporate Sustainability Due Diligence Directive (CS3D) into French law, the content of this vigilance duty is expected to evolve.

Anti-corruption 

Under Article 17 of the Sapin II law (loi n° 2016-1691 du 9 décembre 2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique), companies must implement an anti-corruption compliance programme which includes the adoption of a code of conduct defining prohibited behaviours, as well as adequate training programmes for employees exposed to risks, an internal whistleblowing system for reporting misconduct, and a disciplinary system to sanction violations.

In-scope companies shall also identify, map and prioritise corruption risks and implement a third-party evaluation procedure in order to assess clients, first-tier suppliers and intermediaries with regard to the risk mapping. They must also implement internal accounting controls to detect and prevent corruption.

Overall, companies must implement an internal monitoring system to evaluate the programme’s effectiveness.

Whistleblower protection

Articles 6 to 16 of the Sapin II law (modified in 2022 to strengthen their protection) allow whistleblowers to “report or disclose, without direct financial consideration and in good faith, information concerning a crime, an offence, a threat or harm to the general interest, a violation or an attempt to conceal a violation of an international commitment duly ratified or approved by France, of a unilateral act of an international organisation taken on the basis of such a commitment, of European Union law”. Whistleblowers can use the following channels (without being obligated to use one instead of the others): companies’ internal whistleblowing systems or judiciary official; or other competent public authorities.

Companies employing at least 50 employees are required to design and implement internal reporting channels which guarantee the whistleblowers’ rights (if no system exists, employees can report directly to their direct or indirect hierarchical superior, the employer or a designated referent). 

The French Commercial Code expressly specifies that a violation of business secrecy cannot be opposed to a person making use of the above-mentioned whistleblowing right. 

Diversity in governing bodies

Under the Coppé-Zimmermann law (recently strengthened by the Women on Boards EU Directive), the proportion of directors of each gender may not be less than 40% in large French companies (and all listed companies).

The Rixain Act, adopted in 2021, mandates French companies with at least 1,000 employees to promote gender diversity by:

• annually disclosing gender representation gaps among: (i) senior managers (cadres dirigeants); and (ii) members of governing bodies (instances dirigeantes) — from 1 March 2026, these disclosures will be made available on a public database by the Ministry of Labour; and
• ensuring a minimum of 30% gender representation in senior management and governing bodies by 1 March 2026, increasing to 40% by 1 March 2029.

Starting 1 March 2026, non-compliant companies must negotiate corrective measures for gender equality. By 1 March 2029, if companies still fail to meet the quotas, they must comply within two years or face a financial penalty of up to 1% of their total payroll.

The Gender Equality Index complements these efforts to ensure workplace equality. Applicable to French companies with at least 50 employees, the index assigns an annual score out of 100 based on key metrics, such as pay equity, equal opportunities for promotions and raises, and guaranteed salary raises after maternity leave. Companies must achieve a minimum score of 75/100 within three years, or face fines of up to 1% of their turnover. Starting March 2026, results from the index will align with broader transparency requirements, as part of France’s comprehensive framework to promote gender equality in corporate leadership and governance.

Environmental criminal law

The French Environmental Code (Code de l’Environnement) outlines specific criminal offences related to environmental harm: 

• polluting environments with serious, lasting harmful effects on health, flora and fauna, or altering the water supply (doing so intentionally exposes to more severe penalties);
• abandoning waste or not disposing of it per regulations, causing significant harm to flora, fauna, or air, soil, or water quality; and
• exposing the environment to the risk of lasting degradation.

The general manager of the company (chef d’entreprise) may be criminally liable when they personally commit offences in the performance of their duties, and they also may be found liable for offences committed by employees in connection with the operation of the business.

We count more than 20 cases of non-governmental organisations (NGOs) requests on the grounds of the Loi Vigilance. At least eight were brought up before courts and are still pending:

• In 2021, 2022, and 2023, the initial rulings on the duty of vigilance dismissed the plaintiffs’ claims on procedural grounds. In June 2024, the Paris Court of Appeal overturned these decisions, favouring a literal interpretation of the law. The Court has yet to decide on the substance of these cases.
• In December 2023, the Paris Judicial Court clarified the requirements regarding the adoption and the content of the Vigilance Plan:
  • the risk mapping is said to be the cornerstone of the Vigilance Plan;
  • the measures in the Vigilance Plan must be specific enough to be effective in preventing the most serious risks and limiting the impact of other identified risks; and
  • the lack of consultation of representative trade unions (or the lack of proof that such consultation was held) in the process of drawing up the Plan is a breach in itself. 

The Court also specified that it does not have the power to order specific due diligence measures but has the power to order the company to draw up or modify safeguarding measures to address an identified risk.

Soft non-binding laws

Different regulatory frameworks in force in France directly refer to soft law instruments:

• An activity can only be deemed environmentally sustainable under the EU Taxonomy if it is carried out in compliance with the minimum safeguards laid down in (i) the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises; (ii) the UN Guiding Principles on Business and Human Rights; (iii) the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work; and (iv) the International Bill of Human Rights.
• The SFDR and the CSRD frameworks require in-scope entities to disclose in which way they align with above-mentioned instruments.
• The CSRD refers to the GHG Protocol and the ISO 14064 norm regarding GHG emissions.

Other soft law instruments can be outlined:

• The regulators, namely the European Securities Market Authority (ESMA) and the Autorités des Marchés Financiers (AMF), publish soft law instruments directed to issuers (whether listed companies or investment products providers) designed to limit the risk of greenwashing:
  • the Position recommendation DOC-2020-03 of the AMF sets out requirements on how collective investment schemes authorised to be marketed in France may disclose the way they include non-financial criteria in their investment policies, whether it is in their regulatory documents or commercial ones; and
  • the Guidelines on Enforcement of Sustainability Information of ESMA aims at harmonising the national competent authorities’ supervisory approach when implementing the CSRD at a national level, notably to limit greenwashing risks.
• The Afep-Medef Governance Code (governance code most used by the largest listed companies and the MiddleNext Governance Code (governance code used by small to medium listed companies) also recommends companies to implement good sustainability practices.

Stakeholders 

Under French law, companies can voluntarily choose to include a raison d’être in their byelaws. It refers to a company’s overarching purpose beyond their mere economic activities and has been described as a compass guiding the completion of the company’s corporate purpose. Companies can also choose to go further and become sociétés à mission by committing to specific social or environmental objectives and formally integrating them into the company’s governance structure (a mission committee has to be created, an annual mission statement has to be published and audited). 

Some companies voluntarily submit their climate strategy to their Annual General Meeting though a “Say on Climate”.

Public authorities opening public tenders can exclude participating companies on the mere basis that they do not publish a Vigilance Plan (when they are required to). Starting 1 January 2026, public authorities will also be able to exclude participating companies which do not publish a sustainability report when in scope of the CSRD.

Driven by their own regulatory constraints (SFDR, notably), many institutional investors are actively pushing issuers to implement ESG-driven strategies. This can translate into ESG shareholder activism, sometimes led by national (Forum pour l’Investissement Responsable) or international (e.g. Nature Action 100) engagement platforms.

Expectations from the retail investors are also a key incentive for companies to consider ESG practices (in France, six out of 10 people grant a significant role to climate and social matters in their investment decisions: IFOP, 2023).

NGOs particularly advocate for the OECD guidelines and United Nations principles to become binding. The CSRD, CS3D, SFDR and Taxonomy strengthen the links between statutory law and these soft law instruments. 

National Contact Points (NCPs)

An OECD NCP is active in France.

Since its creation in 2000 and up to December 2021, it received 43 specific referrals, 31 of which have been received since 2010. More than half of the complaints are submitted by trade unions and workers whilst almost a third are submitted by French and foreign NGOs. In 2021, out of the 10 referrals handled in the capacity of the leading NCP, 60% were related to the foreign operations of French companies. (Rapport annuel d’activité point de contact national français de l’OCDE, Janvier–Décembre 2021). 

Reporting

To (i) ease the access to sustainability reporting; and (ii) ensure consistency of the overall information published, regulations impose that sustainability information is to be included in a single document (the sustainability report to be published under the CSRD is to be included in a dedicated section of the management report of companies, while the sustainability information to be published under the SFDR has to be included in the contractual documentations of investment products).

Disclosures required under French law are based on a double materiality approach, in accordance with the principles set by the EU legislator. Companies must then report not only on the information that is financially material to them but also on information reflecting their impacts on the environment and society. In cases where the EU requirements are set by regulations, like the SFDR and Taxonomy, they apply directly in French law with this double materiality emphasis. For directives, such as the CSRD, they are transposed into French law, with the French legislator maintaining (so far) a close alignment to the EU’s double materiality framework. For example, the French Commercial Code directly refers to the ESRS, which specifies how companies shall apply a double materiality analysis in their sustainability reports.

On the whole, the general public — and therefore the end users and client for companies — tend to consider that sustainability issues are important when making an investment decision (AMF, Les Français et les placements responsables — OpinionWay pour l’AMF, Juillet 2023) or their general consumption habits (Baromètre Greenflex — ADEME de la consommation responsable 2023).

Hedge funds/asset managers

In 2023, responsible investment products saw a 5.8% growth in assets under management, following a 6.9% rise in 2022, predominantly held by institutional investors (AFG, Panorama des encours de l’investissement responsable (IR) gérés en France en 2023, April 2024). 

Asset managers adopt various strategies to incorporate sustainability goals, such as:

• shareholder engagement policies;
• objectives to reduce adverse portfolio impacts, particularly GHG emissions; 
• divestment or exclusion policies; and 
• fund allocation policies. 

(ACPR et AMF, Quatrième rapport commun: Suivi et évaluation des engagements climatiques des acteurs de la Place, juin 2024).

Banks

The number of ESG commitments, mainly climate related, made by banking actors has surged over the past couple years. The exposure of the banking industry to coal seems to have significantly decreased between 2017 and 2022, whilst its exposure to hydrocarbons increased (ACPR et AMF, Quatrième rapport commun: Suivi et évaluation des engagements climatiques des acteurs de la Place, juin 2024). 

CAC 40 companies (i.e., France’s largest and most actively traded companies listed on Euronext Paris) invest 10.9% of their total CapEx in environmentally sustainable activities under the EU Taxonomy. Alignment varies by sector: real estate has the highest rates, while materials, construction and automotive have lower or zero alignment due to differing business models and activities (AMF, Rapport sur le reporting taxonomie des sociétés non-financières cotées, 2023). 

Since 2019, under the provisions of the French Civil Code and of the Commercial Code referred to in Question 3, above, directors and corporate officers, when fulfilling their terms of office, must take into consideration the social and environmental issues related to the company’s activities. 

As per the AFEP-Medef Code, boards of directors are also expected to set up a multi-year sustainability strategy to be enforced by the executive officers and to overview yearly its implementation. 

In order for boards to carry out this increasingly important kind of mission, investors tend to require that board members demonstrate professional capabilities regarding CSR matters. The Forum pour l’Investissement Responsable submitted written questions to CAC 40 companies ahead of their 2024 AGM, asking them to disclose the CSR expertise and experience of their directors.

We also note that:

• in 2023, 93% of SBF 120 French companies (i.e., the largest listed French companies) had set up a CSR Committee of the Board of Directors (either merely dedicated to CSR or whose missions are combined with other dedicated topics);
• audit committees are getting more involved in the sustainability reporting process, listed companies having mostly entrusted their respective audit committee to oversee the process under the CSRD; 
• in 2023, in 88.7% of SBF 120 French companies the compensation policy for corporate executive officers of all CAC 40 companies (i.e., the 40 largest listed French companies) takes into consideration ESG matters; and 
• while climate is almost always considered, the consideration of other environmental or social matters varies greatly from one company to another as a way of reflecting the ESG challenges they each face. 

ESG rating agencies 

To the best of our knowledge, ESG ratings agencies are currently used:

• By listed companies in their annual management report by way of assessing their own ESG performance. ESG ratings can be used as performance metrics in compensation policies, but this practice has reduced as contestations of the methodology used by ESG ratings arose. The reform of the regulatory framework of the ESG ratings agencies may change the issuers’ use of ESG ratings.
• By institutional investors in their investment decisions, for example, by excluding issuers with too low of a rating. 

ESG benchmarks 

Investment products classified as “Article 9” under SFDR (i.e., having sustainable investment as their objective) are required to designate a “climate benchmark” which incorporates specific objectives related to GHG emission reductions and the transition to a low-carbon economy through the selection and weighting of underlying securities. Under the EU Benchmark Regulation, it can either be certified as an EU Climate Transition Benchmark or as an EU Paris-aligned Benchmark.

To the best of our knowledge, companies mention in their annual management report whether they are included in an ESG index as a way of assessing their ESG performances.

Private companies

Whether private or public and irrespectively from their activities, companies are required to consider environmental and social matters under Article 1833 of the French Civil Code and, if they reach the relevant thresholds, are required to implement a Vigilance Plan (see above, Question 3). If they reach the applicable thresholds, they should also report under the CSRD framework (starting in 2025).

Public companies 

Public companies have been known to be proactive by implementing voluntarily non-compulsory disclosure frameworks (like the Task Force on Climate-related Financial Disclosures (TCFD)). Amid the extensive upheaval in the regulatory disclosure framework brought by the CSRD, we are expecting public companies to start by adjusting to these new requirements.

Institutional investors acting in the public market have adapted their tools, notably by developing their data management processes and turning to ESG data providers (like, but not exclusively, ESG rating agencies).

However, private market participants are faced with difficulties in accessing relevant and reliable data regarding their investees and potential investees. Amid the implementation of the CSRD, these difficulties should be lifted in the near future.

As far as divestment is concerned, many French institutional investors include divestment provisions in their CSR engagement and/or investment policies. However, to the best of our knowledge, these clauses are merely exceptionally used as the last resort of an escalation process, provided that dialogue with investees is favoured.

Government-owned organisations 

As France is an OECD Member State, French stated-owned companies shall apply the OECD Guidelines of Corporate Governance of State-Owned Enterprises.

Additionally, in 2021, the Government Shareholding Agency (Agence des participations de l’État) adopted a “CSR charter” listing its commitments to implementing the 2015 Paris Agreement and supporting public companies wishing to adopt a raison d’être. The main public institutions, such as Caisse des Dépôts and Bpifrance, also developed their own CSR shareholding policy based on the same principles.

Complying with regulatory requirements related to sustainability presents several challenges:

• The regulatory landscape for sustainability is complex and has evolved significantly in recent years, leading to high financial compliance costs.
• Companies face difficulties in accurately disclosing sustainability information across their activities, subsidiaries, business partners, and value chains. Financial institutions may find some relief with the entry into force of the CSRD, but for non-financial companies, the CSRD itself is challenging.
• Ensuring consistency between financial and sustainability-related information can be difficult.
• Companies must manage diverse and sometimes conflicting stakeholder expectations, adding to the complexity of compliance.
• In the meantime, the effectiveness of those regulations in combatting greenwashing is somewhat questioned (on SFDR see Joint ESAs Opinion, On the assessment of the Sustainable Finance Disclosure Regulation, 18 June 2024, §6).

High-profile NGOs and think tanks

With the increasing recognition of the significance of these issues, it is noteworthy that mainstream think tanks are increasingly addressing sustainability matters (e.g. the Haut Comité Juridique de la Place de Paris, the Club des Juristes, or the Institut Montaigne), whilst other think tanks are dedicated to this subject like:

• Terra Nova (focuses on social and environmental policies, providing research and recommendations on sustainable development);
• Institut de la Finance Durable (focusing on sustainable finance, providing research and expertise to promote sustainable investment practices);
• Observatoire de la Finance Durable (research observatory dedicated to sustainable finance); and
• Institut National de l’Économie Circulaire (dedicated to promoting circular economy principles, crucial for sustainable business practices).

The existence of a solid network of NGOs providing research and resources to promote best practices should also be highlighted (e.g. Sherpa, Transparency International France, WWF France).

Private measurement frameworks

Numerous French companies currently use, among others, the TCFD, the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP) frameworks.

However, given the detailed methodologies for metrics calculations included in the CSRD framework, it should be expected that only the ones deemed “interoperable” (or at least compatible) with the ESRS will commonly remain in use.

France, as an EU Member, implements the EU Taxonomy Regulation (EU) 2020/852, establishing a framework to facilitate environmentally sustainable investments. 

We expect companies (and regulators) to take a couple of years to adjust to the CSRD entry in force and therefore that the regulatory disclosure framework will stabilise for a while, although we note that calls were made, both at a country level and at the EU level, for a simplification of the disclosure requirements. Those calls may feed into the anti-ESG push imported on the EU market by overseas investors.

We also expect new developments regarding litigations centred on the corporate Duty of Vigilance (especially since several companies were very recently served a formal notice in this regard).