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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.

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 law, in ARESE's view, marks one of the most important breakthroughs in sustainability reporting to date, in Europe or elsewhere," the release stated. "Companies will now have to disclose on social and environmental issues, including human rights, local impacts and dialogue with stakeholders, thus making it compulsory to clarify the policies and positioning on these matters, and then to build a structured and consolidated reporting system," said ARESE Senior Analyst Jacky Prudhomme.

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economic regulations" law (nouvelles régulations économiques, or NRE), passed last year, completely overhauled France's outdated corporate law structure.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...)"

Governance and Public Policy ArticlesNevertheless, 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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