Answer ... In France, the ESG landscape is ever increasing. As France is a major player in ESG matters, many norms and standards are already being taken into account.
Faced with the growing desire to consider ESG criteria, many proposals are emerging from different actors to make the implementation of ESG within companies more effective. Adopting an ESG point of view while assessing companies’ compliance with existing rules is becoming the norm in a number of fields. While ESG in the financial and corporate sector has flourished in recent years, it is now increasingly influencing the vision of other regulators, such as the competition authorities.
Financial and corporate law field:
‘Say on Climate’ (see question 6.2): The Say on Climate initiative works with companies to establish robust net-zero transition plans with shareholder feedback in an annual advisory note. Although France is aligning itself with the practice of the Say on Climate, a report from the Legal High Committee for Financial Markets of Paris (HCJP) notes that there is no official framework for this practice. It has recommended that the Association Française des Entreprises Privées/ Mouvement des Entreprises de France or France Invest develop a framework for Say on Climate practice.
In concrete terms, the HCJP proposes to modify Paragraph 2 of Article L225-105 of the Commercial Code to allow shareholders of a public limited company to challenge more effectively a refusal of the board of directors to include resolutions on the agenda, adding: “In the event of a challenge to the refusal to register these items or draft resolutions, the competent commercial court shall rule in accordance with the accelerated procedure on the merits and without any possible appeal.”
The purpose of this amendment is to offer efficient and rapid tools to shareholders wishing to propose internal resolutions favouring, for example, the environment. It is recommended that the accelerated procedure on the merits be used to deal with such disputes (provided for in Article 839 of the Code of Civil Procedure).
Further, the Sustainable Investment Forum (FIR) – a multi-stakeholder association created in 2001 whose corporate purpose is to promote and develop responsible investment and best practices – recommends the clarification of the prerogatives of companies and the rights of shareholders in order to define clear boundaries between what is within the competence of the board of directors and what is not.
In a pragmatic way, the main purpose of the recommendations is to simplify the procedure for filing external resolutions.
The FIR recommends, for instance:
- giving a coalition of 100 shareholders the possibility to file a resolution of an environmental and social nature, as well as updating Article R225-71 of the Commercial Code by dividing the required capital threshold by two;
- extending the period during which it is authorised to file a resolution; and
- dematerialising the process of filing resolutions.
If a company refuses to include the external resolution on the agenda of its general meeting, the FIR recommends explicitly entrusting the arbitration of admissibility to the Financial Market Authority, as its intervention would be quicker and more efficient.
In conclusion, Say on Climate practice appears to be becoming democratised and automated within companies. The two reports of the HCJP and the FIR confirm this trend and the possibility of legislative change in this area.
Corporate Sustainability Reporting Directive (CSRD): The CSRD is about to be adopted by the European Commission. This directive will replace the old Non-Financial Reporting Directive (NFRD), which was structurally lacking in terms of ESG criteria.
The CSRD aims to ensure that companies publicly disclose adequate information about the risks, opportunities and impacts of their activities on people and the environment.
This new directive will provide more detailed reporting requirements and ensure that large companies and listed small and medium-sized enterprises (SMEs) are required to report on sustainability matters such as environmental rights, social rights, human rights and governance factors.
The CSRD will apply to large companies and all companies listed on regulated markets, except listed micro undertakings, which are also responsible for assessing the information applicable to their subsidiaries. It will also apply to listed SMEs which, while taking into account their specific characteristics:
- have a balance sheet of €20 million;
- have a turnover of €40 million; or
- have at least 250 employees.
The directive will be implemented in three stages:
- From 1 January 2024, it will apply to all companies already subject to the NFRD;
- From 1 January 2025, it will apply to large companies that are not currently subject to the NFRD; and
- From 1 January 2026, it will apply to listed SMEs, small non-complex credit institutions and captive insurance companies.
Regarding the Sustainable Financial Disclosure Regulation, the European Commission has launched a comprehensive evaluation of this regulation on sustainability reporting in the financial services sector. The last year has seen a great deal of legal discourse on the interpretation of this regulation regarding the declassification of Article 9 funds into Article 8 funds.
Furthermore, the French financial sector will have to fully apply the regime of Article 29 of the Energy Climate Law, which requires reporting on climate and biodiversity, as well as a description of the action plan adopted.
Finally, the French Ministry of Finance will review the SRI label (see question 3.2) in 2023. The current SRI standard is being debated because activists have noted that SRI investments do not always meet ESG criteria (some funds contain stocks of companies involved in sectors such as fossil fuels and arms).
This revision will take into account, for example:
- the use of the ‘carbon trajectory’, which will become an indicator that funds will have to display in the future;
- the addition of environmental criteria such as exclusion criteria for non-conventional fossil fuels and coal;
- the creation of mandatory indicators to measure the real impact of portfolios on ESG issues; and
- the submission of a concrete action plan by candidates for the label on how they will reduce their greenhouse gas emissions.
The competition law field:
The EU Block Exemption Regulations and Guidelines: Sustainability issues will be taken into account in the revised Block Exemption Regulations and Guidelines. These regulations aim at interpreting Article 101(3) of the Treaty on the Functioning of the European Union, specifying the conditions under which an exemption from the application of competition rules can be granted. These regulations are of immediate effect in French law and the national authorities are bound to enforce them:
- In June 2022, following the adoption of its revised Vertical Block Exemption Regulation, the European Commission published the associated guidelines, in which it indicates that it takes sustainable development into account while assessing the compliance of a vertical agreement with the exemption criteria (Paragraphs 8, 114 and 316).
- Additionally, the commission is revising its Horizontal Block Exemption Regulations and Guidelines. The draft guidelines, submitted to public consultation in March 2022, include a new chapter on the assessment of horizontal agreements pursuing sustainability objectives (Chapter 9). Particular attention is given to agreements that set sustainability standards, as these are expected to be the most common form of cooperation for pursing sustainability objectives.
In line with the adoption of these new rules, one could expect in the near future the development of cooperation agreements between private undertakings. Such agreements could, for example, include:
- the launch of particularly innovative and sustainable products, requiring massive upfront investments; or
- the implementation of high environmental standards within an industry, going beyond what is required by the legal binding framework.
If, despite the self-assessment framework provided by EU rules, companies are not confident that their planned ESG-related cooperation agreement complies with competition rules, they can request a guidance letter from the commission. In order to be processed by the commission:
- this request must deal with novel or unresolved questions; and
- the commission should have an interest in providing guidance.
The informal guidance rules were recently revised and the current framework is set out in the Commission Notice released on 3 October 2022.
French competition law trends regarding sustainability issues: At the national level, the French Competition Authority (FCA) has repeatedly expressed its commitment to sustainable development and considers this objective as one of its priorities. Since 2019, the FCA has reinforced its skills and workforce on sustainable development with the creation of an internal dedicated network; a special adviser to the general rapporteur acting as head of this network was appointed in September 2022.
In its Roadmap for 2023-2024, the FCA has outlined its approach: it will focus on sanctioning the most harmful behaviours in this area, as well as supporting companies wishing to set up the cooperation necessary to make the ecological transition a success. In line with the expected Horizontal Guidelines of the European Commission, the FCA may also consider publishing its own guidance on this matter, and it has already invited companies and professional organisations to engage in informal dialogue with it on their projects.
Competitive aspects of the transition will be explored; and the FCA will not hesitate to use its capacity to conduct self-investigations and self-referral in advisory matters.
Thus, even more antitrust and merger cases related to sustainable development are expected to arise, and we will perhaps see the creation of a specific antitrust unit within the FCA to handle these issues.