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Opinion

Paving the Way: The Pioneering Role of the French Duty of Vigilance Law and its Relevance for EU-Level Mandatory Due Diligence

Odile Roussel reflects on lessons learnt from the French experience, among others that creating a legal obligation can prove more effective than incentives or voluntary measures, while reinforcing those companies already engaged in efforts to conduct business responsibly.

Considering responsible business conduct (RBC) an economic, social and environmental issue of global governance, stemming from the impact of business activities on the environment and on societies, France initiated a pioneer RBC policy in this area, building on activities to promote corporate social responsibility from the early 2000s onwards.

1. The pioneering role of the French Duty of Vigilance Law and lessons learnt

France has adopted a 'smart-mix' policy, combining both voluntary measures (such as the status of 'company with a mission' under the French Action Plan for Business Growth and Transformation (PACTE) Law) and mandatory measures. In particular, the adoption in 2017 of the Duty of Vigilance Law covering parent companies and affiliated entities, and in 2019 of the PACTE Law which states inter alia that the management of companies shall take into account social and environmental challenges. These two measures, which build on a robust set of tools (National Action Plan on Business and Human Rights, OECD National Contact Point, etc.) represented a major breakthrough which initiated a shift from 'soft' CSR to hard law.

The Duty of Vigilance Law establishes a general and binding duty of vigilance, aimed at preventing serious infringements of, or harm to human rights and fundamental freedoms, personal health and safety and the environment arising from the activities of a company and those subcontractors or suppliers it maintains an established business relationship with. It covers all sectors, for companies that meet certain thresholds, measured by number of employees (at least 5,000 in France or 10,000 worldwide). Every fiscal-year, the company must elaborate a vigilance plan which should identify the risks created by and the adverse impacts of the activities of the company, its subsidiaries and its subcontractors and suppliers, the due diligence measures taken by the company to mitigate risks and prevent serious infringements or harm, as well as a system to monitor the measures implemented and assess their effectiveness. The law also provides for access to remedy, through a process of formal notice by stakeholders (‘any person with a legitimate interest’) and legal action before a court with jurisdiction over the potential absence or inadequacy of the vigilance plan, and a civil liability responsibility regime with legal action before the court with jurisdiction.

Due to the globalisation and complexity of supply chains, the law has an extra-territorial dimension and indirectly affects companies below the threshold, via the supply chain due diligence of those companies above the threshold.

It is still a little early to take stock of the impact of the law. An assessment report on its implementation, published at the beginning of this year, states in particular: ‘the strengths of the law are reflected notably in the higher governance of the Duty of Vigilance, (..), but also in efforts to use relevant standards (those of the ILO, OECD and UN), adapt existing tools or create new ones for its application’ (p. 7). ‘It reinforces principles from the “soft law” rules which everyone can agree to, giving them the “force of law” in France and, by extension, in all the countries where the subsidiaries and subcontractors of the largest groups are located’ (p. 8).

The weaknesses of the law lie in a perimeter that is difficult to verify:

"[T]he still vague and unevenly shared understanding of the Duty of Vigilance, its insufficient readability and visibility [in terms of the vigilance plan] in the already dense Management Report, the relevant level of detail, an alert mechanism that is still being explored, and a dialogue to be strengthened with trade unions and even more so with NGOs. (...) In the interests of a level playing field, it would be desirable to extend the Duty of Vigilance to a European level"
Evaluation de la mise en oeuvre de la loi n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre, p. 8

With regard to access to remedy, seven formal notices have been sent to companies and three cases are subject to legal action, still under investigation. Some improvements in the vigilance plans of companies have been noted in 2019: more companies have gone beyond formal compliance with the law and worked to improve their internal processes on risk identification and due diligence measures, broadening consultation with stakeholders. There is however still room for improvement, particularly in consultation and transparency. It should be recalled that the law itself, which is very brief, does not provide a template or specifications for the development of the vigilance plan.

One lesson can be drawn from this experience: an obligation can be more effective than incentives or voluntary measures, particularly with regard to companies that have not integrated RBC into the heart of their strategy, as there is greater reputational and legal risk, even though the threat of a legal sanction remains potential. Such an obligation also reinforces companies already engaged in a business and human rights approach and leads them to promote and strengthen their business and human rights strategy. It also encourages them to participate in collective initiatives (EpE, ICS, Fashion Pact, Global Deal, etc.) An EU binding legislation on due diligence would bring similar benefits and provide a level playing field within the internal market.

An EU binding legislation on due diligence would bring similar benefits and provide a level playing field within the internal market.

2. France is supportive of a European RBC action plan, including mandatory legislation on due diligence

France has been committed to the adoption of the European directive on non-financial reporting, the inclusion of social, environmental and governance standards in trade agreements as well as more active participation by the EU in the discussion process on a legally binding instrument on business and human rights at the UN.

In addition, France supports the development of a “smart-mix” policy at the EU level, which would apply uniformly to European companies and would be consistent with international commitments and standards. It supports in particular the adoption of a legally binding and cross-sectoral legislation on due diligence, as a part of a broader and ambitious RBC strategy for the EU.

The mobilisation of economic actors, first and foremost companies, must be at the heart of this strategy and RBC should be one of the cornerstones of the post-COVID-19 recovery strategy, in conjunction with the Green Deal agenda. The health crisis caused by COVID-19 has highlighted the weaknesses of our supply chains, Europe’s dependence on third countries for essential products and the insufficient resilience of our economies. This makes the development of a sustainable, inclusive and resilient economic model even more essential, where RBC, including due diligence, is a key element.

In conjunction with other elements of a broader RBC strategy, such as corporate governance and non-financial reporting, an EU legislation on due diligence should address the following issues:

  • The nature of obligation for companies (reporting obligations, development of due diligence plans and risk mapping, preventive/corrective measures);
  • The scope, both in terms of businesses (general and sector-specific thresholds) and impacts/risks covered;
  • The “remedy piece”, i.e. the legal liability regime and the “sanctions” to be put in place;
  • The enforcement mechanisms.

France looks forward to the proposal by the Commission in 2021 and will actively contribute to the preparation of this future legislation, drawing in particular on its experience in implementing its national law.

Photo by Ministère de l'Èurope et des Affaires Étrangères

Perspectives from Business, Public Sector, Academia and Civil Society

This post is an excerpt from our collation of perspectives on Mandatory Due Diligence ahead of the German EU Council presidency. Click through below to read all of the contributions from around the globe.