Under the new law on Business Growth and Transformation (the so-called “PACTE Law”), the management of French companies must take into consideration social and environmental issues. Companies are also encouraged to incorporate social objectives into their corporate purpose. This blog looks at the new law and what it means for businesses.

On 11 April 2019, the members of the National Assembly of the French Parliament adopted the PACTE Law. After a decision from the French Constitutional Council on 16 April 2019, the PACTE Law was eventually enacted and then published on 23 May 2019.

The PACTE Law contains multiple provisions, some of which are of particular interest for those who follow business and human rights developments. Indeed, the PACTE Law provides (i) for “social and environmental issues” to be taken into account in French companies’ management alongside the corporate interests and (ii) for the possibility of enshrining the company’s “purpose” (raison d’être) in the corporate bylaws.

The PACTE Bill was the result of a two-phase consultation process – one phase conducted by six working groups made up of members of the French Parliament and business managers, and the other opened to all citizens and stakeholders. The Bill also took into account the recommendations of the report “Businesses, object of collective interests”, published on 1 March 2018 by Jean-Dominique Sénard (CEO of Michelin at the time) and Nicole Notat (CEO of Vigeo Eiris and former leader of one of the major French unions), with the objective to “think over the place of corporations in society“.

More precisely, Article 169 of the PACTE Law introduces the following amendments into French law:

• Article 1833 of the French Civil Code now has a second paragraph stating that corporations must be managed in their own “corporate interests” by taking into consideration the “social and environmental issues” related to their operations;
• Article 1835 of the French Civil Code has been amended to allow corporations to specify in their bylaws a “purpose” for the corporate operations; this means that companies are encouraged to incorporate social objectives to their corporate purpose as part of their bylaws;
• Articles L. 225-35 and L. 225-64 of the French Commercial Code have been adjusted so that corporate and management boards take into consideration “social and environmental issues” as part of their respective managerial assignments.

In short, if the PACTE Law will not directly change the nature and objectives of corporations, it explicitly intends to give them the possibility to go beyond the objective of being profitable.

There is no specific sanction for failing to take into account “social and environmental issues“. Nevertheless, in principle and provided that certain conditions are met, it could give rise to civil liability for the company and even individual liability for its managers, although this seems rather theoretical at this stage.

These new provisions also need to be read into the broader context of the French landscape, including the French law on the duty of vigilance of 23 March 2017. As a reminder, under this law, large French parent companies may incur civil liability In case of non-compliance with the obligation to publish a vigilance plan and to report on its effective implementation. The PACTE Law can definitely be seen as an opportunity for French corporations to stay ahead the curve by continuing developing and fine-tuning existing human rights due diligence processes, which in turn can only mitigate liability risks.

[View source.]