Even before it was considered by the European Union, the French legislator incorporatedan obligation of Due Diligence for parent companies (once considered to be only “soft law”) into positive law. Such an obligation will soon be part of the European legislative framework, since it is currently the subject of a Proposed for a Directive, which can be consulted on the following website: https://bit.ly/3uqJU7q.

But what is exactly contained in the FrenchDue Diligence Law (n°2017-399 of March 27, 2017), and to which companies does it apply? 

First of all, Due Diligence only applies to companies headquartered in France and above thresholds, which are as follows: at least 5,000 employees in the parent company and its French subsidiaries, or at least 10,000 employees in the parent company and its French or foreign subsidiaries.

Secondly, Article L225-102-4 of the French Commercial Code requires these parent companies to establish a Due Diligence action plan that includes measures to identify risks and prevent serious violations of human rights, fundamental freedoms, the health and safety of individuals, both for their own activities and for those of the subsidiaries they control. The Due Diligence action plan, which is publicly available, must contain a risk mapping, assessment procedures of the situation of subsidiaries, subcontractors or suppliers, an alert mechanismto collect reports on the existence of the risks, a system to monitor the measures implemented, etc.

If the company fails to comply with the above-mentioned obligations, the French law sets two proceedings: a preventive one (provided for in Article L225-102-4) and another one for liability (Article L225-102-5 of the same Code). On the one hand, thanks to Article L225-102-4 of the French Commercial Code, any person having an interest in bringing proceedings may give the company formal notice to comply with its obligations. If the formal notice isstill unsuccessful three months later, the company may be ordered (subject to a penalty) to comply with its legal obligations by the competent court. On the other hand, Article L225-102-5 of the same Code ensures that companies are held liable (pursuant toArticle 1240 of the French Civil Code), for the damages caused as a result of the failure to comply with their obligations. Finally, it should be mentioned that the civil fine initially provided for against defaulting companies was declared unconstitutional by the French Constitutional Council, owing to a lack of precision in the definition of the obligations. 

The enactment of these provisions was recently sought in the context of the BNP Paribas case, which was put on notice in October 2022 by several NGOs. These NGOs accused the company of omitting its due diligence for the environment in financing actors which – according to the complainants – contribute to deforestation in the Amazon. The new version of Article L225-102-4 of the French Commercial Code (which will enter into force in January 2024) requires “companies producing or marketing products derived from agriculture or forestry” to include in their due diligence action plan measures “to identify risks and prevent deforestation”. Further insights on this new piece of legislation may come from the outcome of the complaint filed against the French company TotalEnergieswith respects to its EACOP oil pipeline project in Tanzania, which will be heard in December 2022.

On the European side, the Proposal for a Directive on Corporate Sustainability Due Diligence, presented in February 2022, includes largely the same obligations: integration of Due Diligence into companies’ policies (Article 5 of the Proposal) as well as its public communication (Article 11), identification of actualor potential adverse impacts (Article 6), prevention and mitigation of the latter (Article 7 and 8) and the establishment of a complaints procedure (Article 9) that may be submitted not only by persons who are actually or potentially affected but also by trade unions or civil society organizations. Similarly, following the example of French law, Article 22 of the Proposal provides for the civil liability of defaulting companies. Furthermore, Article 20 encourages Member States to introduce effective, proportionate and dissuasive sanctions, as well as pecuniary sanctions based on turnover. Again, for transparency reasons, decisions of the national supervisory authorities containingsanctionsmust be published.

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Marco Amorese

Jeanne Deniau