Corporate Social Responsibility: French and European Approaches

1. 2015-2016 LCCGE Monthly Seminar series BirbkbekUniversity of London - May 27th 2016CORPORATE SOCIAL RESPONSIBILITY : AT THE CROSSROADS OF FRENCH AND EUROPEAN APPROACHESCatherine MaleckiAssociate Professor – Paris-Sud University - France

2. The american corporate governance Debate : an old one ? • Shareholder Primacy against stakeholder Model: Levitt (1958), Friedman (1970), Goodpaster (1983) • John Elkington : « Cannibals with Forks: The Triple Bottom Line of 21st Century Business » 1997 Is it progress if a cannibal uses a fork?”. • Elkington believes, yes. The “cannibals” referred to are the business firms in our rapidly evolving capitalist economies, where it is the natural order of things for corporations to devour their com- petitors. • The “fork” that the cannibals can use to progress into a new stage of civilization is the concept of sustainable business, and that is what the book is all about. Everyone will profit if the cannibals will adopt the fork: business itself, its shareholders, the stakeholders, society and the environment. “Sustainable business” is the new managerial paradigm that Elkington presents for the next century. The concept is not new, but has mostly been limited to environmental sus- tainable. Cannibals With Forks sets out to enlarge the concept, thus presenting a broad picture of what a social responsibility agenda for business should entail. Business is sustainable when it lives up to the “triple bottom line” of economic prosperity, environmental quality and social justice.

3. The international Legal Framework • The Aahrus Convention (25 June 1998) on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters • It entered into force on 30 October 2001 and it had been signed by 40 countries and the UE and ratified by 41 countries and has begun applying Aarhus-type principlles in its legislation, for example the Water Framework Directive (2000/60/EC) • It grants the public rights regarding accesse ton information, public participation and access to justice, in governmental decision-making processes on matters concerning the local, national and transboundary environment. • It focuses on interactions between the public and public authorities. • . – Global Compact, Socially Responsible Principles, OCDE Guidelines for international Enterprises, Equator Principles • . – Private financial organizations : Green Bonds Principles, Carbon Tracker Initiative

4. Definition of CSR : social corporate responsibility • There are many definitions for CSR : European definition (voluntary commitments) Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large • The European Commission : A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. • American definition • Traditionally in the United States, CSR has been defined much more in terms of a philanphropic model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. • There is no 'one size fits all'

5. The French and european approach :Environment Law and Business Law French environmental Law : • Law 10 th July 1976 • Environmental Charter 2005 : 10 articles UE : Conv. EDH: • The word environment does not appear in the European Convention of Human Rights. • The European Convention on Human Rights *3 provides us with several human rights — the right to respect for private and family life, the right to peaceful enjoyment of possessions (article 1 of the First Protocol), and the right to life *4 — which can be connected with the quality of our environment. In addition to these main articles, connections between protection of the environment and human rights can be found also in article 10 of the convention, which asserts the right to access and to spread information. • The precautionary principle and the fundamental right to a clean environment can be considered the two ‘rising stars’ of contemporary environmental law.)

6. CSR and French Company Law • Law Grenelle I (August 3, 2009) : Article 53, "the quality of the information on how companies take into account the social and environmental consequences of their business activity and the access to this information are essential conditions of good corporate governance.” • Law Grenelle II (July 12, 2010) : Article 225 which amends Article L. 225-102-1 C. Com. The annual reports must mention “the "information on how the company takes into account the social and environmental consequences of its business activity”

7. Different models of corporate governance • Continental Europe • This system requires a two-tiered Board of Directors as a means of improving corporate governance.[20] In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions • United States, United KingdomThe so-called "Anglo-American model" of corporate governance • This system emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is also known as "the unitary system"[23]).[24] Within this system, many boards include some executives from the company (who are ex officio members of the board). Non-executive directors are expected to outnumber executive directors and hold key posts, including audit and compensation committees

8. Specific Topics : How CSR could lead to better corporate governance ? • 1) Accountability: role and responsibility of the board • 2) Integrity and ethicalbehavior: Integrityshouldbe a fundamentalrequirement in choosingcorporateofficers and boardmembers. Organizationsshoulddevelop a code of conduct for theirdirectors and executivesthatpromotesethical and responsibledecisionmaking • 3) StakeholderTheory • 4) Disclosure and Transparency: extra financial information, Global Reporting Initiative • 5) CorporateReputation • 6) SRI (Social ResponsibleInvestment) EthicalFunds

9. Climate change : new urgencies • The Kyoto Protocol : 2002 • Earth Summits from Stokholm (1972) to The World Summit on Sustainable Development, WSSD or Earth Summit 2002), Johannesburg • The United Nations Conference on Sustainable Development (UNCSD), Rio 2012, Rio+20, or “Earth Summit 2012” was the third international conference on sustainable development • Doha Climate change conference • European impetus : Combating climate change within and outside the EU • The European Commission today published its annual report on the European Union's progress towards meeting its Kyoto Protocol target for reducing greenhouse gas emissions. • The European Environment Agency (EEA) published its latest analysis of greenhouse gas trends in the EU : « While our economy grew 48 per cent since 1990, emissions are down 18%. » • - greenhouse gaz emissions and target, ozone layer • Global temperatures have risen by some 0.75º C over the past 100 years.

10. The european Roadmap : a long story from 2001 to 2014 • The 18th July 2001 Recommandation : CSR very soft law • - The UE strategy 2011-2014 : A nenewed EU strategy for CSR adopted on 25th October 2011 - The UE communication on 25th October 2011 a new definition of CSR « the responsibility of entreprises for their effects on Society » - The two resolution 6th February 2013 • - CSR : accountable, transparent and responsible behaviour and sustainable growth • - CSR : promoting society’s interest and a route to sustainable and inclusive recover The main question : from soft law to hard soft law (smart law ?)

11. The EU impetus : towards 2050 . - Communication from the commission to the europeanparliament, the council, the europeaneconomic and socialcommittee and the committee of the regionsa renewed eu strategy 2011-14 for corporate social responsibility . - The Directive 2014/34/EU : a very important stepand a new approach (CSR and corporategovernancecouldno more beseparated). . - The Climate Change and new urgencies (water, Carbon Gaz) 2050

12. 1) Accountability CorporateBoards (the heart of corporategovernance) : the French and Europeanapproach

13. French Legal framework : more responsible Boards ? • The board are directly accountable to the shareholders and each year the company will hold an annual general meeting (AGM) at which the directors must provide a report to shareholders on the performance of the company, what its future plans and strategies are and also submit themselves for re-election to the board.The objects of the company are defined in the Memorandum of Association and regulations are laid out in the Articles of Association. • The board of directors' key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics. • Jurisprudence : Credit Martiniquais, Cass. com. March 30th, 2010: earthquake ! • Being a member of a corporate board makes jointly and collectively responsible for the faulty decisions of the Board of Directors. Directors are therefore subject to a real presumption

14. Accountability : the French approachThe board : the heart of corporate governance The Roles and Responsibilities of Company Boards and Directors The company board of directors is charged with the responsibility of maintaining good corporate governance. There are important policy and performance elements to these responsibilities. The board of directors is the guardian of fairness, transparency and accountability in all of the major financial and business dealings of the company, defending the interests of investors and wider stakeholders. To fulfil this responsibility directorial boards are required to remain active, informed and competent in the supervision of the company. The French Corporate governance Code of Listed Corporations : the Afep/Medef Code (revised in June 2013 and november 2015) Principle 2.1.4.  The Board should ensure that the investors receive relevant information, which is balanced and enlightens them about the strategy, development model and long-term strategies of the corporation.

15. Prevention of conflict of interest : does it work ? The Afep/Medef Code • Definition of Independent Board of Directors in the Afep/Medef Code • Principle 9.1.  A director is independent when he or she has no relationship of any kind whatsoever with the corporation, its group or the management of either that may colour his or her judgment. Accordingly, an independent director is understood to be not only a non- executive director, i.e. one not performing management duties in the corporation or the group, but also one devoid of any particular bonds of interest (significant shareholder, employee, other) with them ». • The Independent Board Director Position The Independent Board Director is an advisor to the CEO who provides active oversight of the company's business to minimize corporate risk and promote the creation of shareholder value. The Independent Board Director job serves as a fiduciary: the Director is an active monitor of management. A successful Independent Board Director will challenge its operations, business model, strategies, underlying assumptions, operating performance and leadership development to achieve a sustainable competitive advantage. Typically, Directors are subject to an annual election; must attend 6-8 Board meetings a year; and participate in key committees, such as audit and compensation, which meet an additional 6-9 times per year.

16. Membership of the board of directors : guiding principlesAfep/Medef Code • Principle : 6.1. The first quality of a Board of Directors is the balance of its membership, together with • The « ethics » skills of its members but nothing about CSR’s topics ! • All directors should have the following essential qualities: •   He or she should care about the corporate interest; •   He or she should have the ability to judge, in particular, situations, strategies and • people, notably based on its experience; •   He or she should have the capacity to anticipate, enabling the identification of risks and the strategic issues; •   He or she should be honest, attend regularly, be active and involved.

17. The Afep/Medef code : what about the women ? • Principle 6.3.  Each Board should consider what would be the desirable balance within its membership and within that of the committees of Board members which it has established, in particular as regards the representation of men and women, nationalities and the diversity of skills, and take appropriate action to assure the shareholders and the market that its duties will be performed with the necessary independence and objectivity. It should publish in the reference document the objectives, methods and results of its policy in these matters. • Principle 6.4.  With regard to the representation of men and women, the objective is that each Board shall reach and maintain a percentage of at least 20% of women within a period of three years and at least 40% of women within a period of six years from the shareholders' meeting of 20103 or from the date of the listing of the company’s shares on a regulated market, whichever is latter.

18. 2) Transparency The non financialinformation : for bettercorporategovernance ?

19. The growing power of non-financial reports : a CSR strong stream • Aim : • A sustainability report enables companies and organizations to report sustainability information in a way that is similar to financial reporting.  Systematic sustainability reporting gives comparable data, with agreed disclosures and metrics.  • Consequences : • Firms have elevated sustainable development to a priority goal. One example: Air Liquide in France, in April of this year, announced that it was dedicated to sustainable development in three ways: limiting CO2 emissions, boosting human resource diversity and placing sustainable development at the heart of R&D.

20. The role of IIRC (International Integrated Reporting Council) The Breakthrough Phase (2014-2017) • Lack of sustainable business model for the IIRC, leading to a funding gap beyond 2014 • lack of investor buy-in for <IR>, leading to drop-off, or stalling interest, in the uptake in <IR> • lack of credibility of integrated reports, undermining the <IR> brand • insufficient evidence base in support of the IIRC’s assertions about <IR> • failure to keep the International <IR> Framework and related technical outputs up to date leads to loss of relevance • <IR> is viewed, particularly by the business community in some jurisdictions, as an exampleof ‘disclosure overload’, which adds to reporting requirements, complexity and compliance costs.

21. Different kind of non financialinformation FoundationsEcological modernization Environmentalism Human impact on the environment Planetary boundaries Stewardship Sustainable development • Consumption Anthropization Anti-consumerism Ecological footprint Ethical consumerism Over-consumption Simple living Sustainability advertising Sustainability brand Sustainability marketing myopia Sustainable consumption Systemic change resistance Tragedy of the commons • Population Birth control Family planning Human population control Overpopulation Zero population growth • TechnologyAppropriate technology Environmental technology Sustainable technology • Biodiversity Biosecurity Biosphere Conservation biology Deep ecology Endangered species Holocene extinction Invasive species • EnergyCarbon footprint Carbon neutral fuel Climate change mitigation Efficient energy use Emissions trading Energy conservation Energy descent Peak oil Renewable energy • Food Food security Forest gardening Local food Permaculture Sustainable agriculture Sustainable fishery Urban horticulture • Water Water conservation Water crisis Water efficiency Water footprint

22. Societal Corporate Governance and Extra-Financial Information: The French example • The NRE law (15 May 2002) • Law "Grenelle I" ( August 1, 2003) and "Grenelle II" Acts (July 12, 2010) • “good non financial information leads to better corporate governance) • Paris Europlace issued recommendations concerning SRI at an earlier stage (May 14th, 2008) • The AMF (French Authority Market) and the AEMF (European Financial Markets Authority) • The “Segolene Royal” Law (17th August 2015)

23. The UE impetus • European Communication of 25 October 2011In October 2011 the European Commission published a new policy on corporate social responsibility. • It states that to fully meet their social responsibility, enterprises "should have in place a process to integrate social, environmental, ethical and human rights concerns into their business operations and core strategy in close collaboration with their stakeholders".

24. The UE impetus : communication and resolution for climate and energy policiesThe Commission’s Roadmap for moving to a competitive low carbon energy in 2050 • . - Commission Green Paper entitled ‘A 2030 framework for climate and energy policies’ (COM(2013)0169) • Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions (22th January 2014) • A policy framework for climate and energy in the period from 2020 to 2030 • The Commission proposes to set a greenhouse gas emission reduction target for domestic EU emissions of 40% in 2030 relative to emissions in 1990. • Renewable energy must continue to play a fundamental role in the transition towards a more competitive, secure and sustainable energy system. • Unlike in the current framework, the EU target would not be translated into national targets via EU legislation, thus leaving greater flexibility for Member States to meet their greenhouse gas reduction targets in the most cost-effective manner in accordance with their specific circumstances, energy mixes and capacities to produce renewable energy. The Transport White Paper, Agriculture and land use

25. European Parliament resolution of 5 February 2014 on a 2030 framework for climate and energy policies • Keep climate change below 2 °C, the Council reaffirmed in 2011 the EU objective of reducing greenhouse gases by 80-95 % by 2050 • Point 112.  Stresses that setting binding targets for greenhouse gas emissions, renewables and energy efficiency will stimulate early investment in sustainable technologies, thereby creating jobs and growth while giving European industry an international competitive advantage; • Point 130.  Stresses that social dialogue and the participation of workers are fundamental values and tools which underpin and reconcile the promotion of social cohesion, quality employment and job creation, on the one hand, and increased innovation and competitiveness in European economies, on the other;

26. The Directive 2014/34/EU of the European Parliament and of the Council of 22 october 2014 (to be implemented on 6th December 2016 The main objectives Why ? Most of those undertakings operate in more than one Member State ; the European Commission identified the need to rais to a similarly high level across all Member States the transparency of non financial information Enhancing transparency and comparability, promoting global sustainable economy Which Companies are concerned ? Large undertakings which are public-interest entities exceeding on their balance sheet Average number or 500 employees durant the financial year How ? 1- Disclosure non non financial information 2. - Disclosure on diversity policies on boards

27. 1- Disclosure non non financial information • A non-financial statement on corporate governance • Containing informations relating to at least : • 1. - environmental matters • 2. - Social and employee-related matters • 3. - Respect for human rights • 4. - Anti-corruption and bribery matters • Including a description of policies, outcomes and risks • - Information on the due diligence processes (also regarding where relevant and appropriate, its supply and subcontracting chains in order to identify, prevent and mitigate existing an potential adverse impacts.

28. Non financial information : specific matters France and European Commission • Environnemental matters : curent and forseable impacts of the undertaking’s operation on the environment and « as appropriate », • -- on health, safety, use of renewable and/or non-renewable energy matters, green-house gas emission, water use and air pollution. • Social and Employee-related matters : action taken to ensure gender equality, implementation of fundamental conventions of the International Labour Organization… health, safety at work, dialogue whith local communities. • . – Risks : products, services, business relationships, including supply and subcontracting chains.

29. LTECV law (17th August 2015) : climate change introduced in corporate governance framework • The COP 21 Paris December 2015 : a real achievement for fight for Climate Change ? • . – The CEO’special statement on board’s works (included in 2008 when the comply or explain rule was introduced in French listed companies) : has to include « financial risks linked to Climate change and the policies undertaken to decrease them by setting a low carbon strategy in all parts of its activity » • (the Afep/Medef Code : nothing … and is going to simplify by eliminating this statement…. , AMF Study, 16th January 2016) • The non financial report (Decret Law Grenelle II 24 th April 2012 amended as followed) : • This report has to he consequences on the climate change of its activity and the products and their use by the consumers »

30. 2. - Disclosure on diversity policies on boards Diversity : a new concept in corporate governance (very new in French Law) What does it mean ? What kind of Diversity ? Which background (sociological, legal ?) Sex, age, gender, training, culture, language, education, professional skills The european approach : « Diversity of competences and views of the members of corporate board facilitates a good understanding of the business organisation and affairs. It enables : to constructively challenge the management decisions to more innovative ideas to limit similarity of views of members (group think phenomenom)

31. What Diversity means ? on corporate boards • What kind of diversity ? : diversity of competences and views of the members of corporate boards • - facilitates a good understanding of the business organisation and affaires of the undertaking concerned. • - is more open to innovative ideas, addressing the similarity of views of members (the «group-think » phenomenon • - it contributes to effective oversight of the management and sucesful governance. • It enhances transarency regarding the diversity policy applied • This would inform the market of corporate governance pratices and put indirect pressure on undertakings to have more diversified boards. • But what kind of diversity ? The general meaning is : all the differences that people bring to an organisation or a group ». • Two dimensions : primary : biological (age, gender, race, disabilities, sexual orientation • Secondary : language, education, culture, learning. It means treating people the way they should be treated • A balance between : similarities (no differences, uniformity) and difference (nothing in common, exclusion) • In the european directive, diversity means : age, gender or educational and professional background

32. Statement about the diversity policy in corporate boards : • Disclose diversity policies with regard to aspects such as : age, gender, educational professional backgrounds • Obligation to disclose diversity policy • Disclosure of the diversity policy should be part of the corporate governance statement : « if no diversity policy is applied there should not be any obligation to put one in place but the corporate governance statement should include a clear explanation as to why this is the case. • The description of the diversity policy : the objectives of that policy, how it has been implemented and the results in the reporting period.

33. If no diversity policy ? Reputation risk The European Directive states : « if no such policy is applied, the statement shall contain an explanation as to why this is the case »: in other words : if no diversity policy is applied ther should not be any obligation to put one in place, but the corporate governance statement should include a clear explanation as to why this is the case. This leads to a singular comply or explain rule and to the name and shame rule What kind of companies are concerned ? What kind of explanation ?

34. Public opinion-Corporate reputation and CSR : new perspectives • Public opinion, reputation, awareness, renown • Reputation : fragile and versatile concept that requires time to build and can be destroyed in a second! • CSR: introduces the expectations of the stakeholders who come from diverse backgrounds and whose interests must be prioritized. • - The essence of CSR “communication” : CSR is based largely on the "reporting" of social and environmental values, thus on "societal communication"

35. Corporatereputation and societalcorporategovernance : specific questions . Societal reputation depends on additional power and affects a larger prism (stakeholders) - The Case of France: the Law “Grenelle II” of July 12, 2010 Law No. 2010-788 on national commitment to the environment, the stakeholders, sets the stage for a "corporate governance partnership." and new notions such as "societal commitments” . Various issues : employee relations, diversity issues, product issues, environmental issues - Corporate governances issues (executives compensations…)

36. Ethical compliance • Definition • Ethical compliance is more than adherence to federal equal opportunity guidelines. • all members of an organization abide by the full range of regulations that apply to the company's line of business. • For an accounting firm, this includes federal audit regulations. In the auto industry, it means abiding by Occupational Safety and Health Administration standards for employees in the factory and National Highway Traffic Safety Administration standards for the end product. For nearly every organization, it means that all employees avoid any conflict of interest. In addition to an organization's documented ethics rules, ethics compliance includes "soft controls," such as the leadership's behavior and the company's track record of response to employee actions that are inconsistent with corporate regulations and values. • Chief Ethics and Compliance Officer (CECO). This officer's effectiveness depends heavily on his access to senior leadership. In some models, the CECO has direct access to the board of directors. This is a two-edged sword, however, because while it gives the officer the ability to report concerns and gain approval for needed changes, it also engenders a certain level of suspicion and sometimes even distrust between senior management and the CECO.Read more:

37. The Influence of Public Opinion on Societal Corporate Governance: The Praise or the Blame - The new vectors of public opinion: the media - Observatories specific to CSR issues: many "cases of resonance in public opinion” - Electronic public opinion "societal e-reputation” The AMF (French Market Authority) and the benchmark websites : the blame and shame rule in her annual reports

38. 3) Conclusion :Tomorrow Climate Changeand CSR

39. The French initiatives before and after the COP 21 The french law 17th August 2015“LTECV” and the European impetus Human Rights, and corruptionthe French future law (16th March 2016)