France is the first member state to transpose CSRD

Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 as regards corporate sustainability reporting (the “CSRD”) has been partially transposed into French law by an ordinance (ordonnance) dated 6 December 2023 (the “French Ordinance”). 

France is the first country in the European Union (the “EU”) to transpose the CSRD into national law.

Except for certain specified provisions, the French Ordinance will enter into force as from 1 January 2024. 

Background 

Currently, non-financial information disclosed by large undertakings and listed companies under French law is primarily reported in a non-financial performance statement (déclaration de performance extra-financière) (the “DPEF”) included in the management report of, and published by, in-scope companies. 

The DPEF was the result of the transposition into French law of the Non-Financial Reporting Directive dated 22 October 2014(Directive n°2014/95/EU) (the “NFRD”).

The CSRD, which was adopted on 14 December 2022 as part of the Commission’s Action Plan on Financing Sustainable Growth to achieve the objectives of the European Green Deal, requires companies to provide reporting on sustainability matters. 

It modifies the Accounting Directive, the Transparency Directive, the Audit Directive and the Audit Regulation and introduces major changes with respect to corporate sustainability reporting, notably: 

• a broader scope of entities/groups, including certain non-EEA entities/groups; and
• a greater granularity in the information to be published, which must be understandable, relevant, verifiable, comparable and represented in a faithful manner.

The CSRD is supplemented by the European Sustainability Reporting Standards Delegated Act which contains the mandatory common sustainability reporting standards for the new sustainability reporting (“ESRS”). These standards have been established by the European Financial Reporting Advisory Group (the “EFRAG”). A first set of "sector agnostic” standards has been adopted by the European Commission on 31 July 2023 and should apply from 1 January 2024 for financial years beginning on or after 1 January 2024. Regarding the next two sets of ESRS (one set deals with the sector specific ESRS and the other set deals with the ESRS to be applied by non-EU companies that fall within the scope of the CSRD), the European Commission has proposed to delay their entry into force by two years. 

The new sustainability reporting required by the CSRD will gradually replace the French DPEF.

Scope

With respect to in-scope entities, the CSRD goes well beyond what was provided for in the NFRD. For more information on the background with respect to the CSRD, see our previous blog posts and podcast series (for example, here, here and here).

Application of the CSRD will occur in four phases, as from 2025 (for financial years starting on or after 1 January 2024) to 2029 (for financial years starting on or after 1 January 2028). The application tests are complex and should be applied on an entity-by-entity basis.

The French Ordinance does not specify thresholds for determining which companies fall within the CSRD’s scope. The French Ordinance merely refers to the categories of undertakings and groups (large, medium, small etc.) as is the case in the Accounting Directive. The precise thresholds will be set under French law by a decree (décret) that is expected to be published by the end of December 2023.

In this respect, it shall be noted that the thresholds applicable to define undertakings and groups under the Accounting Directive are likely to change in the near future as the European Commission raised such thresholds (in general by 25%) in a draft delegated directive dated 17 October 2023. This change has been proposed by the European Commission to account for inflation, which will reduce the number of companies failing within scope of the CSRD. 

It should also be highlighted that French companies incorporated as sociétés par actions simplifiées - which is a widely used company type for non-listed entities - will now be in-scope, which was not previously the case for the DPEF. In total, 6,000 French companies are expected to fall within the scope of this new law. 

Some key points of the French Ordinance

As highlighted in the Report to the President of the French Republic with respect to the French Ordinance, the French Ordinance transposes the measures included in the CSRD into French law and harmonises the corporate social responsibility obligations framework, notably within the French Code de commerce. 

• Sustainability reporting

The sustainability information shall be included in the management reports of in-scope companies (specific provisions apply for subsidiaries/branches of non-EU entities).

The French Code de commerce does not go into the details of the information that shall be included in the sustainability reporting but only states (Article L. 232-6-3) generally that it shall “provide an understanding of the impact of the company's business on sustainability matters and how these matters affect the development of the company’s business, results and position” and that sustainability matters include “environmental, social and corporate governance matters”. 

The content to be described in this new sustainability reporting, the supporting information and the methods of presentation will be specified by a decree (décret) that is yet to be published. Nonetheless, the decree (décret) should refer to the European standards i.e. the ESRS (as described above). 

• Assurance required for sustainability information

Under the CSRD, sustainability reporting shall be the subject of new review requirements carried out by auditors. 

The CSRD provides that such assurance engagements will be “limited” assurance engagements in the first instance (as opposed to reasonable assurance engagements that apply to financial statements and which entail extensive procedures and a significant volume of work). The Commission shall, no later than 1 October 2026, adopt delegated acts in order to provide for limited assurance standards.

While only a minority of Member States have announced that they will open their audit market to independent assurance services providers, the French Ordinance, as permitted by the CSRD, allows organismes tiers indépendant (independent third-party organisations) (the “OTI”) to “audit” the sustainability reporting.

In-scope companies shall therefore designate the audit firm or OTI that will be in charge of that mission, taking into account when they will be required to prepare their first sustainability reporting given the phased application of the new requirements. Under French law, the designation shall be made by the general meeting of shareholders.

The role of the audit committee in listed entities is extended to the monitoring of the sustainability reporting process. This mission may however be assigned to another dedicated committee, as contemplated by the CSRD.

As a result of the extension of its missions and supervisory powers to entities (OTI) other than statutory auditors, the Haut conseil du commissariat aux comptes (H3C) is renamed Haute autorité de l'audit (H2A) by the French Ordinance. The powers, governance as well as the organisation of this authority are also amended by the French Ordinance.

• Other reporting obligations 

In addition to transposing the provisions of the CSRD, the French Ordinance aims at harmonising and clarifying the obligations of French companies with respect to ESG matters and reporting, in particular under the French Code de commerce which used to contain various requirements that were disseminated (e.g. depending on the types of companies) and not necessarily consistent. 

This is for instance intended to be achieved by harmonising the definitions of the different sizes of companies and groups that are subject to the various requirements, which should result from the decree (décret) that is yet to be published (see above).

This harmonisation will have an impact on the content of the reports to be prepared by certain types of French companies, e.g. sociétés par actions simplifiées, even when they are not in scope of the new sustainability reporting regime that results from the CSRD. French companies shall therefore assess to what extent they will be impacted by those changes.

Enforcement

Injunction - An injunction may be sought by any “interested party” (personne intéressée) before Court under interim proceedings to obtain the disclosure of the information required under French law. 

Criminal sanctions - French law also provides for criminal sanctions for breach of the requirements: 

• for failure to publish or the publication of partial or false information (in certain cases): a fine of up to €3,750, as well as the publication, either in the press or by any electronic means of communication to the public, of the decision imposing such sanction; 
• for failure to appoint an auditor or independent third-party organisation: a fine of up to €30,000 and imprisonment of up to 2 years; 
• for obstructing the audit mission: a fine of up to €75,000 and imprisonment of up to 5 years. 

Impact on public procurement - In addition, companies that do not comply with the requirements may be excluded from public procurement bids. 

Civil and administrative liability - As noted in the Report of the French Haut Comité Juridique de la Place Financière de Paris on the CSRD dated 25 October 2023:  

• the CSRD is not intended to change the civil liability regime of in-scope companies and their directors. As such, the CSRD does not entail an amendment to French law on corporate civil liability, nor that of company directors as set out in Article L.225-251 of the French Code de commerce; and
• the CSRD is not intended either to introduce new administrative sanctions applicable to listed companies. The rules applicable to the quality of information disseminated to the public and those applicable to market abuse will therefore continue to apply to sustainability information.

Notwithstanding these clarifications, the new provisions in the French Code de commerce are likely to be used by third parties as additional grounds for legal challenges relating to the absence of or incomplete publication of sustainability information. An increased risk of litigation can therefore be expected. 

What’s next? 

Other implementing texts, notably a decree (décret) and several orders (arrêtés), are still expected to finalise and complete the transposition of the CSRD into French law.

Other Member States of the EU must transpose the CSRD by 6 July 2024.To date, only the Netherlands and Spain have published draft laws to transpose the CSRD, without formal adoption at this stage.