France steps up sustainable transformation with mission-led business law

Mon 20 Jun 2022

France’s innovative and incentivising Action Plan for Business Growth and Transformation (PACTE) law lays the legal foundations for corporate social responsibility. With more than 400 companies established as “sociétés à mission” – mission-led businesses – by the end of 2021, this new scheme is an undeniable success. The number of mission-led companies has doubled in a year and is particularly favoured by companies with fewer than 50 staff.

An approach impacting all levels of the company

In amending Article 1833 of the Civil Code, the legislator gives the option for all French companies to consider the social and environmental aspects of their business. Under the PACTE law, adopting mission-led status acknowledges that a company not only has purely lucrative goals but, through social and environmental objectives, can contribute to the common good through co-construction with stakeholders. Going beyond the measures taken by the company, the law encourages boards of directors and other management bodies to take responsibility for their contribution and the role they have to play. Thus, the inclusion of social and environmental issues is no longer limited to the company’s actions but represents commitment at the highest level.

A demanding but engaging opportunity

Committing to becoming a mission-led company involves defining stated social and environmental objectives in the company’s articles of association and establishing a new governance model with the creation of a dedicated monitoring committee. It also involves a biannual audit by an independent third-party body, in line with the procedures defined by Decree 2020-1 of 2 January 2020 on mission-led companies. The first audit must occur within 18 months of implementing mission-led objectives.

This opportunity is both demanding and engaging. There are two main risk considerations for companies going down this road. The first is a legal one linked to the potential revocation of mission-led company status. The second is reputational in ensuring that resources committed are commensurate with stated mission-led objectives and that there is transparency on expectations to avoid opposition from stakeholders.

At a time when companies are being closely scrutinised by their stakeholders, great care must be taken in defining mission-led objectives. Words chosen must not just be seen as a communication tool but also act as a driver on the commitment to align actions and strategy with the challenges of sustainable development.

Mission-led companies reflect a variety of profiles

It is worth noting that mission-led company status has really taken off among Very Small Enterprises (VSEs) and Small to Medium Enterprises (SMEs) that have made social and environmental issues an integral part of their business model from the outset. Large groups are not wholly absent, but are clearly in the minority.

The investment sector and management companies, such as Mirova, Sycomore, Citizen Capital and Ecofi, are well represented. Aware of the sector’s key issues and expectations in the areas of responsibility and sustainability, each of these companies has placed having a beneficial impact at the heart of its mission.

The challenge of aligning strategy with purpose

Beyond simple enthusiasm, it is now a question of ensuring that the practical implementation matches the level of initial ambition to avoid “mission-washing”. With many more companies expected to adopt mission-led status during 2022, transparency with stakeholders on the measures and actions taken will be essential in translating corporate purpose into concrete actions.