by Richard Karmel , Mazars Head of Human Rights and London Office Managing Partner

I am not sure that the UK’s largest companies (those with over 10,000 employees globally and with a subsidiary in France), of which several are banks, have realised that their French entity will have to comply with a French Law passed on 23 March 2017 – the ‘Loi de Vigilance.’ It is applicable to all year ends beginning after the date the law was passed.

In summary, this law requires all French companies which meet the criteria to prepare a ‘Plan de Vigilance’ (Duty of care statement) that covers how they are meaningfully addressing human rights (including labour rights and health and safety), the environment and anti-bribery and corruption.

Most have only focussed on the laws being relevant to French led companies – i.e. those with 5,000 employees globally and with their headquarters in France. However, the Act extends this to those French companies that are part of a group with over 10,000 employees globally, with their headquarters outside of Francei.e. non-French led companies.

At Mazars, we are aware that this law has passed by some of those non-French large companies that meet the criteria.

So, what do they need to do?

The good news is that most of this Act is in line with the processes defined in the UN Guiding Principles (UNGPs), the globally authoritative guidance for companies to respect human rights.  The UNGPs set out that companies need to not only address how they respect human rights in their own organisations but also through their business relationships, of which one key stakeholder group reside within the supply chain.  This is where there is a variation in the French law, as it only requires these companies to report on how they are addressing behaviours within their first-tier suppliers. The UNGPs don’t segregate suppliers into tiers but more logically suggest that companies need to address where there is the greatest risk to people,wherever in the value chain.

Despite this shortcoming, it does mean that French companies are going to have to undertake meaningful due diligence in each of the areas of human rights, the environment and anti-bribery and corruption.Whilst most banks have appeared to address, internally at least, anti-bribery and corruption and environmental issues, few have reported meaningfully on how they respect human rights.  A selection that have started to report in this area include, ABN AMRO, BNP Paribas and Citi.  However, the vast majority have yet to report publically, on where they see they can potentially negatively impact people, and what they are doing to mitigate these risks.

The relevant framework to follow, particularly as it is recommended in the French National Action Plan on Human Rights, is the UNGP Reporting Framework (www.UNGPreporting.org) co-authored by Mazars and Shift.

This Framework is commercial and pragmatic. As Harvard Professor John Ruggie (the author of the UNGPs) said at the launch of the UNGP Reporting Framework in February 2015, “it operationalises the UNGPs.”It highlights that to put the UNGPs into practice, it is not expected that companies and banks publically report on every potential human rights issue.  Rather, it has a filter point entry for materiality, termed ‘salience’.  Salient issues are those where the company or bank can potentially have a most severe negative impact on people. Those issues that pose the greatest risk to people will converge back as material to the business; the rationale being that if something went wrong in these areas then the value of the business will be affected. We are seeing that most companies reporting in this way highlight four or five salient issues.

Furthermore, it is important for these companies and banks to recognise that if they view this law as purely a compliance issue then it just becomes a cost.  If they view it as having a positive impact on the business, its stakeholders and culture, and build it into their strategic business model, then it becomes an investment on which positive returns can be monitored and measured.

And this is where the ‘Loi de Vigilance’ has a long arm.  As has been seen with the UK’s Modern Slavery Act, companies that have properly started to address slavery, trafficking and child labour are extending their position to wider human rights risks.  I can see the same happening with this French law; many of these global companies will pause to reflect on whether they should only demonstrate respect for human rights in their French company rather than more widely.At some point, we may well see judges in a non-French jurisdiction opining on a human rights abuse case involving a global company, ask that global company if they don’t report more widely, why they only appear to respect human rights in their French subsidiary and not in the jurisdiction of the case.  An uncomfortable position to be in!

This is unfamiliar territory for most businesses in the UK, but it seems likely that these kind of non-financial reporting obligations are a growing trend. Regulators, clients and employees are all taking an interest in how businesses conduct themselves in society, and the value of a company is starting to be considered in ethical, as well as financial, dimensions. With this in mind, businesses should consider seeking advice from experts, and be beginning to build towards a holistic reporting structure.

Mazars and Shift are the co-authors of the UN Guiding Principles Reporting Framework and related Assurance Guidance and are helping organisations address the risks and derive the benefit from respecting human rights in line with the UNGPs.