The promulgation of the new French corporate social responsibility law Grenelle II Article 225 puts an end to the “mandatory versus voluntary” reporting debate—in France at least. What companies choose to report versus what reporting experts believe companies should be reporting will, with hope, become clearer and pave the way for greater levels of transparency and comparability. The new law also demonstrates the priority the French government has placed on the disclosure of social and governance data, but this may pose a real challenge for the foreign companies to whom this law now also applies—and who may still be unaware of its passage.
Since the law’s passage, BSR has been investigating how certain Asian countries might approach the application of this law, given their different approaches to disclosure—in particular, Japan, China, and South Korea.
Fundamentally, BSR believes that the level of disclosure on certain social indicators will no doubt cause or even force changes to social and governance reporting standards, at home and abroad. With more and more western countries passing laws to require greater levels of transparency and accountability (such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), those Asian companies seeking a global reach will have to align their overall strategies with these operating standards.
Sustainability reporting has come a long way over the past two decades, from a lone section in annual company reports, to stand alone declarations of environmental performance, to the launch of the International Integrated Reporting Council, an initiative that seeks to integrate financials with social responsibility. The Global Reporting Initiative continues to set global reporting standards that companies can use as a guide to develop indicators. Yet, all of this remains voluntary: Companies are expected to report, and of course many do, but their choice of what and how much they divulge is fundamentally their choice. The Grenelle II Article 225 requires transparency on data that may not otherwise have been disclosed and is thus a potential game-changer in CSR reporting.
Consequently, it’s the metrics in the “previously undisclosed” batch that pose the greatest challenge to some Asian companies operating in places like France. Japanese and Korean companies are adept at environmental reporting, but social and governance data traditionally is a weak reporting area in both countries. Similarly, Chinese companies may find reporting on human rights indicators challenging. This law forces companies from these countries to either “comply or explain” on sensitive topics and may end up being a force for change in Asian reporting practices.
You can learn more about Grenelle II by reading BSR's brief on Grenelle II. Additionally, BSR members can download and listen to the recording of our recent Sustainability Matters Webinar "New French Reporting Law: What Does It Mean for Foreign Companies?"