environmental issues

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By Paul Davies and Michael Green

On March 27, 2017, the French Parliament adopted a Law On The Duty Of Vigilance For Parent And Subcontracting Companies. The law amends the Commerce Code and requires companies to establish and implement a plan for diligencing human rights, environmental, and health and safety issues in their supply chains.

The law is limited in scope. It applies to any company (an SA or SAS) that, at the end of two consecutive financial years, employs (i) at least five thousand employees within the company and its direct or indirect subsidiaries whose head offices are located in French territory, or that has (ii) at least ten thousand employees within its direct or indirect subsidiaries whose head offices are located in French territory or abroad.

Records suggest that some 243 entities employ more than 5000 employees in France (based on 2015 figures). Out of this number, it is estimated that only about 117 of them will be subject to the new requirements. The remainder, for now, fall outside of the scope of this new requirement (as they are partnerships or public bodies) Although some commentators had hoped for more companies to be included, it is likely that in due course this new law will be extended to others.

By Paul Davies

Environmental issues are global issues. To navigate the environmental aspects of international business operations, companies must look at the entire lifecycle of a product – the global supply chain – and the legal issues and reputational risk associated with compliance.

For example, a business looking to acquire a target with operations in different jurisdictions could trigger the need for environmental investigations, and an acquirer will need to consider:

  • Which jurisdictions the assets or shares are in and how the business is structured.
  • Where component parts are sourced and whether those components are legal in all jurisdictions in which the business is located.
  • The scope of due diligence required for the transaction.
  • How to assess liabilities based on former, current and future operations by understanding product life-related issues, such as where materials in the manufacturing process are sourced from and how the business disposes of such materials.

By proactively identifying environmental issues and leveraging high quality environmental advice, an acquirer may be able to negotiate reps and warranties and determine whether there will be any indemnities or price chips.  Similarly, a business engaged in the financing of a large-scale project may also be impacted by environmental issues should the Equator Principles come into play (or other provisions such as OECD guidelines).