ESG Ratings and the French Duty of Vigilance Law

The 2017 French Duty of Vigilance Law represented Europe’s first comprehensive legislative measure imposing wide-ranging obligations on corporations to identify and mitigate human rights, health and safety, and environmental risks arising from their own activities, those of their subsidiaries, and firms in their global supply chain. These vigilance duties are supported by a robust enforcement mechanism that grants anyone who has suffered harm as a result of a company’s failure to comply with the law standing to bring a civil liability action against the company. This article analyzes the effects of the introduction of the Vigilance Law on the environmental and social behavior and financial performance of listed French corporations, using granular ESG scores from two major ratings providers to capture changes in corporate ESG performance. We find a statistically significant, negative association between the Vigilance Law and several social and environmental scores, particularly in areas where the Vigilance Law led to a tangible increase in liability exposure. We interpret this as reflecting either improved information quality, resulting from the production of more robust and meaningful ESG disclosures, or a reform-driven shift away from tailoring corporate ESG policies and disclosures to rating methodologies, and towards minimizing legal exposure.