26 February 2022

Presidential election: 4 proposals to change the rules of the game of the economy

Presidential election: 4 proposals to change the rules of the game of the economy

A Social and Ecological Impact Index

Although there seems to be a consensus on the need for companies to transform their social and environmental performance, one of the main difficulties lies in the illegibility and stacking of systems, standards, certifications, labels, rankings and reporting obligations.

This lack of homogeneity and obligation partly explains the weakness of CSR commitments over the last 20 years. Thus, while 80% of consumers say they want to change brands if they do not correspond to their values, and 88% of entrepreneurs want to commit to an ecological and social transformation, only 23% of SMEs have a structured CSR plan.

To accelerate business transformation, it is essential that public authorities clarify common objectives and require companies to make transparent their level of commitment to the environment and social justice. This would give a clear direction to entrepreneurs and their stakeholders, enable them to take full responsibility for solving social and ecological challenges, save time, and increase the efficiency of their engagement. This would also have the virtue of fighting against the risk of green and social washing, which rightly crystallises an increased distrust on the part of citizens, employees and consumers and risks weakening the dynamics involved.

We propose the creation of an Impact Index, a single, shared basic reference framework for corporate commitment and transformation, based on some thirty main impact objectives on which each company could position itself and continuously improve its ecological and social performance:

  • on the environmental side (main target objectives: 5% reduction in CO2 emissions each year, majority of purchases made in France in Europe),
  • on the social aspect (main target objectives: to aim for a representation of people with disabilities, people in integration or people living in urban political districts or isolated rural areas, in line with their percentage within the French population of working age, equal pay for men and women: more than 95/100 on the Professional Equality Index and compliance with the quota of women imposed by law in management bodies)
  • on power sharing (main targets: all stakeholders in the board of directors essential to the company, and strengthening the position of employees),
  • on the sharing of the value produced (main targets: fair sharing of profits between employees, reinvestment in the company and payment of dividends to investors, share of capital held by employees, limitation of pay gaps),
  • on the search for positive social or ecological impact through its core business (implementation and annual evaluation of a social and/or ecological mission linked to the resolution of the Sustainable Development Goals relevant to its activity).

These five issues complement and reinforce each other, as the extent of the transformation dynamic, its sustainability and its acceptability by all stakeholders is closely dependent on the overall coherence of the organisation.

The Index would be designed to centralise existing government indices (professional equality index, percentage of employees with disabilities, etc.) and to integrate European and international standards on climate and inclusion (CSRD) each year, replacing certain indicators where necessary, in order to pool this data. It could serve as a common basis for the preparation of the various Impact reports and for all Impact investors, making it possible to limit the stacking and heterogeneity of reporting.

This index, published annually, would be made compulsory initially for all companies with more than 250 employees, extended to SMEs with more than 50 employees by 2027. All companies not subject to this obligation will be able to calculate and publish their index on a voluntary basis.

Such an index would be widely known by consumers, employees, entrepreneurs and investors with a mandatory and transparent publication each year by companies, allowing them to make informed choices and to fight against green and socialwashing. The Ministry of the Economy, like Santé publique France for the Nutri-Score, would be responsible for disseminating it widely through publicity campaigns. This index could also be a precursor to a Europe-wide tool, including a public certification recognised by consumers, thus enabling France to stay one step ahead of these future challenges.

Finally, to enable the continuous improvement of business practices, the State will be able to accelerate the provision of suitable tools (carbon footprint assessment in conjunction with ADEME, etc.) and clarify the associated aid, following the example of the platform created by the Transition Mission supported by the Ministry for Ecological Transition. A global economic policy of incentives, training and acceleration will have to complete this system to enable companies to meet the objectives set.

Development of the impact economy with a dedicated status

81% of business creators want to be useful to society: a real commitment dynamic can be accelerated over the next 5 years which would allow massive avoided costs for society.

By adopting the PACTE law, France has provided itself with a regulation that makes it possible to distinguish companies that make efforts in favour of the common good. The legal definition of a company has evolved to include social and environmental issues and now all companies can pursue a chosen social and/or ecological mission by adopting the status of a "mission" company. This dynamic is positive in that it has allowed many companies to take a decisive step on the path to Positive Impact. Thanks to this recognition, many companies have gone beyond the simple search for profitability to ask themselves the question of their contribution to the common good, and by involving the whole of their organisation.

And to further accelerate this dynamic of commitment, and to take into account the progress made by the economic world over the last 5 years, it is now possible to go further by creating a new status complementary to that of the mission-based company to recognise companies that go further, and whose model is entirely focused on positive impact and the resolution of major social and/or environmental challenges, and which thus participate concretely in the search for the common good. This "Impact" company status would make it possible to better publicise and recognise these companies that place their economic efficiency at the service of the general interest, to give them key advantages that recognise their avoided costs for society and allow them to compensate for the distortion of competition inherent in the level of integration of general interest issues in their model compared to other companies. This status will combine the commitments linked to ESUS accreditation with the evaluation and audit procedures proposed in the PACTE law for mission-based companies. Thus, this status should be based on four simple and auditable conditions:

  • The priority given to the search for social and/or ecological impact in its strategy with the pursuit of social or environmental utility as a main objective, integrated in the statutes, committing at least ¾ of the structures' budget. A social utility assessment must be carried out every 2 years for companies with more than 50 employees and every 3 years for companies with less than 50 employees. It must be audited by an independent third-party organisation, similar to what mission-based companies do (for companies with more than 50 employees, except for associations). The balance sheet must be approved by the General Assembly or its main governance body.
  • Limiting the negative environmental and social impacts of the company by implementing a continuous improvement plan on equality, inclusion, climate change and biodiversity every three years, proportionate to the size of the company.
  • A fair sharing of value, both in terms of equity and maximising its positive impact , which would result in :

- a fair distribution of the profits generated with a limit on dividends to 50% of the profits made to allow the reinvestment of part of the profits generated in the company and thus enable it to prepare its future. In the event of a sale, the company must set up a mechanism for sharing capital gains on the sale of shares with employees, amounting to around 10% of the profit received.

- the limitation of remuneration gaps between the lowest and the highest salary in the company (depending on their size: from 1 to 10 for SMEs to 1 to 20 for large companies, as required by the regulations for public companies).

  • a characterised power-sharing policy, allowing for transparent and informed governance by all stakeholders. All Impact companies should include stakeholders that are essential to their organisation, including employee representatives (as observers in associations).

Thus, 20% of companies could be led to engage in a Positive Impact strategy, a goal that can be reached if the State jointly promotes the generalisation of the mission-based company and the development of impact companies, and thus offers each company a path of transformation.

Social and ecological innovation supported in the same way as technological innovation

Technical or scientific innovation, blockchain, big data or fintech are particularly well encouraged in France, as shown by the development of 25 new Unicorns. We can see that a strong political will in economic matters, which has resulted in substantial investments (Bpifrance, CIR) and adapted public policies, is immediately bearing fruit. We therefore invite the public authorities to direct these same efforts towards the development of social and ecological innovation, the spearhead of the ecological and social transformation for which the whole of society must mobilise. We propose 3 measures to achieve this:

  • A research tax credit and social and ecological innovation: Innovative SMEs benefit from the Research Tax Credit to financially support their research and development activities, or the Innovation Tax Credit to design or develop the prototype of a "new" product, i.e. one that has never been put on the market. Although the eligibility criteria could concern social and ecological innovation, they remain fundamentally focused on the notion of product innovation in the purely technological sense of the term. For example, the innovation tax credit only applies to the creation of products except for financing the technological part of a service innovation. This reflects a bias: the innovative nature of products and services with a positive social and/or ecological impact does not seem to be self-evident in the granting of these tax benefits. Moreover, this scheme is not available to impact enterprises paying taxes and social contributions but not corporate taxes (associations). We therefore propose :

- That 20% of ITCs and RTCs be dedicated to ecological and/or social innovation, That 100% of ITCs and RTCs be subject to ecological and social commitments,

- That all companies can benefit from this tax credit, replaced by a credit on the payroll tax in case of non-payment of the IS (similar to the CITS),

- That 20% of the IRCs and RECs be dedicated to ecological and/or social innovation,

- That 100% of IECs and RECs are subject to environmental and social commitments,

- That all companies can benefit from this tax credit, replaced by a credit on the payroll tax in case of non-payment of the IS (similar to the CITS).

  • Support for Young Impact Enterprises: to accelerate the creation of companies that make ecological and social innovation their core business, we propose that "Young Impact Enterprises" be granted the same advantages as "Young Innovative Enterprises" (JEI) in their first 10 years of creation, i.e.: total exemption from corporate tax for 24 months and total exemption from social security contributions for their first 5 years of existence.
  • An eco-conditionality of the Plans d'Investissement d'avenir and all the recovery and transformation plans (France 2030, etc.). We propose to massively redirect the funds granted under the Programmes d'Investissements d'Avenir (PIA) towards projects with a social and ecological impact. To do this, we ask that any evaluation of the investments made under the PIAs .

- Is based on selection criteria defined according to a social, ecological and economic impact grid,

- Systematically and robustly integrates a social and ecological impact analysis of the projects supported,  

- Promotes support for consortia projects, including impact organisations

A network of social innovation accelerators in the territories: To anchor and strengthen the creation of the Citizen Initiative Accelerator on 17 December 2021, we propose to provide it with 13 regional branches to deploy engineering capacities in entrepreneurship and social innovation and to put them at the service of each territory. By recreating the conditions for productive and inclusive collaboration between civil society, the State, local authorities, businesses and associations, these branches would restore the necessary confidence and capacity of all to undertake to provide shared responses to France's social and ecological challenges. By providing the Citizen Initiative Accelerator with national resources, the territorial network would have a head capable of sharing existing material (research, analyses, methodologies, etc.) and ensuring the dissemination of solutions tested in the territories. Each regional accelerator would be responsible for :

- Identify the specific social and environmental needs of each territory,

- Designing appropriate solutions that bring together the wills, expertise and existing systems,

- To accompany citizen and entrepreneurial initiatives in the structuring of their economic and general interest projects with the support of public authorities,

- Co-finance the scaling up of solutions with an investment fund financed by regulated savings on the one hand, and the economic actors of the territories on the other.

Redirecting taxation, public aid and investment: towards ecological and social competitiveness

The application of a single tax system to companies, without distinguishing between behaviours and without any incentive to change them, seems increasingly outdated today, but it is also counterproductive: it provides no incentive to change. Similarly, given the scale of public aid to companies (140 billion euros per year), the simple fact that the granting of such amounts is currently only subject to vague counterparts in social and environmental matters raises questions. We therefore propose :

  • A tax system modulated according to the degree of commitment of companies (bonus/malus): corporate taxation must regain coherence in the service of the general interest, in order to put an end to piecemeal tax policies that respond to category and sectoral interests. It is time for all tax aid to be a real lever of action for the State and not an additional burden on its already constrained budget. We therefore propose to introduce, over the next five years, a corporate tax system that takes into account the contribution of companies to the country's just transition, and the costs avoided for society. Indeed, given the scale of the investments required in the short term to develop a virtuous business model, but also taking into account the avoided costs for society as a whole, it is counterproductive for the most committed companies, which manufacture locally, source renewable energy or for whom the search for positive impact is central, to pay as much tax as those who manufacture at low cost at the other end of the world. To resolve this distortion of competition in favour of the least willing companies and to encourage transformation, we propose to modulate employers' social contributions according to the degree of commitment of companies through a bonus/malus logic (to get away from the sole malus of the Professional Equality Index). This modulation could concern employers' social contributions according to differentiated thresholds (bonus if more than 75/100, malus if less than 50/100).
  • Reduced VAT at the lower rate for socially and environmentally responsible products: To encourage the transformation of our consumption patterns and to promote the accessibility of socially and environmentally responsible products, we propose that the VAT rates currently applied to organic, fair trade, reused and European-made food and non-food products be reduced to the lower rate. Recently, the EU Finance Ministers adopted a proposal to make it more flexible for countries to grant reduced VAT rates, which should be applied as a priority to products that facilitate the ecological and digital transition. This reform of the VAT directive opens up possibilities that must be seized. The granting of a lower VAT rate would allow the fair recognition of the positive externalities produced by these sectors in comparison with conventional sectors, at a time when the majority of these products remain difficult to access for the majority of people.
  • Transition" cheque to support the transformation of companies: the investment of SMEs and SMIs in the ecological and/or social transition is an investment with no immediate return: companies must overcome a fixed cost so that these investments, which enable them to project themselves into the future, are virtuous and result in an increase in profitability in the strictly financial sense of the term. To support companies in their transformation efforts, the granting of a "transition cheque" would help them to finance a rapid transformation of their organisational model. It would make it possible to finance investments (purchases, services, training actions) contributing to accelerating the ecological and social transition of the company: carrying out a scopes 1-2-3 carbon assessment, purchases linked to green mobility, building renovation and/or insulation work, eco-design study, HR consulting services, training and awareness-raising actions, events intended to promote recruitment actions for the public most distant from employment, diversity in companies, equality between women and men and the fight against sexist and sexual violence, etc. It could benefit all VSEs and SMEs up to half of the expenses incurred, up to a limit of 10,000 euros, and for ETIs up to one third of the expenses incurred, up to a limit of 50,000 euros.
  • Public procurement directed towards the most committed companies: Laying the foundations for social and ecological competitiveness requires that the State itself, as an economic actor, be able to revise its own practices, in order to set an example and encourage all companies to transform themselves. The revision of the public procurement framework is therefore essential. Indeed, given its considerable weight in the economy (200 billion euros per year, including concessions and local authorities), public procurement is a crucial lever for the development of a more sustainable and inclusive economic fabric. While the systematisation of social and environmental clauses is an essential prerequisite for amplifying the transformation, it is nevertheless desirable to go further. Mainly governed by Community law, the principles of public purchasing must be reworked and discussed at European level in order to change the main criteria for analysing, scoring and awarding public contracts. This would make it possible to award 10% of each contract to companies with a social and ecological impact (determined as such thanks to the "Impact Company" status), and to count for at least 10% of the score obtained the social and ecological impact criteria, whereas the current system of scoring tenders is based solely on the price/quality ratio, thus favouring the most economically advantageous tenders, while at the same time disadvantaging the most virtuous tenders.
  • Eco-conditionality of public aid and investment: The principle of eco-conditionality (which we are extending to social issues, gender equality, power and value sharing) means that any investment by the public authorities in companies (measures to support activity, safeguard and develop jobs, innovation, recovery, etc.) must be conditional on transparency and clear commitments on the part of the companies in social and/or environmental matters. The establishment of an Impact Index would make it possible to define the level of commitment expected, in terms of a minimum score and an action plan.
  • A fair and efficient carbon tax at the EU's borders: As part of the European Green Deal, the introduction of a carbon tax at the EU's borders for certain imported products is currently being debated within the EU institutions. This measure aims to accelerate the ecological transition of the continent's industries by avoiding massive relocation to countries with more flexible environmental standards. To make it a fair and effective transition measure, we propose to :

- Gradually extend it to other sectors of activity where transformation is urgently needed (electricity, chemicals, fertilisers)

- Phase out the free allocation system as soon as the measure comes into force in order to avoid a counterproductive measure in terms of climate change

- Earmark a percentage of the revenue from the border carbon adjustment mechanism to finance low-carbon development in developing countries

Read on

Receive our newsletter

Thank you, and see you soon in your mailbox!
Oops! Something went wrong...

By submitting this form, you agree to receive occasional emails from us. No spam, just our news and invitations to our events. You can unsubscribe at any time.