With political uncertainty rising in France, we are helping investors understand their key risk considerations, particularly in the infrastructure and healthcare sectors.
France’s political environment has been fractured since at least the 2022 elections, with no party holding a majority in parliament. But legislative uncertainty increased sharply over the summer following the June-July parliamentary elections. The tense geopolitical environment – particularly the fiscal constraints since the COVID-19 pandemic, as well as the war in Ukraine – has only exacerbated this uncertainty.
For investors, a key concern is how this political uncertainty will impact the regulatory environment over the next few years, especially for the healthcare and infrastructure sectors.
Investment is high in both sectors. According to the World Health Organisation, healthcare was France’s third-largest export sector in 2022, with EUR 28.3bn worth of healthcare investments in the country. It also ranked sixth globally in terms of healthcare investments, driven in part by a strong HealthTech sector. France Invest, a private markets industry body, reported that France saw EUR 31.2bn invested in companies and infrastructure projects in 2023. With so much at stake, investors should do their best to anticipate the scenarios that could play out.
Political uncertainty: the impact on healthcare
While French governments generally appear investor-friendly, the French healthcare system is characterised by strong government control and oversight, as well as active involvement in regulating and ensuring the quality of healthcare. This also applies to private providers in France.
As such, the turbulent political environment is creating uncertainty for the sector. Generally speaking, political changes in France can alter the dynamics between public and private actors, meaning that uncertainty over the future political direction of the country inherently leads to uncertainty over future policies. For example, at the moment, some political actors are promising to tighten regulations on competition as well as private providers’ fee structures and bidding processes.
But it is not just the potential for a change in government that brings uncertainty. Even sitting governments struggle to secure consensus around policies. As a result, announced policies that promise major changes for a sector can change radically before implementation or become stuck in legislative limbo, resulting in significant uncertainty.
Our clients have been reaching out to us for support in assessing the status of existing laws and the likelihood of announced legislation being passed. In one case, a private equity firm asked Control Risks to assess the status of a proposed change to the fee structure of a specific medical procedure. Due to significant differences between private and public sector pricing, changes to the process had been proposed on several occasions, but for various reasons had not been agreed.
Our client wanted to understand why previous proposed changes had not been implemented, whether these changes could be revived, whether there were other projects, and what the outlook for further changes might be. We spoke with contacts in the healthcare sector who had insight into the legislative process. We then carried out a review of the progress and status of relevant legislations. In doing so, we identified and highlighted probable future legislative initiatives and projects previously unknown to the client, determining the likely outlook for changes under a number of political scenarios.
Political uncertainty: the impact on infrastructure
The French government remains committed to improving infrastructure, with ongoing projects aimed at enhancing the energy transition and digital infrastructure. But political uncertainty in France holds potential to introduce volatility to infrastructure investment.
Infrastructure investments are impacted by both local-level political concerns and changes in EU-level directives. For example, the EU’s recent focus on sustainable infrastructure, as part of its Green Deal, has already led to greater regulatory support for green infrastructure investments, particularly concerning state aid and environmental policies. At the same time, the broad left-wing alliance the New Popular Front, the largest grouping of parties in parliament since the mid-2024 elections, has promised to scale back infrastructure investments that have a negative environmental impact.
France's relationship with Europe is likely to evolve in the coming years, as euro-sceptic parties gain strength. Changes in France’s position on EU regulations on key infrastructure subsectors, including renewable energy, will need to be monitored.
The ESG landscape
Investors should also be aware that France’s healthcare and infrastructure sectors both face specific supply chain challenges related to Environmental, Social and Governance (ESG) issues.
The EU-level Corporate Sustainability Reporting Directive (CSRD), effective in France since January 2024, underscores the growing regulatory emphasis on governance. Numerous laws and regulations now require France-based companies to establish a “plan of vigilance” to identify risks of human rights, health and safety, or environmental violations within their global supply chains. Additionally, the EU Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July 2024, will extend similar obligations across all EU member states.
This new directive requires companies to draft a risk map, establish procedures for evaluating partners and subsidiaries, outline actions to mitigate risks and address violations, and implement a mechanism to receive alerts of violations from workers and their local representatives. Investors will need to ensure their portfolio companies comply. Under French law, companies can face significant penalties for violations, including fines of up to EUR 10m.
Sources, including the UN Guiding Principles and the G7 report on Sustainable Global Supply Chains indicate that, while companies often address risks associated with their direct suppliers, issues related to human rights and environmental harm frequently arise further down the chain. And few companies extend their own supply chain due diligence processes to encompass all human rights and environmental concerns. It is crucial for investors to examine target companies' relationships with their suppliers and distributors, particularly for French companies with manufacturing operations outside France and the EU.
Supply chains are also exposed to geopolitical tensions. Against a backdrop of heightening geopolitical tensions, including between the EU and China, we work extensively with multinational companies, in France and elsewhere, to consider the exposure of their supply chains to geopolitical tensions and help put in place plans to deal with any disruptions.
Healthcare: supply chain exposure
Several French healthcare companies have established significant supply chain operations in Asia, leveraging the continent’s manufacturing capabilities and market potential by setting up facilities in charge of producing medical devices. These French companies are also actively integrating Asian suppliers and resources into their global supply chains.
In our work with clients, we have found that, in some cases, sourcing took place in regions with poor labour standards, including forced labour, and that manufacturing processes were potentially contributing to pollution and deforestation.
Third-party vendors also frequently have access to essential systems, including patient data, and sometimes direct access to patients. Non-compliance by these third parties can significantly escalate compliance, patient safety and regulatory risks.
For example, we helped our client – who was considering a partial acquisition in France – to review the internal processes and anti-bribery and corruption policies of a French health solutions and services provider. By leveraging our network in France and in other markets where the target operates, we were able to provide confidence to our client that the target company had put appropriate measures in place to comply with EU regulations and supply chain due diligence requirements across the whole on-the-ground operations.
Infrastructure: understanding relationships
The effective management of ESG risks is equally crucial for ensuring the sustainability and financial viability of infrastructure investments.
In the telecoms sector, particularly in digital infrastructure, we pay close attention to investment targets’ ESG track record. This, of course, comes at a time of increasing emphasis on sustainability and digital transformation – such as with The European Electronic Communications Code (EECC).
We help our clients understand the relationship between telecoms companies and local industry players and local communities – a critical element for successfully operating in the sector. We also help our clients understand the positioning of telecoms companies’ relative to competitors and their alignment with current and future industry regulations.
Assessing governance and corporate culture
In both health care and infrastructure, the profiles and behaviours of senior executives and the broader corporate culture shape much of a company’s direction and operations. These factors should be included in pre-investment risk assessments.
At Control Risks, we are increasingly conducting thorough reviews of existing policies and procedures within target companies, focusing on how these frameworks are implemented in practice, ensuring transparency and accountability in business conduct.
- 85% of major listed companies have a one-tier board system
- A trend toward combining the positions of chair of the board and CEO, but often counter-balanced by the appointment of a lead director
- The “Sapin 2” anti-corruption law, requiring active measures to prevent, detect and remedy acts of corruption and bribery committed in France or abroad
- Vigilance Plan requirements for large companies, to identify and prevent risks related to environmental, human rights, and health and safety issues throughout their supply chains
- Recent obligations for large companies regarding equal gender representation in senior management.
France has some distinctive aspects in its corporate governance regime:
We recently conducted several comprehensive assessments of governance and corporate culture in French companies. We examined decision-making processes, particularly the significance of specific executives to a company's operations and success. This helped investors understand the potential impact of leadership changes. We also investigated the compliance culture and risk awareness surrounding the acquisition targets, crucial for robustness of internal controls and regulatory navigation.
One notable assessment involved an infrastructure company whose CEO faced trial for alleged corruption and fraud. To assess the company’s response to the crisis and its efforts to enhance corporate governance, we provided detailed intelligence regarding the governance measures implemented since the allegations.
Navigating uncertainty
We are increasingly conducting thorough reviews of existing policies and procedures within target companies, focusing on how these frameworks are implemented in practice, ensuring transparency and accountability in business conduct.
By carefully considering all the risks around their particular investment targets, investors can navigate the rising political uncertainty in France with confidence.