Over the past few months, there have been interesting developments concerning the move to mandatory due diligence requirements in the sphere of business and human rights both on a European Union (EU) and national level. In this blog, we will touch upon the most important developments.
In September 2020, two EU institutions took a step forward in facilitating mandatory due diligence legislation.
On 11 September 2020 the European Parliament’s Committee on Legal Affairs published a draft report with recommendations to the European Commission on corporate due diligence and corporate accountability (2020/2129(INL)). The draft report includes a draft text for a Directive, which is largely inspired by the UNGPs and OECD Guidelines.
A few things stand out in the proposed Directive. Firstly, the proposed Directive seeks to not only cover human rights, but also the environment and good governance. It would be applicable to all undertakings operating in the internal market of the EU (article 1). The scope is clarified in article 2 of the proposed Directive. Article 4 lays down the due diligence requirements, which includes an obligation to make all reasonable forts to identify subcontractors and suppliers in the entire value chain as well as an obligation to use contractual clauses and the adoption of codes of conduct to ensure that business relationships put in place and carry out human rights, environmental and governance policies that are in line with their due diligence strategy.
Interestingly, article 20 of the proposed Directive notes that the fact that an undertaking has complied with the proposed Directive, does not protect the undertaking from facing civil liability claims on the basis of national law. It is unclear what the drafters had in mind with this text, seeing as the national civil (and criminal) legislation of a respective country is always applicable to undertakings operating there. Furthermore, if the drafters envisaged a very strict legal regime, it is unclear why they opted for a Directive rather than a Regulation.
Lastly, an interesting proposition is the recommendation to alter the Rome II Regulation (containing the rules on how the determine the applicable law in transnational legal matters). The drafters propose a modification of the Rome II Regulation to include a specific choice of law provision for civil claims relating to alleged business-related human rights abuses committed by EU companies in third countries, which would allow claimants who are victims of human rights abuses allegedly committed by undertakings operating in the EU to choose a law with high human rights standards. The claimants would be able to choose between the law of the country where the damage occurred, the law of the country in which the event giving rise to the damage occurred and the law of the place where the undertaking is domiciled or where the undertaking operates.
The European Parliament is not the only EU institution that expressed the need for EU legislation. On 18 September 2020 the European Economic and Social Committee adopted the opinion “that it is time for the European Commission to act and propose legislation to the Member States and the European Parliament on mandatory due diligence that acknowledges responsibility based on current standards and offers a clear and secure legal framework for European businesses”.
Also in September 2020, the Social and Economic Council (SER) published an advisory report titled “Working together for Sustainable Supply Chain Impact”. In the report, the SER – among other things - advised the minister for Foreign Trade and Development Cooperation to use a combination of legislation and sectoral cooperation. The SER deemed this mix a prerequisite for sustainable impact in supply chains.
In conclusion, there are multiple interesting developments concerning (a push for) due diligence legislation occurring in the EU and within the Netherlands. We will continue to closely follow these developments. Do you have any questions? Please don’t hesitate to contact our Business & Human Rights practice group!