Week of 27 April 2020
EU-wide mandatory cross-sectoral human rights and environmental due diligence legislation will form part of the EU’s COVID-19 recovery package; this will feed into the European Green Deal with consultations starting now to feed into a legislative proposal debated at the EU in 2021 (according to the EU Commissioner for Justice)
EU Commissioner for Justice, Didier Reynders, announced on Wednesday that the European Commission will introduce a legislative initiative in 2021 on an EU-wide mandatory human rights and environmental due diligence legislation. His comments were made at a webinar hosted by the European Parliament’s Responsible Business Conduct Working Group, during which he also provided further information on the proposal:
- The Commissioner for Justice highlighted that the COVID-19 crisis had underscored “how important it is for the businesses themselves to properly integrate the interests of the society in which they operate, of the workers and those depending on the companies for their sheer survival and sustainability. Businesses which have better risk mitigation processes across their supply chains cause less harm to people and weather the crisis better. Good environmental, social and governance practices pay off, even in the short-term, not only in the long-term.”
- The legislation will be part of the EU’s COVID-19 recovery package, and will feed into the European Green Deal. “The European Green Deal highlights the role of corporate governance in this transformation. … We need to adopt new rules now. … Our work in the area of corporate governance has three main objectives: 1) to foster longer time horizons in corporate decision-making; 2) to incentivise sustainable business models; 3) to increase corporate accountability for human and environmental harm.” This will be an autonomous legislative path from the review of the EU Non-Financial Reporting Directive.
- The Commissioner references “corporate due diligence” as “a process aiming to identify, prevent and mitigate adverse human rights and environmental impacts in a company’s own operations and in its value chain.” He states that “this was developed in the UN Guiding Principles on Business and Human Rights and expanded in the OECD responsible business framework for multinationals.”
- This will be about “mandatory requirements” for EU companies covering the entire supply chain. The proposal will be cross-sectoral in nature to avoid market fragmentation. The proposal will cover various sizes of companies, including SMEs (although the treatment of SMEs will vary).
- The law will provide for sanctions (since “a regulation without sanctions is not a regulation”) which could entail a possible network of national supervisory authorities coordinated at the EU level. Civil liability will be provided for to capture remedy, which will seek to build on existing EU mechanisms (e.g. the proposed representative actions related to protection of the collective interests of consumers).
- This announcement builds on a European Commission-commissioned study where 70% of business survey respondents agreed that EU-level rules on human rights and environmental due diligence may provide benefits for business. It also builds on investor and civil society calls for such a legislative initiative.
- A public consultation will be announced shortly to feed into the legislative proposal which will seek to involve all relevant stakeholders. The announcement was welcomed by the German government (represented by Carsten Stender of the German Federal Ministry of Labour and Social Affairs) which will hold the next six-month EU presidency starting in July.
“The COVID-19 crisis painfully exposed the vulnerabilities of our economy and of unregulated global supply chains. Many argue that we should rethink our supply chains and dependency on third countries for some key products. … We need to make sure that responsible business conduct and sustainable supply chains become the norm, a strategic orientation for businesses.”
Didier Reynders, EU Commissioner for Justice, Speech by Commissioner Reynders on 29th April 2020 in the webinar on due diligence hosted by the RBC Working Group (29 April 2020)
“We should not rebuild the old economy, but a new one that is greener, more sustainable and more resilient. The long-awaited commitment from the Commissioner opens up an opportunity for all to start defining how such ground-breaking legislation should look like.”