Anna Triponel | 12 April 2021
In this conversation with Thomson Reuters Practical Law, Anna Triponel talks about recent developments at the EU level when it comes to human rights and environmental due diligence. Anna summarises these developments, explains what they mean for companies, clarifies who will be subject to them, and provides some tips for businesses as they move forward. The video is available here until end of April.
Hello. Welcome to this video on human rights and environmental due diligence. My name is Anna Triponel, and I’m a business and human rights adviser. I work with companies to empower them to respect people and to respect the environment as they conduct their business.
In this short video I’ll be talking about recent developments at the EU level when it comes to human rights and environmental due diligence; tell us what’s been going on; what’s happening; what would be expected of companies; who would be subject to these new developments and some quick tips that I have for companies as they move forward.
European Parliament resolution on corporate due diligence and accountability
“We cannot build an economic paradise for the few on a social and environmental graveyard for the many”. Those were the words of four members of the European Parliament following the Parliament adoption of the proposed law on corporate due diligence and corporate accountability.
So, what’s going on here? We are seeing expectations of companies that used to exist under soft law standards, start to become hard law. This legalisation of human rights due diligence has already started in individual jurisdictions – France, The Netherlands – but on the 10th of March we saw the EU law makers clearly state that environmental and human rights due diligence in supply chains should transform into a legal duty for companies.
Now remember that the European Parliament is not the body responsible for drawing up new laws, that’s the job of the executive branch, the European Commission. However, the European Commission has also made clear that it stands behind mandatory environmental and human rights due diligence and its proposal, which will be a directive on sustainable corporate governance, will be published later this year. So the European Parliament’s draft is highly relevant as it shows the direction of travel. It shows what the law makers would envision this new EU law as containing.
In short this EU directive would create a new due diligence standard for companies. Companies will be required to consider how they, and their suppliers, and their suppliers’ suppliers and so on, can negatively impact people and how they could negatively impact the environment. Gone are the days where what you look at as a business is defined by law or contract or reputational risk. This new legal duty would push companies out of their comfort zone to look further and deeper into how their business can do what it does. Who does it rely on? What are the environmental consequences? Companies will need to start internalising what were previously social and environmental externalities.
This is not about not impacting people, or not impacting the environment as companies run their business. That actually in today’s world would be impossible. But this is about having meaningful policies and processes in place that would equip the company to better understand where it has risks of harming people and the environment and then deciding what it can do about it. There is a specific methodology (the good news!), that is further elaborated on in the UN Guiding Principles, in the Interpretive Guide to the UN Guiding Principles and the UN Guiding Principles Reporting Framework that helps companies prioritise where to place their efforts because yes, a full value chain approach can feel overwhelming and daunting.
Who will this affect?
Basically if your company wants to be part of the EU single market, selling to customers in the EU, you would be subject to this law in one way or another. The current draft text speaks about large EU companies as well as companies operating in the EU single market, including from the financial sector, as well as certain SMEs. But remember what we’ve seen with the 2015 Modern Slavery Act and the 2017 French Duty of Vigilance Law. Even if your company isn’t technically subject to the law, it becomes de facto subject to it because some of your business partners are. So then what happens? They start to contractualise their legal duty and they ask you to also take steps to help them meet it. So what we’re saying in short is that human rights and environmental due diligence will, with time, become part of how companies are run. Just like enterprise risk management or compliance with laws. But in the meantime, we will see a lot more lawsuits and investigations and fines for companies as they start to grapple with what they do and what they can say about what they are doing.
What should companies do?
Don’t be the lazy company.
I heard this on a webinar last week and I love it. Don’t be tempted by an approach that may feel good but doesn’t yield to any change in practice. I’m referring to new contractual provisions that may not be read or understood. I’m referring to rolling out compliance hotlines that people may not feel comfortable using. I’m referring to tick box audit processes that may not uncover the real issues.
Before COVID-19, I was out on the ground every other week and the challenges and supply chains are very real and not easy to tackle. If we had an easy solution, we wouldn’t be here discussing this law. Business is operating in a world where national laws often don’t help them meet these international expectations. Local cultures may even run counter to what’s expected. The growth in poverty, vulnerability, and displacement linked to the pandemic, the climate crisis, civil wars and other (the list goes on) are exacerbating these issues in company supply chains.
So for companies starting out on this journey, I’d start by reflecting on the following: What do I know as a company about what I’m doing, how I’m doing my business? Who can I speak with to find out more? And how can people speak to me?
This does mean acknowledging the complexity, building one’s knowledge and understanding of the operating context within which we’re doing business in our value chain. Looking beyond our own operations to better understand what we take from people and the environment – in addition to what we give back. This is about building cultures where people feel they can voice concerns, they can raise issues, they can be heard. It’s about creating relationships with workers, trade unions, communities, civil society, to see things from their perspective.
It feels uncomfortable because the issues are uncomfortable. And sort of the more you know, the more you realise you don’t know, to paraphrase Aristotle. But we’ve got a lot of learning to build on here, after ten years of implementation of the UN Guiding Principles. And we know that it is by working with other companies and stakeholders that ultimately we can start to tackle these challenges and be ready for this wave of legalisation that awaits us.