Human Rights Due Diligence: Delays point to the lobbying efforts ahead for a landmark reform
After repeated delays, the European Commission’s draft law on Corporate Sustainability Due Diligence published on Wednesday is a landmark step forward.
This draft legislation has been years in the making. The delays to the publication of the Commission text, which was expected last spring, underscore the scale of the lobbying by big business to water down the bill that is due in the coming months.
Such resistance isn’t surprising. The draft directive will apply to around 13,000 European Union (EU) companies, meaning that all major companies operating within the EU will be obliged to respect human rights and the environment in their global value chains.
To be exact, companies subject to the directive include those:
With more than 500 employees and a net worldwide turnover of €150 million
With more than 250 employees and a net turnover of more than €40 million, if at least half of their turnover comes from a high-risk sector, such as the textile industry, mining, or agriculture
From third countries with a net turnover of at least €150 million or €40 million in the EU from a high-risk sector
The Commission estimates that the directive will cover about 4,000 non-EU companies.
Meanwhile, “[s]mall and medium sized enterprises that include micro companies and that account for around 99% of all companies overall in the Union are excluded from the due diligence duty,” according to the draft directive.
It also includes public and private enforcement provisions—sanctions and a civil liability regime.
The civil liability regime would allow people affected by an EU company’s operations to take legal action against the firm in an EU member state if it did not sufficiently act to prevent, minimize, end, and mitigate the adverse impacts of its business activity.
This has been a key demand of civil society. One that makes all companies, not just the biggest, responsible for their human rights or environmental violations and for damage to the climate. And importantly one that holds companies to a high standard of care with less chances to escape their obligations through the small print.
Even still, the civil liability regime is limited in scope. For example, EU companies can secure contractual assurances from their business partners that they complied with the company’s code of conduct to protect it from facing civil liability.
There are also several other major loopholes in the law as drafted.
All companies should be accountable for human rights and environmental abuses in their business activities. The Commission has already tried to head off criticism about the law by excluding small firms from its scope. It is likely to face intensive lobbying to widen the scope of exemptions.
The personal element of accountability, making boards of directors potentially liable for human rights or environmental abuses when making strategic decisions is another area of concern.
As the text moves to the European Parliament and national commerce ministers across the EU, this becomes a major test case for corporate accountability legislation.
That the text exists and is highly likely to become law in one form or another means that we will see a harmonized pan-European approach to human rights due diligence. This will eventually replace the patchwork of different national laws currently in place and under discussion, and in turn increase pressure on other major jurisdictions to table similar laws. This dynamic makes the passage of the legislation from draft to statute even more important even if there is a long road ahead.