Human Rights
Business Meets Human Rights

Brussels Moves Forward with Legal Regulation in Corporate Due Diligence
Türkische Kinderarbeiter beim Pflücken von Baumwolle nahe der Grenze zu Syrien
Türkische Kinderarbeiter beim Pflücken von Baumwolle nahe der Grenze zu Syrien. © picture alliance / Zoonar | Yavuz Sariyildiz

Ten years after their adoption, the UN Guiding Principles on Business and Human Rights are increasingly incorporated into legal regulations. Yesterday, the majority of the EU Parliament voted in favour of the Legal Affairs Committee's report on corporate due diligence [1] and corporate accountability. This is just another step towards a regulation at the European level. Through human rights due diligence, companies commit to clearly address and prevent adverse human rights impacts in their business operations.

The report was already adopted almost unanimously by the EU Parliament's Legal Affairs Committee on 27 January. With yesterday's vote, the EU Parliament has now given the Commission a clear mandate to present a legislative proposal. The text is a legislative initiative report (INL) according to Article 225 of the TFEU. Unlike non-legislative INI reports, the EU Parliament can use INL reports to question the quasi-monopoly position of the European Commission, by submitting a concrete legislative proposal, which the European Commission cannot simply ignore.

Far-reaching Proposal for Corporate Due Diligence Obligations

The Parliament's proposal largely coincides with the expected draft legislation to be put forward by the Commission later this year. It already exceeds the current requirements by the draft legislation in Germany, which was agreed upon by the Cabinet on 6 March. The European Parliament demands that not only human rights violations, but also environmental and good governance risks should be included in the due diligence obligations of companies. By adopting a risk-based approach, companies will be responsible for the entirety of their supply chain. An issue that remained controversially debated until the end was the special role of small and medium-sized enterprises (SMEs). Ultimately, the Parliament favoured a regulation that would apply to large companies, as well as listed and "high-risk" SMEs. However, companies should also be able to submit a “declaration of absence of risks”. This risk-based approach is suitable to reduce bureaucratic burden on companies. In addition, SMEs should not bear unacceptable liability risks.

According to the Parliament, companies should fulfil their due diligence in ensuring ethical supply chain management to the extent of their ability and refrain from passing on their obligations to subcontractors. Companies would further have to establish preventive mechanisms to identify these risks in their supply chains. In addition, national regulations should be put in place to allow victims to file civil lawsuits. As the former Commissioner for Human Rights of the German government and advisor on corporate responsibility Markus Löning points out, the EU intends to create a level playing field for companies.

What do Industry and Civil Society Think?

From 26 October 2020 to 8 February 2021, the European Commission conducted a public consultation in preparation of the legislative proposal on sustainable corporate governance. Such consultations generally intend to gather the views of a wide range of stakeholders, from businesses, trade unions and concerned individuals to non-governmental organisations and public authorities. The feedback proves the exceptional relevance of the debate: Over half a million people and around 700 civil society organisations contributed to the debate.

The main claims concern the inclusion of victims and marginalised communities into all relevant processes. In addition, victims should be ensured access to justice against companies through European courts. "While [the parliamentary proposal] represents a step in the right direction, the Commission will need to build on this proposal to put forward an even more robust, coherent and ambitious legislative proposal that will work in practice and provide access to justice for victims of human rights violations" comments the European Coalition for Corporate Justice.

Companies and business associations have already criticised these civil society claims in an earlier consultation process. They call on the Commission not to forget the challenges with regard to implementation and potential burden on companies. "Group parent companies based in the EU [will] also be held liable for infringements by their business partners or subsidiaries in third countries before courts in the Member States." It is questionable "whether companies will be able to control and meet the planned requirements at all", warns the Federation of German Industries (BDI).

Due Diligence and Supply Chain Law as a Sign of a “European Public”

The EU strives to speak with one voice on the issue of human rights due diligence. Herein, it wants to show a unanimity that has largely suffered since the Covid-19 pandemic and its vaccine procurement policy. The current discussion shows that a European public, albeit merely topic-related, can exist.  However, a legal patchwork situation, in which individual Member States adopt different or even contradictory laws on corporate due diligence at different paces, should be avoided.

The intense debate at the EU level already exceeds Germany’s current legislative debate. During the Council Presidency in the second half of 2020, Germany advocated for a European regulation from the outset and closely accompanied the debate launched by the Commission and the Parliament in the beginning of that year. It further shaped the issue with its own conferences and exchange formats. According to Michael Theurer, vice-chairman of the FDP parliamentary group, it is therefore "regrettable that the German government is seeking a national solo effort instead of jointly shaping enforcement of human rights in supply chains with the European Union.”

Spearheaded by civil society, these discussions have led to an increasing exchange of best practices between Member States. For instance, in the Bundestag Human Rights Committee hearing in October 2020, the French loi de vigilance and a relevant expert opinion were explicitly taken into consideration. The attempt to reconcile different interests is also evident in a series of comprehensive reports from the European Commission at the beginning of 2020. These reports explore the experiences of 12 Member States, including the Netherlands, Sweden, Poland, and the United Kingdom and the feasibility of implementing due diligence requirements. 

Paradigm Shift in Sight?

Globalisation has led to greater prosperity and increasing levels of development worldwide. At the same time, weak rule of law in many developing and emerging countries favour human rights violations and environmental damage in more complex supply chains. Public awareness of these problems has risen since the 1990s, not least in the wake of increased media reporting on the issue. The United Nations Guiding Principles on Business and Human Rights from 2011, formed the first and so far only consensus between civil society, the international community, and business on this topic. Even though 25 countries have already seen this as a wake-up call for the creation of National Action Plans, there is still a lack of legally binding instruments to bring about sustainable global rethinking.

In 2015, the G7 consequently decided to promote sustainability in supply chains. What began as a resolution, ushered in a paradigm shift that saw the responsibility for the protection of human rights no longer resting solely on the shoulders of governments, but also businesses. Overall, this approach also bears opportunities for companies, as consumers increasingly base their consumption behaviour on ethical standards and thus value more transparency and commitment in supply chains.

Not only the UN Guiding Principles, but also the UN Sustainable Development Goals (SDGs), which the EU has strongly influenced, are heralding a paradigm shift. The past decade has been marked by divisions between growing autocratic and democratic forces in Europe and worldwide. Faced with the growing influence of economic heavyweights such as China on the one hand and the phenomenon of "orbanisation" on the other, the EU is pulling out new stops to uphold democracy and human rights, while also attributing a central role to the economy. One example is the EU's Everything But Arms (EBA) scheme, which eliminates tariffs and quotas on imports from least developed countries (LDCs). This preferential trade regime gained special attention last year, when the EU suspended 20% of Cambodia’s preferences, in the wake of its human rights abuses. This exerted economic pressure on the autocratic government, which conducts much of its trade with the EU. It is therefore not surprising that the planned law on due diligence is now seen as the latest beacon of hope for economic instruments promoting democracy. However, the protection of human rights cannot be realised by companies alone, but must be backed by state development policy, as Liberal MEP Svenja Hahn urged in the plenary debate: "A European Supply Chain Act can and must be only one building block."

 

[1] The text was adopted by 504 votes in favour, 79 against and 112 abstention.

 

Jeanette Süß is European Affairs Manager at the European Dialogue Programme

Jana Weber is Manager Programmes & Outreach at the European Dialogue Programme

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