Sustainability: EU sets rules for companies’ respect for human rights and the environment

The European Commission yesterday adopted a proposal for a directive on corporate sustainability with regard to sustainability. The proposal aims to promote sustainable and responsible corporate behavior across global value chains. Businesses play a key role in building a sustainable economy and society. They will be required to identify and, where necessary, prevent, stop or mitigate the adverse effects of their human rights activities, e.g. child labor and the exploitation of workers, as well as in the environment, e.g. pollution and biodiversity loss. For companies, these new rules will provide legal certainty and a level playing field. For consumers and investors, they will offer more transparency. The new EU rules will promote the green transition and protect human rights in Europe and beyond.

Some Member States have already established national rules on due diligence and some companies have taken action on their own initiative. However, there is a need for greater improvement, which is difficult to achieve through voluntary action. This proposal establishes the duty of corporate sustainability regarding sustainability, in order to address the negative impacts on human rights and the environment.

The new due diligence rules will apply to the following companies and sectors:

EU companies:
Group 1: all EU capital companies with significant size and financial strength (with 500+ employees and 150+ million euros in net turnover worldwide)
Group 2: other capital companies operating in designated high-impact sectors that do not reach both Group 1 thresholds but employ more than 250 people and have a net turnover of € 40 million and more worldwide. For these companies, the rules will take effect 2 years later than for Group 1.
Non-EU companies operating in the EU, with a turnover threshold similar to that of Groups 1 and 2 produced in the EU.
Small and medium-sized enterprises (SMEs) are not directly included in the scope of this proposal.

The proposal applies to the activities of the companies themselves, but also to the activities of their subsidiaries and their value chains (direct and indirect established business relationships). To comply with corporate due diligence, companies must:

• integrate due diligence into their policies;
• identify existing or potential adverse effects on human rights and the environment;
• prevent or mitigate these potential effects;
• end or minimize the existing effects;
• establish and maintain a grievance procedure;
• monitor the effectiveness of due diligence policy and measures;
• and communicate publicly about due diligence.

More specifically, this means more effective protection of the human rights enshrined in international conventions. For example, employees must have access to safe and healthy working conditions. Similarly, this proposal will help to avoid the adverse environmental effects that are contrary to the basic environmental conventions. Companies falling within the scope of the measures should take the appropriate measures (“obligation of means”), depending on the severity and probability of the various effects, the measures at their disposal in the specific circumstances and the need setting priorities.

The national administrative authorities designated by the Member States will be responsible for overseeing these new rules and will be able to impose fines in the event of non-compliance. In addition, victims will be able to sue for damages that could have been avoided through appropriate due diligence measures.

In addition, Group 1 companies must have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 ° C, in accordance with the Paris Agreement.

To ensure that due diligence is part of the overall operation of the companies, the managers of the companies should make a commitment. For this reason, the proposal also stipulates that managers will have the task of developing due diligence and overseeing its implementation, integrating it into the corporate strategy. In addition, when fulfilling their duty to act in the best interests of the company, executives must take into account human rights, climate change and the environmental impact of their decisions. When corporate executives receive variable pay, they will be given incentives to help fight climate change based on the corporate plan.

The proposal also includes accompanying measures, which will support all companies, including SMEs, that may be indirectly affected. These measures include the development of individual or jointly dedicated websites, web platforms or portals, and potential financial support to SMEs. The Commission, in order to support companies, may issue guidelines, which include models of contractual clauses. The Commission may also supplement the support provided by Member States with new measures, including assisting companies in third countries.

The aim of the proposal is to ensure that the Union, both private and public, acts on the international stage in full respect of its international commitments to protect human rights and promote sustainable development, as well as international trade rules.

As part of the Fair and Sustainable Economy package, the Commission is also presenting a Communication on Decent Work worldwide. This Communication sets out the internal and external policies that the EU uses to make decent work a reality worldwide, focusing on a sustainable, resilient and inclusive recovery from the pandemic.

Statements by members of the Commission

Viera Jurova, Vice President for Values ​​and Transparency, said: “The proposal seeks to achieve two objectives: First, to address the concerns of consumers who do not want to buy products produced through forced labor or which are damaging the environment. , for example. Second, to support businesses by providing legal certainty about their obligations in the single market. “This legislative act will promote European values ​​in value chains in a fair and proportionate manner.”

Justice Commissioner Didier Renders said: “This proposal really changes the way companies do business across their global supply chain. With these rules, we want to defend human rights and lead the green transition. We can no longer ignore what is happening in our value chains. We need a change in our financial model. An ever-growing market trend has emerged in support of this initiative as consumers push for more sustainable products. “I’m convinced that many business leaders will support this effort.”

Thierry Breton, Commissioner for the Internal Market, said: “Although some European companies are already leading the way in sustainable corporate practices, many continue to face challenges in understanding and improving their environmental footprint and performance. in the field of human rights. Due to the complex global value chains, companies find it particularly difficult to obtain reliable information about the activities of their suppliers. The fragmentation of national rules is further slowing down progress in adopting good practice. “Our proposal will ensure that large market players take the lead in mitigating risks in their value chains, while helping small businesses to adapt to change.”

Next steps

The proposal will be submitted to the European Parliament and the Council for approval. Once adopted, Member States will have two years to translate the Directive into national law and to notify the relevant texts to the Commission.

Record

European companies are world leaders in sustainability performance. Sustainability is rooted in EU values ​​and companies show their willingness to respect human rights and reduce their impact on the planet. Nevertheless, companies’ progress in integrating sustainability — and in particular human rights and environmental due diligence — into corporate governance processes is lagging behind.

To address these challenges, the European Parliament called on the Commission in March 2021 to submit a legislative proposal on mandatory due diligence in the value chain. Similarly, on 3 December 2020, the Council, in its conclusions, called on the Commission to submit a proposal for an EU legal framework for sustainable corporate governance, including cross-sectoral corporate due diligence in global value chains.

The Commission proposal responds to these calls, taking due account of the responses gathered during an open public consultation on the Sustainable Corporate Governance Initiative, launched by the Commission on 26 October 2020. When drafting the proposal, The Commission also took into account the extensive database it collected through two outsourced studies on the duties of managers and sustainable corporate governance (July 2020) and on the requirements of due diligence in the supply chain (February 2020).

George Fellidis

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