March 17, 2022

EU Due Diligence legislation : the EU Commission unveiled its proposal but serious gaps persist

Business & human rightsNews

On Wednesday 23 February, the European Commission presented its proposal for a Directive on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937. It imposes a principle of due diligence on companies with regard to human rights and environmental violations. This long-awaited text, whose initial ambition we commend, contains many gaps that could limit its scope and impact.

The purpose of the principle of due diligence provided for in the directive is to oblige companies to put in place measures to prevent human rights and environmental abuses committed by their subsidiaries, suppliers or direct or indirect subcontractors in the context of their activities in the European Union or abroad. In case of fault, companies could be held liable and could be required to compensate those affected.

In particular, the Directive will allow engaging the civil liability of companies at fault. However, the civil liability regime settled risks to be limited in scope. If a company’s business partner has contractually agreed to abide by the company’s code of conduct, the company’s civil liability would no longer be incurred. The directive also fails to take into account the many obstacles limiting victims’ access to such remedies: high litigation costs, the disproportionate burden of proof, lack of access to information, limited legal capacity, and limited limitation periods.

We also regret that the proposal does not provide a clear and satisfactory definition of the notion of direct and indirect commercial relationships between companies. This lack of transparency could also be an obstacle to victims’ effective recourse to justice.

Finally, the Directive would not apply to all companies. It is aimed at companies with more than 500 employees and a net turnover of more than EUR 150 million, and companies with more than 250 employees and a net turnover of more than EUR 40 million, but where a majority of their activities are in a high-risk sector (such as the textile industry, mining or agriculture). It therefore excludes small and medium-sized enterprises (SMEs) from the due diligence obligation.

More generally, ASF stresses the need to involve all affected – and potentially affected – groups, particularly those in vulnerable and structurally disadvantaged situations, as well as environmental and human rights defenders. The consultation obligations and the modalities for the participation of these groups are at this stage unsatisfactorily formulated.

The directive will now be debated and possibly amended by the European Parliament and EU Member State governments. We want to encourage them to take into account the various shortcomings of this first proposal in order to make the necessary amendments to achieve the ambition of this text.

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