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31 May 2021

Başak Bağlayan

Luxembourg: Ministry of Foreign Affairs commissions study to examine the possibilities of due diligence legislation

"A Study on Potential Human Rights Due Diligence Legislation in Luxembourg", May 2021

This study examines the possibilities for new legislation on due diligence for companies domiciled in Luxembourg, with the aim of guaranteeing respect for human rights and for the environment throughout their value chain. The study was commissioned by the Ministry of Foreign and European Affairs in accordance with the Coalition Agreement (2018) and the updated version of the National Action Plan on Business and Human Rights (NAP II). The study consists of three main chapters responding to eight specific questions and several sub questions identified in the terms of reference (TOR) proposed by the Ministry...

...There is a growing momentum at international, EU and domestic levels to impose mandatory due diligence obligations on companies. Various countries have launched legislative proposals in this regard, based explicitly or implicitly on the UNGPs and the due diligence concept developed therein...

...This study has identified a variety of due diligence regimes already existing in different fields of Luxembourg law. It is recommended that drafters of future legislation on human rights and environmental due diligence make use of these templates and the underlying understanding of how due diligence can be encouraged, monitored and sanctioned through legal means. Importantly, Luxembourg should determine the overriding objective of its due diligence legislation. A law that focuses on the prevention of human rights abuses along value chains would incorporate other elements of due diligence than a law that focuses on providing access to remedies.

Moreover, even if an ambitious law would be preferable from a human rights perspective, this might not be the most feasible option in terms of implementation. In light of these considerations, policy makers and legislators are advised to decide on the various issues flagged in this study, including the personal and material scope of the law, the character and reach of the obligations, and the means of enforcement and access to remedies. Future legislation should seek to strike a balance between the imperative of improving corporate respect for human rights and the practical need to avoid imposing disproportionate burdens on companies and public authorities.

At the same time, it should be kept in mind that the potential costs of human rights due diligence are likely to be counterbalanced by various benefits, not only for right-holders affected by corporate activity, but also for Luxembourg’s corporations and for the country as a whole. For that reason, a new law should be integrated within a “smart mix” of government measures and policies aimed at improving human rights due diligence in Luxembourg and abroad.