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23 Feb 2022

EU corporate accountability draft law published – potential to be global driver of respect for human rights and the environment by business but loopholes remain

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The EU Commission’s legislative proposal for a Corporate Sustainability Due Diligence directive was published today (23 February 2022) after multiple delays. This is a crucial step towards mandating human rights and environmental due diligence (mHREDD) for EU businesses and ensuring the rights of workers and communities are properly protected.

European governments, trade unions, civil society and leading businesses have consistently called for effective legislation to improve corporate accountability and introduce a harmonised standard for rights protections for workers and communities across global value chains. The current draft has great promise, but considerable gaps remain. All these entities will now seek to build on this draft to consolidate an effective legal framework for mHREDD, driving effective action on human rights and environmental harms where reliance on voluntary initiatives and social auditing has failed to achieve desired results.

Phil Bloomer, Executive Director, Business & Human Rights Resource Centre, said: “The publication of the EU Commission’s legislative proposal is a welcome development for all those seeking to build a rights-respecting global economy, which brings real benefits for workers and communities. If agreed and gaps are closed, the law will provide improvements for workers and communities facing abusive companies; support responsible companies against unscrupulous competitors; and promote shared prosperity.

“This draft law represents a crucial step forward in Europe. It proposes welcome protections for workers and communities across global brands’ supply and value chain. Nevertheless, the limitation of due diligence to ‘established’ business relationships could present a major loophole – unscrupulous brands graze the planet for the cheapest labour and therefore have far fewer ‘established’ suppliers.

“Suggestions companies which abuse people and destroy our environment for profit will face liability will change the calculus of risk in board rooms regarding the toleration of abuse, while loopholes beyond tier 1 must be closed and provisions for fair access to justice strengthened. Proposing companies deliver clear plans to avoid contributing to climate breakdown is a promising starting point but enforceability is unclear. Taken collectively, these clauses suggest Europe is showing leadership in seeking to make markets work for the majority, not just elites, and this potential now needs to be realised.”

Johannes Blankenbach, Senior EU/Western Europe Researcher & Representative at the Business & Human Rights Resource Centre, said: “Over the coming days we will analyse the proposal to assess whether the Commission has taken on board multiple recommendations and put workers and communities at the heart of mHREDD legislation. While it is encouraging to see consultations with potentially affected groups mentioned, there remains considerable room for improvement. We were also disappointed not to see specific mention of the role human rights and environmental defenders play in supporting effective due diligence. Strengthening their protection is a key priority for the next decade in business and human rights. The scope of the legislation should be much broader to not only include a tiny percentage of EU-operating companies, and care needs to be taken to ensure provisions around ‘contractual cascading’ and third-party verification do not result in tick-box approaches and obstacles for protections and remedy.

“Ultimately this is an important step in the right direction – and we will continue to work alongside supportive companies, investors, CSOs and trade unions working with the joint goal of seeing this proposal develop into legislation that effectively safeguards the rights of the most vulnerable workers and communities and becomes a global driver of respect for human rights and the environment by business.”

To be effective and achieve its proposed goals, the law must include:

  • A strong civil liability regime ensuring access to justice and remedy for harms, as well as a strong preventative component, complemented by robust administrative enforcement mechanisms and potential for criminal liability
  • Effective and safe stakeholder engagement, including with human rights and environmental defenders;
  • Sufficient scope – to cover all businesses active in the EU market, of all sizes and sectors, including finance, and a duty of care and due diligence obligation for these businesses that extends across their full global value chain;
  • Mandatory requirements which go beyond tick box exercises and auditing, address irresponsible business models and purchasing practices, and are embedded in appropriate governance and accountability structures, including at board level;
  • Protection of all internationally recognised human rights and environmental standards, including women’s, workers’ and Indigenous peoples’ rights, and the obligation for businesses to reduce and account for their climate change impacts.

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Note to editors:

Background materials:

  • February 2022: More than 100 companies and investors call for effective EU corporate accountability legislation. Read the full statement here.
  • January 2022: KnowTheChain publish evidence revealing companies are failing to introduce due diligence processes to identify and prevent forced labour in global supply chains. Read the full report here.
  • November 2021: Investors and companies issue statement in support of meaningful and safe stakeholder engagement as a crucial aspect of EU mandatory due diligence. Read the full statement here
  • October 2021: The Business & Human Rights Resource Centre publish a report on ensuring due diligence legislation effectively amplifies the voices of those affected by irresponsible business. Read the full report here
  • October 2021: The Business & Human Rights Resource Centre publish a report on key considerations for mandating effective due diligence which go beyond social auditing. Read the full report here

Media contact: Priyanka Mogul (London-based), Media Officer, Business & Human Rights Resource Centre, +44 (0) 7880 956239, [email protected]