After several months of delay, today, the European Commission presented its proposal for a Corporate Sustainability Due Diligence Directive in Brussels. The main objective of this new legislation is to integrate into European law international standards such as the UN Guiding Principles on Business and Human Rights - adopted globally over a decade ago - and standards developed and approved by the OECD.
“By addressing due diligence and corporate governance, the European Commission’s proposal represents an important piece of the corporate sustainability puzzle. However, it risks proposing a default solution to companies, that relies on tick boxing and pushes the responsibility further down the supply chain,” said Frank Bold policy officer Julia Otten.
The legislation proposes a long awaited EU standard on human rights and environmental due diligence, based on global standards that define it as a risk-based approach: If a company identifies potential or actual severe impacts in its business relationships across its full value chain, it needs to determine appropriate action, track implementation and results, and communicate them to affected stakeholders. “This responsibility cannot be fulfilled by adding clauses in contracts with suppliers as proposed by the Commission,“ said Julia Otten: “This risks becoming a nominal compliance exercise as the one seen with the Data Protection Regulation, generating bureaucracy, whilst falling short of providing effective protection for stakeholders.”
Following fierce lobbying by industry groups, the proposal initially referred to as 'Sustainable Corporate Governance' has been presented with only a few elements to foster integration of sustainability and long-term thinking in corporate governance rules. The Commission’s proposal clarifies company directors’ duty of care to take into account human rights, the environment and climate in their decisions. Companies have to adopt a climate transition plan in line with the 1.5 degree target of the Paris climate agreement, however, no legal consequences are foreseen for breaching this obligation. Linking bonuses of company executives to sustainability objectives remains voluntary.
Directors will also have to oversee due diligence actions. However, the Commission refers to Member States to ensure enforcement and that directors ‘take steps’ to take into account the identified impacts in corporate strategies.
“We welcome the specification of the directors’ duty of care, but it is essential that directors are clearly responsible for the approval of strategies that react to problems. The Commission should not leave this up to national law,” said Frank Bold policy officer Julia Otten.
The proposed legislation requires EU and non-EU companies in the single market with more than 500 employees and revenues of 150 million Euros to prevent human rights and environmental abuses along their full value chains. In high-risk industries such as agriculture, garment and extractives, only companies with more than 250 employees would be covered, while SMEs would be exempted. Over 100 companies and investors have recently shown strong support for such a European due diligence legislation and have called on the EU Commission to move this process forward including “all businesses operating in the EU market, regardless of sector and size”.
The Commission’s proposal will now be handed over to the European Parliament and the EU Member States for negotiations and agreement on the final legislation.
The study on the sustainability disclosures of 100 influential companies from high-impact sectors provides an early reflection on the general readiness for businesses in the EU to meet the expectations of the upcoming EU sustainability rules and standards. Our report contributes to identifying the main challenges, as well as to highlight emerging good practices.
Thanks to legal support from the Frank Bold expert group, the Czech Neighborhood Association Uhelná, which has been opposing the adverse effects of mining at the Polish Turów mine, has achieved a significant milestone: at their initiative, the Czech Environmental Inspectorate (CEI) launched an investigation to assess whether mining activities at Turów are causing long-term water loss on the Czech side of the border. This is one of the first cases in which the Czech office has applied the Act on the Prevention of Ecological Damage. The Inspectorate has also included the Polish mining company PGE in the proceedings.
Join us for our upcoming webinar where we present the findings from our analysis of sustainability disclosures by 100 large EU companies in high-impact sectors.
