An Update On The EU Mandatory Human Rights Due Diligence

By Dr. Rachel Widdis, Director, EMEA

With several countries including Germany and Norway pressing forward with their own mandatory human rights due diligence laws, companies are awaiting the EU’s Directive on mandatory human rights due diligence as a regional and potentially global standard that can help avoid a patchwork of regulatory requirements developing in Europe.

The EU Commission Sustainable Corporate Governance (SCG) initiative, including human rights due diligence in supply chains, is now anticipated in February/March 2022, a full year after the European Parliament adopted its recommendations on Corporate Due Diligence and Corporate Accountability. Current discussions indicate a Directive bringing within its scope, ‘large’ companies as well as publicly listed small and medium enterprises (SMEs) and ‘high-risk’ SMEs (to be defined) established in EU Member States. To ensure a level-playing field, it would also include companies domiciled outside the EU for goods or services delivered in the EU market. The drive towards mandatory obligations of due diligence recognizes that while frameworks relying on voluntary implementation (UNGPs, OCED Guidelines etc.) are widely accepted, they have proven insufficient to effectively change practices. The EU proposal comes against a background of publicly expressed support from industry, investors, civil society, and polls indicating EU citizens want strong corporate accountability legislation. As more EU States develop due diligence style legislation (Legislative Developments), we anticipate challenges for companies until an EU level framework harmonizes and reduces fragmentation.

Going forward, companies operating in Europe may expect requirements to prevent and to address adverse impacts on human rights and the environment linked to their activities and business relationships. Companies will be called on to situate responsibility for this process within their organization, and to put in place group-wide measures to map, track, act, and communicate on potential or actual adverse impacts. In addition, the standards which companies are to observe are increasing from the UNGP level of at minimum ‘internationally recognized human rights’. The question of accountability, via fines, administrative sanctions and potential civil liability is under discussion at EU level. Calls for the EU Directive to provide for civil liability reflects existing barriers to remedy for people and communities affected by the impact of business on human rights and the environment. While the direction which the EU Commission will take is not yet known, both administrative sanctions and civil liability are possible, consistent with the European Parliament recommendations.

We outline the latest developments and key steps which companies can take to prepare in our Briefing Note No. 1, EU Mandatory Human Rights and Environmental Due Diligence.