EU mulls tougher corporate due diligence

MEPs are proposing tougher due diligence rules, requiring companies to identify, address and remedy their impact on human rights and the environment throughout their value chain, which would apply to all companies operating in the EU internal market, including those from outside the EU

The European Parliament’s legal affairs committee has agreed a draft legislative initiative calling on the Commission to urgently present a law that ensures companies are held accountable and liable when they harm - or contribute to harming - human rights, the environment and good governance. It must also guarantee access to legal remedies for victims.

It was adopted by 21 votes in favour, one against and one abstention.

Under the proposals, binding EU due diligence rules would oblige companies to identify, address and remedy aspects of their value chain (all operation, direct or indirect business relations, investment chains) that could or do infringe on human rights (including social, trade union and labour rights), the environment (including contributing to climate change) and good governance.

All companies that want to access the EU internal market, including those established outside the EU, would have to prove that they comply with environmental and human rights due diligence obligations.

MEPs called for additional measures, including a ban on importing products linked to severe human rights violations such as forced or child labour, and said these aims should be included in trade and sustainable development chapters of EU trade agreements.

In order to guarantee effective reparations for victims, MEPs said companies should be held liable for their actions and be fined for causing harm or contributing to it, unless they can prove that they have acted in line with due diligence obligations and taken measures to prevent such harm. The rights of victims or stakeholders in third countries, seen as especially vulnerable, would also be better protected.

The committee said any future legislative framework on due diligence should be broad and apply to all large undertakings in the EU, including those providing financial services. The rules should also apply to publicly listed SMEs and high-risk SMEs, which should receive technical assistance to comply with the requirements.

Rapporteur Lara Wolters said: ‘A new law on corporate due diligence will set the standard for responsible business conduct in Europe and beyond.

‘No longer will companies be able to harm people and the planet without being held accountable.

‘The new rules will hold companies legally responsible for avoiding and limiting risks in their entire value chain. They will give victims a legal right to support and to seek reparations, and will ensure fairness, a level playing field and legal clarity for all businesses, workers and consumers.’

A Commission study published last February found that only one in three companies in the EU is currently taking due diligence measures, while around 70% of European businesses surveyed support EU-wide due diligence rules.

During an exchange with the committee on legal affairs, Justice Commissioner Reynders said that the upcoming legislative proposal, expected in the first half of the year, will be an integral part of the European Green Deal and the European Recovery Plan.

EU study on due diligence requirements through the supply chain

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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