Wednesday

1st Feb 2023

Opinion

EU corporate due diligence: new rules, or businesses rule?

  • 'Corporate due diligence' - once an 'unsexy' issue, now the talk of Brussels, with corporations like Ericsson, H&M, and Ikea supporting EU legislation (Photo: Marcus Quigmire)

There is growing pressure for corporations to do the right thing, but are EU lawmakers willing to act?

Few ideas are as bold and exciting in Brussels policy circles as that of corporate due diligence. It became a 'hot topic' back in April when the EU's justice commissioner Didier Reynders told an audience of movers and shakers that new human rights and environmental rules for business are coming in 2021.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

This proposal could be a big milestone in the fight for corporate accountability – but it's all about getting the nitty-gritty right.

The European Commission won't reveal exactly what the draft law will contain until the public consultation closes in early February, but some burning questions have already been confirmed by Reynders: requirements will apply to companies of all sizes and across all sectors, from cocoa to big tech.

"Without legally binding measures, problems related to labor conditions, climate change, pollution and biodiversity are unlikely to be addressed successfully," commissioner Reynders acknowledged this week.

That's a good start.

No sector has escaped the corporate list of shame and expecting all businesses to voluntarily do the right thing has proved naïve. The price paid for this lesson has been high for our global economy's most vulnerable, but I'm encouraged that we are finally moving away from this wishful thinking and towards solid rules for corporations.

If we've learned anything from the infamous collapse of the Rana Plaza garment factory supplying top European fashion retailers, it's that such tragedies are not unavoidable accidents but the direct result of deliberate decisions by brands at the top of supply chains.

The good news is a lot has changed over the past few years. Everything from risky trade deals to raging fires has helped shift the zeitgeist against an economic model that shamelessly rewards exploitation and destruction with gargantuan profits.

At issue is a hard-fought debate about whether companies should only work to benefit their shareholders, or also everyone affected by their operations.

Now lawmakers around Europe are finally rethinking their hands-off approach to business.

Follow the French

The front-runner in this story is France, which introduced a law called duty of vigilance three years ago, requiring large French companies to monitor and prevent human rights and environmental abuses in their supply chains.

It's no surprise then that French multinationals have become big champions of extending these rules across the EU to guarantee a level playing field.

The Netherlands has adopted a similar law, while governments and parliaments in Germany, Finland, Luxembourg, Denmark, and Austria have started to consider their own supply chain rules.

What's still missing, however, is an EU law that would ensure that responsible companies are not undercut by the race to the bottom.

The EU, with commissioner Reynders at the helm, is right to rectify this patchwork.

The law – part of the EU Green Deal and the Recovery Plan – would ensure all companies look beyond the bottom line, and take action to address risks to workers, communities and the environment through a process called mandatory due diligence.

But for such a law to be a game changer, it needs to go beyond ineffective box-ticking, and really measure up to the scale of change needed. It would be meaningless if not backed up by strong provisions, such as placing civil liability on companies.

After all, isn't prevention the best cure? The French law is already pushing big French multinationals to engage with communities in countries like Uganda and Mexico to prevent harm from occurring.

By making it possible to hold parent companies liable for the harm caused by subsidiaries and suppliers they control, companies would be incentivised to do the right thing and finally change their bad behaviour.

This idea isn't new and doesn't deserve its lukewarm reception among some EU pro-business parliamentarians and officials.

Just last month, the European Parliament voted in favour of mandatory due diligence and liability for companies placing products linked to deforestation on the EU market.

France's pioneering law also places liability on parent companies, allowing victims of corporate abuse to seek compensation for damages under civil law.

On the other side of the Channel, jurisprudence extending civil liability down the supply chain has already been established in UK, Australia, Canada, South Africa, and India over the past few years, providing poor and vulnerable people with a path to justice in some truly horrendous cases of corporate abuses.

As is so often the case with corporate scandals, establishing responsibility is like grasping at straws.

That's why governments will need to play their part too – compelling companies to hand over evidence, publicly publishing findings of investigations, imposing proportionate and dissuasive fines, and empowering victims to seek and obtain access to remedy.

Whilst due diligence legislation is no silver bullet, it is a crucial opportunity to ensure companies' supply chains hit human rights and environmental standards.

The potential is there. A determined movement of civil society, trade unions, consumers, and faith groups have turned corporate due diligence from a once "unsexy" issue to the talk of the town.

Even corporations like Ericsson, H&M, Ikea, Mondelēz, Unilever and dozens of other companies across the EU support legislation and want to know what they should be doing differently.

But the momentum is also fragile.

Despite overwhelming support for new corporate due diligence rules in the EU Parliament's development and foreign affairs committees last week, we expect the vote in the legal affairs committee to be neck and neck, and are keeping our eyes on a series of possible amendments to the text.

Conservative business associations have also joined the fight, peddling false claims and muddying the waters, despite an overwhelming body of evidence showing that corporate misconduct requires urgent political action, and that corporate due diligence is not only feasible (as demonstrated by a small number of principled companies) but also improves long-term business performance.

The Brussels rumour mill has it that the EU Commission is being pressured to put forward a weaker proposal than what civil society organisations, trade unions, and the European Economic and Social Committee say is needed.

That would give multinationals another carte blanche to continue with 'business as usual' – a blow to the millions of Europeans worried about what awaits future generations, and to the millions more workers and communities affected by bad business overseas.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

NGOs expose rights abuses in EU supermarket supply chains

A new report from Oxfam reveals that many of the people producing the food on sale in European supermarkets are victims of poverty pay, harsh working conditions, gender discrimination, and human rights abuses.

China's supply chains and 're-shoring' under Covid-19?

Some in Europe are calling for re-shoring or near-shoring supply and industrial chains of such critical sectors as medicine and pharmaceuticals, to reduce dependence on China's supply chains and market. Minister Xia Xiang sets out the opposite case.

MEPs seek to hold firms liable for supply-chain abuses

MEPs on the legal affairs committee are calling on the European Commission to urgently propose a new law that holds companies accountable for human rights or environmental abuses that happen across their supply chains.

Amnesty exposes Amazon staff conditions on 'Black Friday'

Attempts by Amazon staff to unionise were met with court action in Poland, while in the UK the online giant checked workers' Facebook profiles for union activity. Meanwhile, extra coronavirus risk-pay for staff ended in May in most countries.

Column

Democracy — is it in crisis or renaissance?

Countries that were once democratising are now moving in the other direction — think of Turkey, Myanmar, Hungary or Tunisia. On the other hand, in autocracies mass mobilisation rarely succeeds in changing political institutions. Think of Belarus, Iran or Algeria.

Greece's spy scandal must shake us out of complacency

The director of Amnesty International Greece on the political spying scandal that now threatens to bring down prime minister Kyriakos Mitsotakis. Activists and NGO staff work with the constant fear that they are being spied on.

Latest News

  1. Hungary blames conspiracy for EU corruption rating
  2. Democracy — is it in crisis or renaissance?
  3. EU lobby register still riddled with errors
  4. Polish backpedal on windfarms put EU funds at risk
  5. More money, more problems in EU answer to US green subsidies
  6. Study: EU electricity transition sped into high gear in 2022
  7. Russia and China weaponised pandemic to sow distrust, MEPs hear
  8. Frontex to spend €100m on returning migrants this year

Stakeholders' Highlights

  1. Party of the European LeftJOB ALERT - Seeking a Communications Manager (FT) for our Brussels office!
  2. European Parliamentary Forum for Sexual & Reproductive Rights (EPF)Launch of the EPF Contraception Policy Atlas Europe 2023. 8th February. Register now.
  3. Europan Patent OfficeHydrogen patents for a clean energy future: A global trend analysis of innovation along hydrogen value chains
  4. Forum EuropeConnecting the World from the Skies calls for global cooperation in NTN rollout
  5. EFBWWCouncil issues disappointing position ignoring the threats posed by asbestos
  6. Nordic Council of MinistersLarge Nordic youth delegation at COP15 biodiversity summit in Montreal

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  4. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  5. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos
  6. European Committee of the RegionsRe-Watch EURegions Week 2022

Join EUobserver

Support quality EU news

Join us