Due diligence directive: no need to reinvent the wheel

This new directive should not depart from well-established international standards on human rights and environmental protection across transnational value chains, says the EESC in a new report.

In a report adopted at its July plenary, the EESC voiced a number of reservations on the draft directive on due diligence put forward by the European Commission. The draft directive would require large companies headquartered in the EU and non-EU companies with large operations in the EU to conduct human rights and environmental due diligence across global supply and value chains – and hold them accountable, if they fail to do so.

While hailing this important step forward in addressing gaps in the protection of human rights and the environment in transnational business activities, the EESC stressed a number of points which need to be clarified or improved.

Devil in the details

"Given the complexity of today's supply chains, thoroughness must take precedence over speed,” says the report.

The EESC insists that it is essential to ensure the directive's coherence, first and foremost with well-established international standards.

The UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises and the ILO MNE Declaration are broadly accepted by the international community, and the directive should not depart from them, argues the EESC. Not only would this make things complicated for European businesses and possibly fail to provide the legal clarity the directive set out to ensure, but it could turn into a competitive disadvantage for European companies.

"The starting point should always be how the well-established elements of the UNGPs and the OECD Guidelines can be integrated in a practical and effective manner, and a careful evaluation of the consequences of this directive for different types of European companies," says Antje Gerstein, rapporteur for the EESC opinion.

The EESC also asks the Commission to ensure that all the pieces of the regulatory puzzle that Europe has been crafting to address the impacts of businesses all fit together (the Corporate Sustainability Reporting Directive, the Regulation on Deforestation, the new Batteries Regulation, the sustainable products initiative, the EU taxonomy for sustainable investments, and the forthcoming initiative on forced labour).

No substitute for State action

While companies have a duty as societal players to put in place due diligence processes, the EESC argues, they cannot replace States and governments.

"Companies must comply with laws. They need to implement a due diligence process to ensure respect for human rights along the value chains," stresses Ms Gerstein, "but it is for States and governments to prosecute human rights violations. They are the addressees of human rights and international conventions. And they have enforcement powers that companies do not and should never have, like inspecting workplaces, issuing fines, seizing assets, revoking business licences, arresting suspects, charging alleged abusers and imprisoning those convicted," she explains, suggesting that third countries should be helped to better fulfil their duty to protect human rights.

SOS small business

The EESC also stresses the need to pay special attention to micro, small and medium-sized enterprises (MSMEs). While on paper the directive will first apply only to large companies and be extended to medium-sized companies two years later, it is clear that MSMEs will come under pressure from the larger companies they serve as suppliers to fall into line with due diligence obligations.

These demands will involve considerable efforts on the part of MSMEs, which have less leverage to address human rights risks in their supply chains, and much fewer resources to conduct thorough risks assessments.

To help them cope with the burden, the EESC suggests that the European Commission set up a helpdesk to provide easily accessible information on human rights risks in countries and regions. This helpdesk should also support the human rights capacity building of suppliers in third countries, and help them improve their environmental performance.

In the report, the EESC also highlights the important role trade unions have to play in due diligence processes; because they are aware of where misconduct can happen, they can help map risks, monitor implementation and report breaches.

To learn more:

Read the EESC opinion on Sustainable corporate governance