The European Commission’s proposal for a directive on corporate sustainability due diligence: two paradoxes

On 23 February 2022, the European Commission (EC) published a proposal for a directive on corporate sustainability due diligence (proposal). The proposal has already attracted much scholarly and stakeholder commentary. In this blog we focus on two significant issues not yet addressed. First, the proposal does not  refer to European regional human rights instruments such as the European Convention on Human Rights, the European Social Charter or the European Charter of Fundamental Rights. Second, it purports to establish more demanding human rights due diligence obligations for corporations than for EU Member States themselves. These features, we suggest, weaken the proposal and jeopardise its coherence with EU and human rights laws.

The Proposed Directive

The Commission’s proposal would require EU Member States to legislate to establish domestic corporate sustainability due diligence obligations. These new corporate duties would apply to large limited liability companies over a defined threshold in terms of size and falling into one of three categories:

1. EU-registered undertakings with more than 500 employees and a net worldwide annual turnover of more than EUR 150 million (Art 2(1)(a));
2. EU-registered undertakings with more than 250 employees and a net worldwide turnover over EUR 40 million, of which 50% is generated in specific sectors (Art 2(1)(b) (i)-(iii)); and
3. Undertakings registered outside the EU if they generate annual net turnover inside the EU above the earlier stated thresholds (Art 2(2)).

To comply with the proposal, EU Member States would need to ensure (Arts 4-11) that eligible companies inter alia integrate due diligence into company policies; identify actual or potential adverse human rights and environmental impacts; prevent or mitigate, or bring to an end or minimise actual and potential impacts; and monitor the effectiveness of their due diligence policy and associated measures. A corporate complaints procedure should be established to facilitate redress for persons that have been or might be affected by an adverse human rights or environmental impact (cf. Art 3(b) and (c)), including trade unions, other workers’ representatives and civil society organisations (Art 9).

Importantly, the required due diligence steps should extend not only to a company’s own operations, but also to those of its subsidiaries and value chains, at least to the extent of “established business relationships” (Art 6(1)). Companies must also carry out periodic assessments of their operations; monitor the effectiveness of due diligence measures taken; and communicate externally relevant information on policies, processes and activities conducted to identify and address actual or potential adverse impacts, including the findings and outcomes of those activities (cf. Arts 10-11).  The proposal also provides for monitoring and enforcement of corporate due diligence duties via national supervisory authorities (Arts 17-20) and civil liability for harm to human rights and/or the environment caused by businesses’ due diligence failures (Art 22), to be facilitated via domestic courts, and subject to a form of due diligence defence.

In sum, the proposal would require EU Member States to establish new and in some ways potentially far-reaching obligations for companies either headquartered or operating in the EU, albeit the proposal is weaker in significant respects than that earlier sought by the European Parliament and subject to some concerning deficiencies in overall design. Amongst these is the coherence of the proposal with wider EU and international human rights law, which we turn to next. 

Whither European Human Rights Standards?

To determine the scope of the due diligence exercise required of companies, via an Annex, the proposal contains long lists of references to specific human rights provisions, entire documents and environmental standards. Human rights are contained in Part I of the Annex, which is subdivided into two subcategories. The first subcategory contains 21 references to “violations of rights or prohibitions” included in so-called “human rights agreements”. The second subcategory lists 22 “Human Rights and Fundamental Freedoms Conventions”.

It can first be remarked that, despite the reference to “agreements” and “conventions”, the lists include references not only to treaties but also other instruments such as the Universal Declaration of Human Rights (UDHR); the Declaration on the Rights of Indigenous Peoples; and, the Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities. Although various provisions in these declarations may reflect customary international law, general principles of law or elementary considerations of humanity, they are not themselves legally binding and hence not as such capable of establishing “violations” even by States. Part II contains a list of “internationally recognized objectives and prohibitions included in environmental conventions”, likewise not restricted to treaties.  

Secondly, it is noteworthy that nowhere in the proposal or Annex is mention made of European regional or EU human rights instruments, such as the European Convention on Human Rights (ECHR), the European Social Charter (ESC) or (with exception of the protection of privacy and personal data) the European Charter of Fundamental Rights (ECFR), which are by contrast lex lata. This appears, to say the least, ironic. The ECFR enjoys the same legal status as the EU’s founding treaties while EU Member States are required to give effect to it when implementing EU law, including the proposal. As regards the ECHR, this is recognised as part of the common constitutional traditions, with special significance in EU law. All EU Member States are parties to it which is furthermore a requirement for joining the Union. The duties of the EU itself, Member States and third parties under the ECHR and ECFR have been extensively examined in the case law of the Luxembourg and Strasbourg courts. All new EU legislation must respect the ECFR and the EC has adopted guidelines on impact assessments to secure this goal.

Even the preamble to the proposal itself says that the EU is:

…founded on the respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights as enshrined in the EU Charter of Fundamental Rights.

It is hard then to see how duties established in the proposal might be interpreted by the CJEU or Member States as not referring to the ECHR and ECFR. It is also unclear what arguments might be made by the EC to favour  their omission, especially regarding impacts (whether by EU or foreign-registered companies) occurring inside the EU.

If the intention is to avoid “exporting” European regional standards to third countries, this hardly seems consistent with the inclusion of non-treaties in the Annex, or with other EU measures protecting human rights, such as the General Data Protection Regulation (GDPR).

It is further worth recalling that some of the listed treaties are not universally ratified. Besides, countries such as the US take the position that several of the declarations included in the Annex ‘are indisputably nonbinding’, even if other States take different views. If the concern is legal certainty, this would also seem to favour a limited catalogue of rights, and especially one that is clarified by decades of legal adjudication, rather than multiple instruments which, while overlapping, are not fully aligned in their substantive content.

Holding Corporations to a Higher Standard than States?

A further contradiction in the proposal lies in the exclusion of public buyers from the proposal’s scope. Public procurement of goods, services, works and supplies represents a major component of the overall economy, at 14% GDP across EU countries. States, self-evidently, are the primary duty-bearers under human rights laws. Their “positive obligations” as such extend at least to taking reasonable steps, according to available resources, to address known threats within the limits of their jurisdiction. Accordingly, the UN Guiding Principles on Business and Human Rights affirm  the supply chain responsibilities of public buyers for human rights (UNGP 6) as an aspect of the state duty to protect under Pillar I of the UN Framework on Business and Human Rights.

Despite this, abuses linked to public purchasing of goods and services have been increasingly documented in recent years, drawing gradual recognition of the need for reforms in public procurement law and policy amongst governments and international actors including the EU itself.

States’ due diligence obligations under international human rights law are not analogous to companies’ due diligence responsibilities under the UNGPs. Even so, it appears scarcely justifiable, if it is deemed fitting to extend human rights supply chain due diligence duties to corporations, that public actors, in their commercial capacity, should escape similar standards.

Conclusion

Undoubtedly further legal measures are required to address corporate threats to human rights and the environment.  In this respect, European due diligence legislation could play a vital role inside Europe and beyond. Yet, as this blog has highlighted, questions remain concerning some basic features of the current proposal.

Besides their elevated legal status, the ECHR, ECFR and ESC are important to the Union’s integrity and legitimacy, as lately witnessed, in the context of threats to security, rule of law and financial and economic stability. Their omission, as well as that of public buyers, from the Commission’s proposal, lacks apparent justification and risks undermining accountability for abuses as well as the coherence and credibility of European and wider normative orders of human rights and environmental protection.