(Brussels) – The European Commission’s new corporate due diligence proposal needs significant improvements to prevent and address human rights abuses and environmental harm, including in companies’ global supply chains, Human Rights Watch said today. The bill is under the scrutiny of the European Parliament and Council, as co-legislators are tasked with amending and eventually adopting the final text.
Legislators should ensure that the proposed directive covers more small and medium-size companies and extends due diligence requirements to all businesses in their supply chains, in line with international norms on business and human rights. Responsible purchasing and responsible disengagement (the process for ceasing business relations), which are not yet explicitly referenced in the proposal, should be at the heart of due diligence.
Key international standards that are currently missing should be included; for example, the International Labour Organization Convention 190 on violence and harassment in the world of work. Legislators should also expand civil liability provisions beyond the first tier of suppliers, introduce supply chain transparency and traceability, and further limit the role of voluntary industry due diligence schemes.
“Broad scope, robust due diligence obligations, and civil liability are critical to demonstrate that European regulators and courts will no longer quietly watch corporations profiting off abuses against workers and communities,” said Aruna Kashyap, associate business and human rights director at Human Rights Watch. “European policymakers should use the forthcoming negotiations to fix the many loopholes and start a new chapter for justice and remedy for corporate harm.”
The absence of robust human rights and environmental due diligence legislation has thus far allowed European companies to conduct business in ways that can ignore or drive human rights and environmental risks in their supply chains, without any legal consequences.
In one example of how the absence of human rights due diligence can cause harm, in the garment industry, global brands and retailers pay low prices and put pressure on suppliers through short lead times and other unfair purchasing practices. This fuels abusive working conditions, including low pay below living wage levels and excessive overtime.
In the mining industry, the failure of companies to conduct assessments and respond to the human rights harms and risks at the lowest tier of their supply chains – the mines themselves – has meant that gold and other minerals mined by children enter supply chains, and that conflict-related violence and environmental harm continue unchecked.
Despite evidence of crimes against humanity and forced labor against Uyghur and other Turkic Muslims in Xinjiang and Chinese authorities’ use of extremely invasive surveillance technology, many companies continue to ignore these human rights abuses and source from Xinjiang.
The Commission published the draft legislative proposal a year after it concluded public consultations with stakeholders, and following a European Parliament March 2021 resolution that presented a strong and more ambitious blueprint for legislation. The draft comes amid heavy corporate lobbying to weaken and dilute its scope and regulatory reach.
The proposal creates obligations on EU-based companies to conduct due diligence in their own operations and supply chains, based on numerous international human rights, labor rights, and environmental standards. However, the obligations currently would only apply to very large EU-based companies across all sectors – those with more than 500 employees and a net turnover more than €150 million – and in a more limited form to those employing more than 250 employees with a turnover of €40 million. Small, medium, and micro enterprises, which account for about 99 percent of all EU-based companies, are largely excluded. Non-EU companies selling products and services within the EU that exceed the turnover thresholds are also covered.
The proposal also creates an architecture for enforcement and sanctions. However, civil liability is currently restricted to direct suppliers, shielding companies from liability for abuses committed further down the chain and hence preventing access to justice for victims.
Due diligence obligations of companies in their value chains are also limited to “established business relationships,” that are “expected to be lasting” and that “do not represent a negligible or ancillary part of the value chain.”
In a separate article, the proposal requires companies to assess “the extent to which climate change is a risk for, or an impact of, the company’s operations” and to adopt a plan with emission reduction objectives, in line with the goal of limiting global warming to 1.5 degrees Celsius as set out in the Paris Agreement on climate change. However, it fails to mention climate change as part of the core human rights and environmental due diligence requirements, and excludes companies’ conduct in relation to climate change from liability.
Human Rights Watch provided detailed recommendations for the new EU due diligence legislation in a June 2020 letter to Commissioner Didier Reynders and European Parliament members, and further addressed key aspects of the legislation in a Q&A document. Human Rights Watch also contributed to the public consultations held by the commission to inform the draft.
“The European Parliament and Council should seize the opportunity over the coming weeks to turn this into a groundbreaking law,” said Juliane Kippenberg, associate director in the children’s rights division. “The EU legislation should set a high bar and introduce a new way for companies to do business – one that finally prevents and addresses, rather than profits off, human rights abuses and environmental harm.”