European Commission promises mandatory due diligence legislation in 2021

RBC Webinar 29 April 2020

Commissioner for Justice Didier Reynders announced yesterday that the Commission will introduce a legislative initiative next year on mandatory due diligence for companies. 

Commission is currently preparing a public consultation on sustainable corporate governance and due diligence, which will inform the Commission’s legislative proposal.

Commissioner Reynders made his announcement in a high level webinar hosted by the European Parliament’s Responsible Business Conduct Working Group, and chaired by MEP Heidi Hautala, during which the Commissioner presented the findings of the Commission’s recently published study on due diligence requirements through supply chains.

The study, which provided an overview of current market practices and an assessment of different regulatory options forward, confirmed that voluntary measures have not been effective in encouraging companies to identify, account and mitigate negative human rights and environmental impacts in their supply chains, and highlighted a need for EU-wide, mandatory legislation. 

The Commissioner’s announcement was welcomed by MEPs and other stakeholders, who presented a united front in the webinar in their call for EU-level horizontal and mandatory legislation on due diligence, with effective access to remedy for victims and affected communities and liability for harms caused by businesses. 

Heidi Hautala (Greens/EFA) reflected in the webinar the long standing call by the European Parliament for such a legislation. Lara Wolters (S&D) described how in addition to climate crisis, the Covid-19 has now brought about health, economic and social crises that have reinforced the need to build more resilient and sustainable supply chains. Manon Aubry (GUE/NGL) reminded of the need to ensure access to remedy for victims of human rights and environmental violations by corporations.

Cristina Tebar-Less from OECD underlined that supply chain disruptions have a huge impact on the economy and the lives of people. She reminded that when designing legislation for the EU, no new wheel has to be invented but it can be built on the existing guidance on how to build more sustainable supply chains already provided by organisations such as the OECD.

Margaret Wachenfeld from Themis Research highlighted the need for specific criteria and requirements for what due diligence means to avoid a noodle soup of different actions by all companies. 

Commission’s initiative also received encouragement from Germany, which is due to hold the Presidency of the EU Council from the beginning of July. Carsten Stender of the German Federal Ministry of Labour and Social Affairs said that “you have our support”.

Commissioner Reynders’ message to the companies was that acting sustainably and responsibly pays off. Covid-19 crises has shown that those businesses that have environmental, social and governance measures in place, weather the storms better and outperform others. He also said that the forthcoming legislation would be part of the EU’s Covid-19 recovery package.  

I am delighted at the commitment Commissioner Reynders showed towards protection of human rights and environment through EU-wide and mandatory due diligence legislation with an enforcement mechanism, applicable across all sectors. I welcome the Commission’s view that sustainable corporate governance and due diligence are an essential part of the EU’s recovery package. We should not rebuild the old economy, but a new one that is greener, more sustainable and more resilient, MEP Hautala commented after the webinar.

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