An introduction to the EU Sustainability Due Diligence Directive

In the latest edition of the French publication Compliances, GoodCorporation’s Caroline Le Mestre and Felix Feunteun discuss the proposed sustainability  due diligence directive, exploring the legislation that preceded the directive and what its introduction will mean for businesses and their human rights obligations.

Primary aims of the EU Sustainability Due Diligence Directive

The aim of the directive is to encourage companies to adopt further sustainable and responsible corporate behaviour by anchoring human rights and environmental considerations into their operations and corporate governance. Under the proposed new rules, businesses will be required to address any adverse impacts resulting from their activities, including those that occur in their value chain and in any operations outside Europe.

This development builds on laws introduced by individual member states, such as the Duty of Vigilance law adopted by France in 2017 and the more recent German law, adopted last year, that will require German companies to implement a plan for the prevention of human rights and environmental risks within their value chains from January 2023.

Enshrining a duty of care

The move by the Commission to introduce such a directive is a welcome one. It will enshrine a duty of care and environmental due diligence across all member states and will put these considerations firmly on the agenda. Despite the enactment of several human rights laws and the publication of the UN’s Guiding Principles in 2011, many companies are still struggling to grasp the full extent of the scope of their human rights obligations.

Since the idea of a corporate duty of care entered public debate, most vociferously following the Rana Plaza disaster in 2013, many commentators and politicians have expressed alarm at the vagueness of recently enacted legislation and the legal uncertainties this has created for companies, in particular the lack of alignment between laws.

The article explores in detail the extent of the proposed changes, including the wider remit that includes direct and indirect business relationships and the lowering of employee thresholds to bring more organisations into scope.

It also explores some of the limits of the directive, in particular the possible exemptions from liability if a company can demonstrate that it had adequate contractual and verification procedures in place to prevent harm and introduce mitigation measures. Further guidance and model clauses for these areas are expected which should help create a clear legal framework that will support business.

How businesses should respond to the directive

While it may take time for the final draft to emerge, the direction of travel is clear. Companies will have a legal obligation to take account of their human rights and environmental impacts throughout their value chain and areas of operation. As such, businesses can already begin to prepare themselves for these new demands. In our article, we explore the steps that many leading organisations, such as Unilver, Eni and Adidas are taking to evaluate their salient risks and put appropriate mitigation measures in place.

Companies have a body of texts at their disposal to guide them in building a robust programme for the prevention of human rights abuses, most notably the UN Guiding Principles (UNGPs) and accompanying documents. Frameworks such as GoodCorporation’s Framework on Human Rights Governance and Management, which draws on the UNGPs, can be used to help develop the management system needed to identify, minimise and remedy an organisation’s human rights impacts.

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