AEFJN Position Paper: EU Corporate due diligence on Human Rights and Environment

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Tuesday, November 10, 2020
A recent study carried out for the European Commission (January 2020) warned of the ineffectiveness of voluntary measures that companies take to identify, prevent, mitigate and account for adverse corporate impacts on human rights and the environment. 
[AEFJN]

A recent study carried out for the European Commission (January 2020) warned of the ineffectiveness of voluntary measures that companies take to identify, prevent, mitigate and account for adverse corporate impacts on human rights and the environment. [1] This study by the European Commission supports the position that AEFJN and the civil society have denounced on many occasions: European companies have a double standard when doing business in Europe and in developing countries. While in Europe the standards of respect for human rights and the environment are very high, when the same companies operate in developing countries, they put aside the European standards and act with total impunity.

Following the announcement of European legislation for 2021 on corporate due diligence with respect to human rights and the environment, the European Commission has launched a public consultation on sustainable corporate governance and due diligence, which will inform the Commission’s legislative proposal.[2] AEFJN demands that this consultation be adequate for civil society and understandable to the public, that it takes into account the real problems of people suffering from human rights abuses and that it seeks effective solutions. AEFJN believes that tackling the problem of abuse and impunity by large corporations requires a horizontal and mandatory EU legislation on due diligence, with effective access to remedy for victims and affected communities and liability for harms caused by businesses.

  1. CONTEXT

The United Nations Human Rights Council adopted the Guiding Principles on Business and Human Rights in 2011. [3] These general principles outline the duty of States to protect human rights and the responsibility of business to respect human rights and the environment as well as providing access to redress mechanisms. However, their voluntary nature has led to their ineffectiveness due to the lack of sanctioning mechanisms for those who fail to comply with these principles.

In 2014, a United Nations intergovernmental group was established to promote an international treaty on Business and Human Rights to encourage the mandatory implementation of these Guiding Principles. Despite the opposition of the major Western economic powers to this initiative, including the European Union, the European Commission’s DG Justice announcement, in spring 2020, of a new binding regulation to respect human rights and the environment opens a new window of opportunity that it should be harnessed.

This legislation would be directly applicable to companies operating internationally, having their headquarters in Europe or doing business in Europe, owned by European companies, or receiving investments or using the financial services of European entities. In addition, it would apply where such companies, for reasons of their commercial or business activity, carry out their operations along their supply chain within or outside the EU.

These widespread activities of many companies in different jurisdictions requires international collaboration as different standards of human rights protection are in conflict. This makes it necessary for the EU to integrate such legislation into the economic treaties it conducts with third countries and especially in the renewal of the Post-Cotonou agreement with Africa.[4]

2. THREE CRITERIA TO CONSIDER ESSENTIAL A LEGALLY BINDING REGULATION 

Criteria of Justice. The first reason for a binding European business and human rights regulation is to put the value of human dignity before any kind of economic gain or exploitation of the environment. The ongoing failure of the voluntary nature of the current guidelines[5] set out for EU-based companies calls for new binding regulation that integrate rules protecting human rights, labour standards and the environment into business activity across the entire supply chain. The new legislation should not be conceived as a punitive element of reprehensible behaviour but as an opportunity for companies to strengthen their commitment to society through the positive value of trade and their influence to achieve a fairer society that promotes democratic values, human rights and environmental protection.

Criteria of opportunity. Human rights violations by enterprises are a global problem, and its solution requires national and international commitment throughout different general and sectorial regulations. The adoption of a new regulation on due diligence at the European level would be an endorsement to the current negotiation of a legally binding United Nations treaty on Business and Human Rights. It could encourage other economic powers to support the international treaty joining the obligation to regulate corporate accountability. The EU cannot legislate alone if not with the factual support of other national and international legislation.[6] But the EU should do more to develop and frame an effective multilateralism in this field and use it’s levers to push the UN treaty.[7]

Criteria of efficiency. Up to now, the Transparency Directive – also called the Non-financial Reporting Directive[8]– requires companies to report on respect for human rights and the environment. However, this requirement is limited to companies in certain sectors of activity, with more than 500 employees and with a high economic turnover. The new European Due Diligence regulation cannot be restrictive of big companies or reduced to certain sectors of activity, but has to be a cross sector corporate Due Diligence. The requirements of the Non-Financial Report have made the Directive an insufficient instrument for the protection of human rights and the environment. Therefore, the new due diligence regulation should eliminate all circumstances that exempt companies from liability and must apply to all companies, in all sectors of activity, regardless of the size of the company, profits, number of workers or the profit-and-loss balance sheets.

3. CRUCIAL STRANDS ON A NEW EUROPEAN DUE DILIGENCE ON BUSINESS AND HUMAN RIGHTS

The European Due Diligence Regulation should apply to all companies in the EU Member States, whether they conduct their business activities in a single country or are transnational companies, regardless of their size, sector of activity, location of their subsidiaries, ownership or structure. In the case of joint ventures, the group’s main company must ensure strict compliance with respect for human rights and the environment both in their subsidiaries and in those outside the group across the supply chain.

European companies must be accountable in the country where they have their headquarters when their economic activities provoke negative impact on human rights and environment. The economic activities cover the entire period of the business activity and its subsidiaries along the entire supply chain including the consultation period for the preparation of the impact assessment on their planned activity. In no case can companies be subrogated to other assessments carried out by other companies and they can never start their economic activity without the approval of such risk assessment.

The new European due diligence regulation must guarantee a minimum content among member states and ensure the proactive activity of the companies that allow them to identify, evaluate, stop, prevent and mitigate the risks of human rights violations and environmental damages. Preventing and remedying abuses by businesses is a joint responsibility of the private sector and public authorities.[9] The application of Due Diligence should be carried out through the transposition into the Member States law and the responsibility to implement and compliance with the European regulations would be of each country. It will require the cooperation among governments, companies and legal authorities, monitoring and evaluation from Governments, companies, civil society and legal authorities. Moreover, the EU should incorporate the due diligence regulation in all economic, trade and investment treaties in relations with third countries.

The mandatory nature of the European regulation on due diligence requires control mechanisms to enterprises that must act with transparency in the identification of the risks, the solutions proposed, the action plans that help mitigate the risks and take into account the prior consultation of the affected communities. Companies should minimize the negative impact of their activities and report the actions and resources employed to restore and compensate those affected by that. Any failure to comply with due diligence regulations should be accompanied with economic sanctions, as well as bans on business activity. When sanctions are only economic, large companies include these sanctions as production costs of the business activity.

Due diligence requires a system of effective and fair judicial remedies that allow victims and affected communities to rely on both national and international law to address their human rights violations committed by business. Companies are accountable for damages caused by them and by their group companies or suppliers across the supply chain. Likewise, the board of companies should be responsible for the negligence of their decisions when it is proved that such decisions provoked environmental harm as well as human rights violations.

Companies should establish effective communication channels so that both workers and affected communities can report on the risks that can be caused by business activity. Companies should transparently publish all risks that have been communicated to them in the consultative processes; this applies as well to new risks identified during business activity, and there should be proposed solutions in accordance with the risks and received demands.

Due diligence requires complementary measures relating to good corporate governance that help managers not to focus on short-term profits at any price.[10]  But it also takes into account the interests of all shareholders and stakeholders, as well as of the society they serve. This is achieved through sustainable measures related to their social obligations, human rights, the environment and climate change, in their long-term activities and across the entire value chain.

4. RECOMENDATIONS 

  1. Enhanced Labour Standards. A new legislation on Due Diligence is need. This should include respect for the labor rights established in the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policies. Labour standards must be mandatory by all enterprises across the entire value chain as well as by all supplier companies and subsidiaries in foreign countries.[11]
  2. Cross-sectorial Scope. The Due diligence must have a general cross-sectoral legislation, not limited to sectors of activity. It also includes financial institutions responsible for the impact that their investments may have on human rights and the environment. At the same time, it must be complemented by sectoral legislation that complements the different sectors of activity such as agriculture, hydrocarbons, minerals, garments, forests, finances, fishing, energy, timber, etc.
  3. Strong enforcement. Mechanisms for the implementation of the Due Diligence among the member states are needed. This implementation must be guaranteed through sanctions to those countries that do not include the due diligence into their national legislation or when their companies systematically violate the commitments to respect human rights and the agreements in the fight against climate change.
  4. Comprehensive Application. Financial and investment institutions are subject to the due diligence when they fund enterprises operating in third countries it such companies do not respect the fundamental rights and the environment.
  5. Anti-Slavery. The European due diligence should include specific measures to fight any kind of labour abuse specially child exploitation and gender discrimination.
  6. Effectiveness. The effectiveness of due diligence requires accompanying social protection measures that offer economic solutions and access to remedy to the victims of human rights and environmental violations.
  7. Climate change reduction linkages. Due diligence must favour the minimization of human rights abuses and be aligned with legislative proposals that reinforce the EU’s commitments to the Paris agreement in its fight against climate change.
  1. To be effective, due diligence must be connected to national laws. The mechanisms that ensure its implementation must be controlled by the competent national authorities.

AEFJN understands European regulation on due diligence as a contribution to the success of the EU’s commitment to a policy committed to human rights and respect for the environment announced in the European Green Deal. Moreover, it is an opportunity to advance the coherence of the European Union’s policies and to contribute to the promotion of the European values of justice, fairness and solidarity.

For more Information:

José Luis Gutiérrez Aranda

AEFJN Policy Officer

jl.gutierrez@aefjn.org

[1] Study on due diligence requirements through the supply chain, DS0120017ENN.en 

[2] https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-corporate-governance/public-consultation

[3]  Guiding Principles on Business and Human Rights https://www.ohchr.org/documents/publications/GuidingprinciplesBusinesshr_en.pdf

[4] The negotiations on the post-Cotonou agreement have been postponed to the first half of 2021. The Cotnou Agreement has been extended until June 2021. https://ecdpm.org/talking-points/au-eu-summit-not-immune-covid-19-blessing-disguise/

[5] OECD Guidelines for Multinational Enterprises,  http://www.oecd.org/daf/inv/mne/48004323.pdf

[6] State of the EU Address by President von der Leyen https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1655

[7] https://eeas.europa.eu/headquarters/headquarters-homepage/84888/building-global-europe_en

[8] Non-financial reporting, Directive 2014/95/EU

[9] Corporate Social Responsibility, Responsible Business Conduct, and Business & Human Rights https://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupMeetingDoc&docid=34866

[10] Enciclycal letter Fratelli Tutti, Pope Francis http://www.vatican.va/content/francesco/en/encyclicals/documents/papa-francesco_20201003_enciclica-fratelli-tutti.html

[11] Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, https://www.ilo.org/wcmsp5/groups/public/—ed_emp/—emp_ent/—multi/documents/publication/wcms_094386.pdf

[José Luis Gutiérrez Aranda – AEFJN]