A proposal for a European directive obliges large companies to introduce systems to identify and prevent environmental risks and violations of workers' human rights along the supply chain. It is a breakthrough that fills a regulatory gap. [Nelle filiere globali arriva l’obbligo di due diligence sui diritti umani – lavoce.info]
The limits of the Bangladesh Accord
April 24, 2022 marked the ninth anniversary of the collapse of Rana Plaza in Bangladesh. The building, designed to house only houses and offices, had been illegitimately intended for carrying out production activities and suffered from serious shortcomings in terms of compliance with occupational safety standards. With more than a thousand deaths and over 5 thousand injuries it is considered one of the most serious industrial accidents in the world. The factories in the collapsed building produced for major international brands, and after the tragedy, local unions and suppliers negotiated with these companies an agreement on the safety of factories and buildings in Bangladesh. The so-called Bangladesh Accord is in its third renewal and represents an important step forward compared to similar multi-stakeholder initiatives, since it is binding for the brands that adhere to it.
Although the latest version of the Agreement promises to expand the scope of human rights and expand the number of countries involved, there are still many unresolved issues. First of all, the voluntary nature of the instrument. Although binding once signed, companies have no obligation to join and many brands operating in Bangladesh have never done so. Further critical issues concern the control system, the scope of application, the countries involved and the fact that the recipients are exclusively companies in the textile sector.
Faced with the inadequacy of voluntary instruments, on 23 February 2022 the European Commission published the long-awaited proposal for a Directive on Corporate Sustainability Due Diligence. The proposal responds to a growing need to regulate value chains globally, with particular regard to their negative impacts on the environment and people. The need also emerged from the public consultation that preceded the proposal for a directive in which more than 80% of those who responded (including companies) voted in favour of such an instrument. Among the main reasons emerged the following:
- make an effective contribution to the Sustainable Development Goals (76.5%);
- promote a more level playing field between companies (75.5%);
- promote greater legal certainty (70.2%).
The European proposal
The proposal for a directive has a rather limited scope, because it concerns only large companies (including insurance and financial institutions), namely:
- companies with more than 500 employees (including part-time and other temporary collaborators) and a net global turnover of more than 150 million euros;
- companies with more than 250 employees and a global net turnover of 40 million euros, provided that at least 50 percent of the turnover derives from one or more sectors identified as high risk by the proposal (for example textiles, agriculture, mineral extraction).
The scope also includes large companies established outside the European Union, against which the same turnover thresholds apply as those established for those established in the Community.
The companies thus defined will be obliged to carry out due diligence on the risks of potential and effective negative impacts on human rights and the environment with reference to "their operations, the operations of their subsidiaries, and the operations within their value chain carried out by subjects with whom the company has a stable business relationship". Companies will also be called upon to draw up a prevention action plan, in which they will have to clarify the measures they intend to take to prevent the risks highlighted, as well as the indicators to measure the impact of the measures.
The proposal for a directive also provides for a system of internal controls by companies, which will have to introduce complaint procedures and external monitoring by national supervisory authorities. The latter should be endowed with sanctioning powers, including the possibility of adopting interim measures in order to avoid the risk of serious and irreparable damage. There is also a civil liability, in order to compensate the victims in case of damages and a liability of the directors with respect to the correct implementation of due diligence and its integration into the corporate strategy.
Criticism
The norms have received criticism that goes in two opposite directions. On the one hand, it complains about the excessive timidity of the proposal for a directive, particularly with regard to its scope. If the thresholds currently identified were confirmed, the direct recipients of the standard would represent only 0.2% of European companies, although small companies would still be involved, as actors within the supply chain.
On the other hand, there are those who fear excessive bureaucracy of business activity and a loss of competitiveness to the detriment of the whole Union. Among the reasons for greatest concern is the fear of a proliferation of civil lawsuits against companies and directors. However, the proposal for a directive contains an explicit exemption from liability for companies if they are able to demonstrate that they have invested adequately in sustainability due diligence. In order to promote legal certainty, the Publication by the European Commission of sectoral guidelines is also envisaged to clarify the terms in which these requirements can be said to be met.
Because it's a turning point
The proposal for a directive represents a key turning point in filling the regulatory gap that has followed globalisation, in which markets have evolved much faster than rights. Some of the criticisms raised are acceptable and we hope that they will be addressed by the European legislator when it is approved.
However, the proposal is the result of decades of laborious negotiations at international level. A turning point in the process came with the UN Guiding Principles for Business and Human Rights, unanimously approved by the Human Rights Council in June 2001.
These principles have influenced the voluntary and binding initiatives that have multiplied over the last decade (including the proposal for a directive) and have been inspired by the conviction that 'if we do not make globalisation work for everyone, it will ultimately not work for anyone' (Kofi Annan). Never as at this moment, after more than two years of pandemic, between the risks related to climate change and a new conflict in the heart of Europe, this need appears in all its urgency.
AUTHORS: NATALIA BAGNATO, MARIANNA PERONI AND MARIA PIA SACCO, DATE: 04/05/2022
