BEERG Newsletter - EU: European Parliament seeks to cast due diligence net wider

The trade website Borderlex (€) reports that the European Parliament rapporteur on the EU’s new corporate sustainability due diligence legislation is looking to greatly expand the list of companies falling into its scope. She also wants to broaden the list of environmental obligations for which companies would be liable. Her draft report contains over 250 amendments and proposes important changes to many elements of the Corporate Due Diligence Directive the European Commission tabled in February. 

MEP Lara Wolters wants the new rules to cover EU-based companies with more than 250 employees and a net worldwide turnover of €40 million. The Commission had wanted to set the bar at 500 employees and the net turnover at €150 million.

The EU Commission’s draft Directive would oblige companies within scope, large companies with more than 500 employees, but also smaller enterprises in ‘high-risk’ fields such as agriculture, mining, and textiles to undertake due diligence on their operations. The due diligence would need to be conducted “with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with whom the company has an established business relationship”.

For businesses operating in “high-risk” sectors, Wolters wants the legislation to apply to organisations listed on the stock exchange with more than 50 employees and with a net worldwide turnover of €8 million, of which 30% comes from these sectors. This is  significantly wider than the Commission’s proposal which had specified companies with more than 250 employees, making €40 million a year, and for whom 50% of turnover was generated in these sectors.

Wolters wants the concept of “established business relationship,” to be redefined as a “business relationship” between on the one hand a company or its subsidiaries, and on the other hand a contractor, subcontractor, franchisee, or any other legal entities (‘partner’) in its value chain,” so considerably widening its potential scope.

In her report Wolters expands on what a company would be liable for under the term “adverse impact”. She adds to the commission proposal pollution of air, soil, water, as well as “damage to wildlife, seabed and marine environment, flora, natural habitats and ecosystems”, and damage caused to climate, “greenhouse gas emissions”, and “the transition to a circular economy”.

Wolters further expands the definition of “adverse human rights impact” to include “‘any adverse impact on persons resulting from any action or omission which removes or reduces the ability of an individual or group to enjoy the rights or to be protected by prohibitions enshrined in international conventions and instruments”. Companies must “identify areas where potential adverse impacts are most likely to occur and where potential impacts are most likely to be severe, including mapping individual higher risk operations, subsidiaries and business relationships which should be prioritised, taking into account relevant risk factors.”

In another change to the Commission proposal, Wolters wants companies to not only “neutralise the adverse impact” but also restore “affected stakeholders and/or the environment to a situation equivalent to their situation prior to the impact, or as close as possible to that position in the circumstances”. She also lists in a new article the process for remedying “adverse impacts”. “Such remedial measures may include, but are not limited to, financial or non-financial compensation, restitution, rehabilitation, public apologies, reinstatement or a contribution to investigations,” she says.