BEERG Newsletter - Europe: Due diligence debate heats up

As the European Council of Ministers and the European Parliament consider legislation defining corporate responsibility for labour and human rights throughout their global supply chains, a number of NGO have complained about new language which they say waters down corporate obligations and would weaken the law. According to the new, draft text, as reported in European media, “Member States shall ensure that companies can be held liable for damages stemming from the adverse impact that was or should have been identified […] and that companies intentionally or negligently caused or contributed to […].”

Forty civil society organisations from across Europe criticised the introduction of intent and negligence in the draft proposal, in a letter sent to EU ambassadors in late October. “We are alarmed by the foreseen conditions to engage a company’s liability for harm as they would introduce additional obstacles to accessing justice in European courts,” the letter reads.

According to the signatories, the revised text would require victims to prove companies’ intent in causing harm. However, they say, intent is rarely the cause of due diligence failures, which means that the directive would become far less effective. NGOs said the text “should clarify that business enterprises can fail their due diligence through both actions and omissions.”

Elsewhere, Borderlex reports that activists “want the EU’s proposed ban on products made with forced labour to be toughened up, but employers from developing countries are urging caution, saying that products made “fairly” could end up as collateral damage.” Katarina Schwarz, assistant professor of antislavery law and policy at the University of Nottingham, argues:

“It’s worth seriously considering…that goods coming from particular places or particular sectors are in fact automatically attached to a reasonable suspicion that there will be forced labour. That will provide a clearer framework for businesses understanding what they need to do in relation to these goods.”

In London, Uyghur rights activists are suing the UK government over its failure to investigate imports of cotton products made using forced labour from Xinjiang, in a move that will increase pressure on companies sourcing from the Chinese region. The hearing for the case, which was filed by the World Uyghur Congress (WUC), began in London’s High Court within the past week. It is the first of a wave of lawsuits across Europe aimed at blocking imports from Xinjiang. The law firm Mayer Brown draws attention to recently published documentation from the German government on how its new supply chain due legislation will work in practice.

Companies have long been awaiting some more clarity on their reporting obligations vis à vis the German Supply Chain Due Diligence Act (SCDDA). The BAFA has now shed some light on what is expected of the reporting entities by publishing 38 detailed questions (in addition to some general information on the reporting entity) covering the whole spectrum of due diligence obligations under the SCDDA. 

The first reports will be due no later than four months after the end of the financial year of the reporting entity that ends during the calendar year 2023 (for enterprises with 3,000 or more employees) or 2024 (for enterprises with 1,000 or more employees). The questionnaire will be made available in spring 2023 as an online tool, where companies must submit their responses in German.