BEERG Newsletter - Due Diligence: EU Parliament moving to a negotiating position

In a post on LinkedIn last Monday, Alex Voss, MEP, wrote:

"Tomorrow [Tues May 25^th] the JURI committee votes on the compromise amendments on the Corporate Sustainability Due Diligence Directive.

This Directive is a milestone for value chain responsibility. Tracing whether products contribute to human rights and environmental violations not only serves the victims at the end of the chain, but also strengthens the responsibility and sustainability of companies. 

Our main goal was not to turn this legislation into a huge bureaucratic exercise for companies having to work on thousands of contracts with suppliers that do not even have any risks in their operations. Instead, we wanted companies to clearly focus on those parts of the chain that they have control over and that show clear risks. 

Moreover, companies should take action on risks that they cause or contribute to, while on others there might not be any leverage. We now achieved compromises that clearly reflect this risk-based approach to due diligence in detail and fully aligned it with international standards and the OECD framework. Companies that take responsibility should therefore not have a competitive disadvantage and have clear legal certainty on what is – and what is not – reasonably expected of them. 

In EPP JURI, we are happy that European SMEs are not included in this proposal, as they have no means to fulfil such obligations, and the Directive instead focuses entirely on large companies. Moreover, the liability for companies is very clear: a company should be liable for damages that they caused or contributed to – not more and not less. As we are dealing with internationally interconnected value chains, full harmonisation of obligations was also a major success for us to be included in the Parliament's position. 

As with all legislation, we also had to make compromises that we are not happy with. Other actors and political parties tried to legislate things that have nothing to do with value chain legislation, such as #directors' behaviour and #corporategovernance. We will still try to vote against these measures as they have no place in this Directive. In addition to these key points, the compromises consist of:

1. Scope: all companies with more than 1000 employees will have to fulfil due diligence obligations from 3 years after entry into force, those with more than 500 employees 4 years after entry, and those with more than 250 employees can opt out for an additional year. 
2. Financial institutions: the scope of financial institutions is reduced (deletion of pension funds, market operators and more) to tier 1, also with consequences for their liability (they do not cause or contribute to harms).
3. Definition of value chain: encompasses the supply chain (from extraction to design) with additions of waste management and sale (although limited to specific situations). The use of the product is excluded.
4. CSRD: no reporting obligations or further climate standards beyond the CSRD.”

BEERG COMMENT:

This is by no means the end of the matter. The committee’s position will still have to be endorsed by the puff Parliament, and then negotiations between the Parliament, the Council of Ministers and the European Commission will open to see if a common position between the three institutions can be agreed.

MEANWHILE, the global unions have indicated that they will use the EU Directive as leverage in the ongoing negotiations at the United Nations for a legal binding treaty on corporate responsibility. SEE HERE  They are also pushing for more retailers and brands to sign up to the Bangladesh Accord - now extended to include Pakistan – and are targeting particular criticism at US based brands that refuse to do so: SEE HERE