Earlier this year, we reported and discussed EU Commission’s recent promise that human rights and environmental due diligence will be made mandatory for EU companies from 2021. The saga of developing a final legislative instrument, however, seems to progress at a very rapid rate, as the European Parliament’s Committee on Legal Affairs has already published, as early as 11 September, a draft report containing the text of a proposed directive. In this issue, we explore the latest around this topic, any issues with the recent proposal and how programmes like IMPA ACT are well suited to ensure your company will not be caught red-handed.
Corporate due diligence and corporate accountability: What we know so far
Following its initial May announcement that human rights and environmental due diligence will become compulsory for companies at EU level, the world’s largest trading block is now full steam ahead when it comes to developing legislation in this area.
The bases of the directive are clearly starting to form, with the latest report casting light on some of the mechanisms suggested. The proposed directive unsurprisingly draws heavily on the UNGPs, adds a new requirement of carrying out regular due diligence for environmental and governance risks on top of the expected human rights ones, and introduces potential threats of criminal or civil penalties.
If you are wondering what exactly companies will need to do – in practice – under the new requirements once the directive is finalised and entered into force, the answer may not be as clear for now; this is mainly because the proposed directive is met with several faults.
So far, it seems from the proposed directive that companies that do not have a management system that complies with the minimum standards set by the UNGPs and OECD Guidelines, will have to develop one. This system will need to comprise of a policy commitment, a regular due diligence process assessing actual and potential human rights, environment and governance-related risks in your own business and your units (whether inland or international), and swift access to remedy. Furthermore, according to the proposed directive, companies will be required to extend the same expectations to their business relationships, i.e. suppliers, and “carry out due diligence with respect to […] risks in their operations and business relationships”. It also seems to be clear that where risks are identified, the company is meant to publicly disclose detailed information about its value chain, including names. No mention of the mechanism for accountability is included in the directive, with the way in which authorities will assess compliance remaining an open question.
In a recent live webinar hosted by IMPA ACT Programme Manager Jasmine Schestak, Global CSR CEO and Founder Sune Skadegaard Thorsen explained the main issues arising now from the proposed document. Firstly, the notion that a company will need to undertake due diligence for its suppliers as well in order to become compliant; this, in his words, will be “mission impossible” and it is not consistent with what the UNGPs dictate; while one is indeed supposed to extend the same requirements to their suppliers and share best practice and their own assessments with them, one cannot carry out impact assessments for their suppliers’ operations. Secondly, the idea that, where adverse impacts are identified, companies will need to publicly disclose names has not been thought through and could have catastrophic consequences for SMEs, with the latter remaining too exposed to being negatively disrupted by their larger competitors. Finally, accountability mechanisms should be included as a standard in order to give companies an idea on how authorities will assess and monitor compliance.
As things progress in the saga of developments, it remains to be seen what the how the final document will be shaped up.
Can programmes like IMPA ACT make sure your company will not be caught unprepared?
Certainly! Not only do programmes like IMPA ACT lessen the burden of building capacity and knowledge by making all the information on how to become aligned with the minimum standard on responsible business conduct available in one place, but they can also help you document your continuous due diligence. These kinds of programmes provide the necessary tools and documentation that help you on your way to compliance and assist in your communication with your suppliers. Your company does not need a CSR department or a designated sustainability advisor; with the right time and resource investment, the professionals in charge of quality, health and safety, and/or HR can establish a compliant management system, and assistance from programmes such as IMPA ACT can prove invaluable in these cases.
Where can I find more?
Recently, the IMPA ACT team has organised a live webinar with Sune Skadegaard Thorsen, Founder and CEO of leading CSR consultancy firm Global CSR. To listen to the extensive discussion that goes into more depth about the upcoming due diligence requirement and more on responsible supply chain management, please head over to IMPA’s YouTube channel and search for: ‘Human Rights in Business: A Discussion with Sune Skadegaard Thorsen’ or click here: https://youtu.be/cmd3-j20EFA.
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