The road was long, but we got there: the European Commission finally presented on February 23 a proposal for a directive on the duty of vigilance of companies. This means that they would be forced by this law to carry out “due diligence” work throughout their value chains. It's over modus operandi classic of large transnational companies which, in the event of violations of human rights and the environment, often offloaded to their subcontractors. Another tactic is now becoming obsolete: that which aims for the company called into question to invoke the complexity of global value chains and the impossibility of verifying what is happening at the other end of this chain, often on the other side of the world.
This system aims to establish a transversal approach which would, according to the Commission, aim to avoid the fragmentation of the single market and harmonization at the legislative level in this area. Indeed, several legislative initiatives have already seen the light of day at the national level, within the European Union, in particular with France which adopted a law on the duty of vigilance in 2017. Germany and Norway, countries which is not a member of the EU, also followed suit in 2021.
In the EU and Belgium, proposals are on the table to legislate corporate responsibility for their value chains in order to end human rights and environmental violations. But gaps persist…
What does the directive provide?
First of all, it would require companies to exercise their duty of vigilance, that is to say to check the potential risks of non-respect of human rights and the environment throughout their value chains, by upstream and downstream. If such risks exist, it is the responsibility of companies to take all necessary measures to avoid, eliminate or at least minimize them.
Regarding the scope of application, the directive applies to European companies as well as foreign operators who are active on the European market with the aim of avoiding unfair competition. More specifically, this would concern companies employing more than 500 people and achieving a turnover of more than 150 million euros. 12,000 companies would therefore be affected by this measure. Lower thresholds are set for sectors considered “at risk” by the OECD, notably textiles, agriculture and minerals. More precisely, these would be companies working in these three sectors employing at least 250 people and having an annual turnover of at least 40 million euros. According to estimates, 4,800 companies would be affected. With these benchmarks and thresholds thus set, SMEs escape the scope of the directive.
Two articles of this directive are particularly worth highlighting, because they highlight the responsibilities assigned to States and businesses. Article 5 of the proposal expressly provides for the obligation of Member States to ensure that companies update their due diligence policy annually. Article 6, for its part, stipulates that companies are required to develop and implement a prevention plan, accompanied by a reasonable and clearly defined action timetable, as well as qualitative and quantitative indicators enabling them to measure concrete improvements.
Having long remained helpless in the face of large companies, today it is the victims who will have the possibility of seeking compensation in the event of damage and if their rights are violated. If a company is accused of human rights and environmental violations, it will have to prove that it has fulfilled its duty of care to avoid harm and if this is not done, it would play into its disfavor in a lawsuit. Companies are also obliged, according to the directive, to put in place a system to allow affected people, unions and civil society to raise “substantiated concerns” to denounce possible abuses and request complaints. Finally, Article 9 explicitly provides that "Member States shall ensure that companies establish a procedure for dealing with complaints, including a procedure where the company considers that the complaint is unfounded, and inform workers and unions concerned with these procedures”. We can only rejoice – at this stage – with these advances, which aim to put victims and civil society at the center of the debate.
Regarding controls, companies will have to report to a national supervisory authority which will be established in each EU Member State and which will therefore be able to sanction companies which do not respect their vigilance obligations. This may take the form of administrative sanctions or fines, the amount of which will be set nationally according to the annual turnover of the companies concerned. A supervisory authority may initiate an investigation on its own initiative or following well-founded concerns communicated to it. The sanctions provided for must be effective, proportionate and dissuasive.
Finally, national supervisory authorities will be coordinated at European level by a “European Network of Supervisory Authorities” in order to ensure consistent application of the directive in all Member States.
Despite progress, gaps remain to be filled
Unfortunately, this directive is far from perfect and many flaws can already be identified.
The proposal covers on the one hand, large companies with more than 500 employees with a turnover greater than or equal to 150 million euros and on the other hand, companies with more than 250 employees for risk sectors of the textile, agriculture and minerals and which achieve a turnover of at least 40 million euros. This concerns less than 1% of companies operating in the European Union and leaves 99 % of EU companies outside the scope. Even in high-risk sectors, SMEs are excluded and this is also problematic, as the impact of their activities can sometimes harm the rights of local communities and the environment. These thresholds must be lowered significantly for the directive to have the desired impact on human rights and the environment.
The proposed initiative would encourage short-term business relationships. Indeed, the proposal expects companies to carry out a duty of vigilance on their own operations, their subsidiaries, as well as “entities with which the company has an established commercial relationship”. The latter notion is defined as “a direct or indirect relationship which is (supposed to be) sustainable and does not represent a negligible or merely incidental part of the value chain”. In other words, companies could easily avoid the duty of care by frequently changing suppliers.
Also from the point of view of sanctions, the proposal does not give indications on the level of sanctions, but simply invites Member States to provide for “effective, proportionate and dissuasive financial sanctions”.
The directive leaves it to national lawmakers to decide who bears the “burden of proof” in cases where victims seek justice. This is a significant barrier to access to justice, which must be corrected. Victims should not have to prove themselves that the company was sufficiently vigilant. On the contrary, it should be up to companies to prove that their conduct was adequate. Added to this are the numerous legal obstacles (high costs, short deadlines, limited access to evidence) which prevent victims from taking legal action against companies.
Finally, companies will also be able to fulfill their due diligence obligations by simply inserting certain clauses into their contracts with suppliers, thus relieving themselves of their duty of due diligence.
Belgium and the duty of vigilance: “yes, but nee”
On April 22, 2021, the Belgian Federal Parliament voted in favor of taking into consideration a proposal for law on a Belgian duty of vigilance. This is an important step forward obtained in particular thanks to the advocacy of civil society. Submitted by the PS, it was co-signed by Vooruit, Ecolo-Groen and the CD&V. On September 22, 2021, this bill was the subject of discussions in parliamentary committee. The Justice and Peace Commission took an active part in this process by participating with other civil society actors in the drafting of a Memorandum to demand the establishment of a Belgian law on the duty of vigilance. Private actors followed the same path, signing a official letter addressed to the government to request that respect for human rights and the environment be anchored in a binding Belgian law.
The bill under discussion makes a distinction between a duty of vigilance which requires companies established in Belgium to put in place "mechanisms which allow, continuously, to identify, prevent, stop, reduce as much as possible and address any potential and/or actual violations of human rights, labor rights and environmental standards throughout their value chains; this obligation also applies to their subsidiaries. » In addition, the bill provides for a reparation obligation which requires companies to repair damages suffered by victims due to absent or insufficient precautions.
If the bill passes, there will be additional accountability on the part of the company, with a crucial section dealing with the reversal of the burden of proof. This would mean that it is no longer up to the victim to prove the damage, but rather up to the company to “prove that it has put everything in place to avoid violations”.
The bill is on hold at the moment, due to blockages at the government coalition level. Indeed, the liberal parties have used the pretext of a possible legislative cacophony between the different levels of power, national and European. This is the reason why they preferred to wait for the European directive before moving forward at the national level. This is now done, so the Federal Parliament has all the cards in hand to resume work on the Belgian bill. According to a survey carried out by CNCD-11.11.11 in October 2021, more than 80% of Belgians would like Belgium to adopt an ambitious regulatory framework to protect human rights and the environment.
The long road to…constraint
Several voluntary initiatives that encourage – but do not require – businesses to carry out due diligence have already emerged. OECD Due Diligence Guidance for responsible business conduct adopted in 2018, as well as the United Nations Guiding Principles for Business and Human Rights, now constitute the global reference framework for respect for human, social and environmental rights. environment by businesses.
The United Nations Guiding Principles on Business and Human Rights, adopted unanimously on June 17, 2011 by the Human Rights Council, formalized the notion of “due diligence” by breaking it down into three types of obligations which would be incumbent on companies, in the same way as on States . We are talking in particular about the triptych “protect – respect – repair” possible non-respect of human rights by allowing access to remedies to obtain adequate compensation in the event of damage. Unfortunately, these two instruments are limited to establishing a main framework and good conduct. Companies are required to present concrete results in terms of respect for human rights.
According to a survey carried out by the European Commission in 2020, only 37% of companies have put in place mechanisms for due diligence[1]. One more reason to justify the need for restrictive measures relating to the duty of vigilance of companies.
Now the ball is in the European institutional gear which will see the legislative proposal made by the Commission discussed and amended in the European Parliament for subsequent adoption by the governments of the Member States within the Council of the EU. There is still a way to go and improvements to be made to the initial text, but the momentum is underway.
[1] European Commission, Directorate-General for Justice and Consumers, Torres-Cortés, F., Salinier, C., Deringer, H., et al., Study on due diligence requirements through the supply chain: final report, Office Publications, 2020, https://data.europa.eu/doi/10.2838/39830
