The European Commission has indefinitely postponed its much-anticipated directive on human rights and environmental due diligence (HREDD) – more than 150 days after it was first expected to be published. While the reason for the delay is unclear, 47 civil society organisations have penned an open letter seeking "full transparency on the reasons for the delay and on the decision-making process going forwards."
Despite this setback, national HREDD legislation continues afoot: laws have been adopted or are in force in France, Germany and Norway, while proposed national legislation is being progressed in a number of other European countries. Most recently, in December 2021, the Netherlands announced its intent to introduce its own national HREDD law in view of the further delay of the proposed EU law.
Legislative developments aside, investors, civil society and other stakeholders are scrutinising how companies identify and mitigate human rights impacts in their operations and supply chains more closely than ever.
And so the message is clear: companies still need to take steps to develop and reinforce their human rights due diligence programmes, both in anticipation of further mandatory HREDD laws and to respond to stakeholder expectations and demands.
Background to the EU legislative proposal
In March 2021, the European Parliament voted with a large majority (504 votes in favour, 79 against and 112 abstentions) to approve the Parliament's Legal Affairs Committee legislative report on due diligence and corporate accountability, signalling support in the European Parliament for the European Commission to table a similar law. At the time, the European Parliament described the draft proposed due diligence rules as follows: "This new law on corporate due diligence will set the standard for responsible business conduct in Europe and beyond... The new rules will give victims a legal right to access support and to seek reparations, and will ensure fairness, a level playing field and legal clarity for all businesses, workers and consumers."
Following on from this, in April 2021, the European Commissioner for Justice, Didier Reynders, announced that the European Commission would introduce legislation that would require EU companies to carry out HREDD (see our Legal Update and our previous Blog Post).
A draft legislative proposed was initially scheduled to be published by 30 June 2021, then 27 October 2021 and most recently 8 December 2021. However, the long overdue legislative proposal has not disappeared from the European Commission's latest agenda altogether. It is currently not clear when such a proposal will be tabled.
The wave of national HREDD legislation continues
The emerging wave of national HREDD legislation continues regardless. The French Corporate Duty of Vigilance law has been in force since 2017. In June 2021, Germany passed its own HREDD local law (see our previous Blog Post) and Norway adopted a similar law. Progress is being made on similar national legislation in Austria, Belgium and Switzerland, among others. Furthermore, on 6 December 2021, the Netherlands announced that it would introduce its own national HREDD law and – at the same time – expressed dismay at the delay of the publication of the EU Directive (see our Blog Post).
Investors, civil society and other stakeholders have reinforced their support of mandatory HREDD
Independent of the emerging legislative dynamic around HREDD, investors, civil society and other stakeholders are increasingly expecting companies to take seriously their responsibilities to identify and mitigate human rights impacts in their operations and supply chains in line with the UN Guiding Principles. Indeed, investors have voiced their support for mandatory HREDD legislation on a number of occasions, among other things to provide legal certainty and a level playing field as regards corporate supply chain obligations. For example, in October 2021, 94 investors representing over $6 trillion of AUM voiced their support for mandatory HREDD (see our previous Blog Post).
Furthermore, in response to the latest delay of the EU Directive, a coalition of 47 civil society organisations penned an open letter to President Von der Leyen calling on the European Commission to reiterate its commitment to introducing "ambitious, binding human rights and environmental due diligence legislation" and seeking "full transparency on the reasons for the delay and on the decision-making process going forwards."
The latest developments are also being reflected in reporting standards. For example, in October 2021, the Global Reporting Initiative (GRI) revised their Universal Standards to emphasise and require more transparency in reporting on human rights impacts and due diligence obligations (see our previous Blog Post).
How can your organisation prepare for increasing due diligence obligations?
Generally, businesses can position themselves for the anticipated EU-wide law and other mHRDD laws emerging at the domestic level by:
- Integrating human rights into group policies and strategic planning processes;
- Disclosing how human rights considerations are integrated into strategies, policies and procedures;
- Carrying out a human rights impact assessment and taking proportionate counter-measures, as well as communicating internally and externally on what measures have been taken;
- Reviewing and reinforcing complaints mechanisms and speak-up programmes;
- Ensuring the business is well equipped to deal with 'crises';
- Reviewing the extent to which their board is equipped to address supply chain risks; and
- Reviewing the role, resources and expertise of the legal and compliance functions, who should play a key part in addressing these new challenges.
Originally Published 22 December 2021
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