Since June 2021, Europe is waiting for the European Commission to publish the initiative on Sustainable Corporate Governance which should include obligations for European companies to monitor and prevent human rights violations and environmental damage along their supply chain. However the initiative keeps getting postponed. Meanwhile, large lobby efforts by big companies seem to achieve results.
Isabelle Schömann, Confederal Secretary at the ETUC, reveals the weak arguments of the business side and explains why we need such an initiative now.
The article was originally written by Cédric Vallet and published in "The Contexte" in French. Find the original article here.
The European Commission had announced it for June 2021. Then it kept postponing the deadline. The latest postponement: the presentation of the initiative on sustainable corporate governance, scheduled for 8 December, could take place on 15 February 2022. The text would oblige European companies to monitor and prevent human rights violations and environmental damage along their supply chain. But it is stalling.
"We put quality before speed," says a Berlaymont official.
What embarrasses the European Commission is that the Regulatory Review Board (RSB), the body that assesses the quality of the Commission's impact assessments, has twice rejected the impact assessment that is supposed to accompany the proposed directive. The policy options are "too limited", the RSB opinion of May 2021 stated. The proportionality assessment is "insufficient". The RSB contrasts the "uncertainty of the expected benefits" with the "substantial costs" that such a measure would entail for businesses. On 26 November, the committee again rejected the administration's copy. This does not force the European Commission to follow the advice, but it does considerably weaken its position.
The directive on sustainable corporate governance is nevertheless eagerly awaited by NGOs and trade unions, which have made it a battle horse. It is exciting beyond the circles of experts. The public consultation organised by the European Commission received 473 461 responses.
The aim of the duty of care is to prevent tragedies such as that of Rana Plaza, which caused the death of more than 1 100 textile workers in 2013 when their workshops collapsed in Bangladesh, at the end of the subcontracting chain of brands such as Zara or H&M. And, if such an event occurs, the aim is to enable the victims and their families to obtain compensation from the principals, in Europe, via the courts. A European duty of care would oblige companies to "identify, assess, prevent and stop" human rights abuses or environmental degradation that may be committed by their subcontractors. This obligation would be accompanied by the establishment of a liability regime, allowing victims to obtain compensation.
For Claudia Saller, from the European Coalition for Corporate Justice, which brings together NGOs such as Corporate Europe Observatory and the Citizen's Forum for Corporate Social Responsibility in France, such a text must be ambitious and binding, "because voluntary initiatives lead nowhere". Guidelines on due diligence already exist. The best examples are the UN's key principles on business and human rights and the OECD's guide. In a 2020 study on due diligence commissioned by the European Commission, only 16% of the 334 companies responding to the survey carried out a full audit of their supply chain.
France passed a duty of care law in 2017. Germany followed suit last July. A European text would make it possible to harmonise practices and provide greater legal certainty. "Fair competition is one of the reasons for legislating in this area, but we need very clear rules," acknowledges Pedro Oliveira of Business Europe. He warns: "Expectations around this regulation are too high. Some people think that companies could solve everything in the whole value chain.
Amongst the 'stakeholders', the battle is raging over what such legislation should contain. Business Europe wants to limit the scope. If such a regulation were to be introduced, the obligations of vigilance "should not go beyond the top of the value chain, because there is a direct link between the principal and the supplier", believes Pedro Oliveira, whose organisation fears the administrative burden of such a regulation and wonders about its practical implementation. Isabelle Schömann, Confederal Secretary of the European Trade Union Confederation, rejects these objections: "Companies are putting in place quality control procedures for products throughout the chain, so why shouldn't they do so with respect to workers' and human rights?
Another sticking point is liability. Will it be a civil liability regime, a system of administrative sanctions, or even criminal liability? Business federations fear that the European Commission will follow the European Parliament's resolution of 10 March 2021, which suggested that "the burden of proof" should be "transferred from the victim to the company". "Liability must be directly attributable to the ordering company. When there is no visibility, no possibility of control in a chain of subcontracting, then the causal link is stretched", worries a lobbyist. For Claudia Saller, on the contrary, it is very important to make this reversal, "because there are many barriers to access to justice for victims. Companies should demonstrate that they have implemented their duty of care. Other questions remain unanswered and are the subject of intense debate: will such an initiative apply to SMEs?
Within the European Commission, some voices discreetly mention the "difficulty" of regulating in such an area. Didier Reynders, the European Commissioner for Justice, is the lead on this issue, headed by Věra Jourová, Vice-President of the European Commission. In June, he was joined by Thierry Breton, Commissioner for the Internal Market, as co-responsible. A move welcomed by business associations: "It was necessary to put some collegiality in place," says the lobbyist quoted above. Thierry Breton can bring the expertise of the Internal Market Directorate General to bear on the functioning of the company. Isabelle Schömann expresses a fear: to see the lobbying of business associations "gut the text by all means".
Trade unions and NGOs will find support in the European Parliament. The resolution put forward by Lara Woters (S&D) received a large majority in plenary on 10 March, ranging from the Left to the EPP. On the Member States' side, the situation is more confused. France, Germany, the Netherlands and the Nordic countries have come out in favour of the principle of a European regulation on the duty of care, although it is not clear what their preference is as to the scope of such a text. The others have not yet revealed their position. Everything will become clearer after the European Commission presents its proposal. The deadline for this is 15 February. Unless the deadline is postponed once again.