The European Commission’s long-awaited proposal on corporate sustainability due diligence has been published.
Under the draft law, companies with more than 500 employees will be required to prevent and mitigate harm to people and planet – such as child labour and pollution – throughout their global value chains.
This is the first time in the EU that companies could be liable for harms by their subsidiaries as well as their direct and indirect suppliers. In addition, the regulatory framework will establish a duty to respect human rights and the environment.
The proposal will be presented to the European Parliament and Council for approval. Once adopted, Member States will have two years to transpose the directive into national law.
“This directive will help drive a more proactive engagement from businesses with sustainability performance, while ensuring respect for human rights and the environment in their global value chains,” said OSH policy specialist Dr Ivan Williams Jimenez.
“IOSH welcomes the focus on human rights, due diligence, responsible business conduct and improved corporate governance together with the substantial aim to shine a stronger policy spotlight on the social, employee matters (human capital and occupational safety and health) and human rights elements of sustainability reporting and performance.”
Businesses – particularly large companies and SMEs operating in hazardous or high-risk activities – are increasingly required to identify, prevent, manage and account for actual or potential adverse impacts/risks in their operations and throughout their supply chains.
However, greater awareness, training strategies and tools will be required to improve compliance of SMEs that may be indirectly affected. Support will need to be extended for European companies to improve their ability to control their entire value chains across the world, including ‘indirect’ third party suppliers.
One foreseeable challenge will be how to apply these principles to all workers in all tiers of the chain, as many workplaces are known to hide the names of brands they supply for.
From IOSH’s perspective, the one aspect missing is the omission of requirements linking the board of directors’ remunerations to achieving environmental or social-related targets.
“Ownership of sustainable corporate governance issues should start from the top with the board and/or senior leadership, which must put in place the appropriate structures, control systems and processes,” said Ivan.
Scope of the due diligence law
In practical terms, the primary goal of making businesses accountable for human rights and environmental violations throughout their value chain will only cover the so-called major corporate players (an estimated 1 per cent or 13,000 EU companies according to Euractiv) and a small number of SMEs.
Ivan added: “While legislation cannot be the only solution, this is an important development in seeking to ensure a level playing field across the EU on corporate sustainability and due diligence.
“As IOSH’s Catch the Wave initiative advocates, this wave of social change is unprecedented, but will require the commitment of policymakers, businesses, boards and investors to lead by example and put people first.”