The Directive on corporate sustainability due diligence, proposed by the Commission, shall codify human rights and environmental due diligence along the supply chain for companies at EU level. This approach may indeed be called a paradigm shift. The Commission’s proposal is intersectoral and regulates the obligations for all companies, which reach certain index numbers (number of employees, annual turnover).

Four-stage due diligence process and sanctions

Companies shall be obliged to commit to a four-stage due diligence process. Following this process, they have to identify, guard against, evaluate set measures and regularly report on risks in respect of human rights and environment along their supply chains. Apart from that, a complaints procedure has to be established, which is accessible to all stakeholders concerned. The proposal also provides for sanctioning the non-compliance with the cited due diligence. On the one hand, administrative authorities shall monitor the compliance with the Directive that includes being able to impose administrative penalties. On the other hand, people affected by small-scale human rights violations shall be permitted to initiate legal proceedings in order to obtain compensation.

Child and forced labour as well as severe violations of labour and trade union rights

The Communication on decent work, confirms that an EU supply chain law is imperative:  in its Communication, the Commission summarizes the dramatic global development of the human rights and labour law situation over the past year. The number of children in child labour has been rising for a long time and is affecting 160 million children worldwide. 25 million people are victims of forced labour. Apart from that, in its annual Global Rights Index, the International Trade Union Confederation establishes that the violations of labour and trade union rights are at an eight-year high.

A far more ambitious approach is required!

The Commission’s proposal has to be welcomed. However, to reach the Directive’s intended objective to improve the working conditions of people along supply chains globally requires a far more ambitious approach.

The current proposal only encompasses 0.2 % of EU companies or about 0.06 % of Austrian companies. Hence, due diligence only applies to large companies with more than 500 employees and a global net turnover exceeding 150 million Euro. In some high-risk sectors (textiles, agriculture and raw materials), companies with more than 250 employees and a turnover of more than 40 million Euro have been covered.

Apart from that, the proposal does not provide for any obligatory inclusion of trade unions and employee representatives in due diligence processes. However, they are those who are the most familiar with the relevant human rights and environmental risks at work. Furthermore, they are able to provide information, as to what measures will result in sustainable improvements at the workplace.

The inclusion of a liability regulation in the proposal has to be welcomed as well. Only this regulation provides victims of human rights violations with access to compensation, whilst administrative penalties go into the Treasury. However, it is regrettable that the proposal provides for a de facto disclaimer regarding misconduct in the supply chain when companies include model clauses in agreements with suppliers and have them externally audited for example. The proposal also lacks a human rights focussed access with regard to remedy in case of human rights violations.  Engaging in transnational proceedings is expensive, lengthy and complex. Past cases have shown that, due to formal requirements, proceedings frequently fail years later.  

The proposal requires very large companies to present a climate plan, which determines the orientation of the company strategy regarding the target of limiting climate change to 1.5 °C in accordance with the Paris Agreement. If required, it also provides for plans on reducing emissions. However, there are no plans to introduce consequences if an inadequate content-related climate plan is presented, or none at all. This in turn, raises doubts concerning the effectiveness of the regulation.

Implementing the demands of EU citizens!

It is above all thanks to the stubbornness of the European civil society that given the various delays, a proposal by the EU Commission has been presented at all. Already in 2020, AK EUROPA and ÖGB Europabüro in cooperation with the European Trade Union Confederation (ETUC), Friends of the Earth Europe (FoEE) and the European Coalition for Corporate Justice (ECCJ) initiated a Campaign on Corporate Responsibility to increase the pressure on the EU Commission to present an ambitious legislative proposal. A poll also confirmed that more than 80 % of the people questioned in Europe want a strong law including corporate liability.

Further information:

AK EUROPA: Large majority of Europe’s citizens in favour of a strong Supply chain law

AK EUROPA: Campaign on Corporate Responsibility

AK-Factsheet: Economy and Human rights - Europe needs a supply chain law! (German only)

AK EUROPA: Sustainability reporting – new review shows need for action

EU Commission: Directive on corporate sustainability due diligence