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Due Diligence Mandate for European Parliament

It was a big moment when we in the European Parliament last week voted through the compromise on the Corporate Sustainability Due Diligence Directive

Now the negotiations with the Council (the EU Member States) can begin. The “due diligence” directive defines what responsible big companies must do to minimise their impact on the environment and uphold human rights.  In the EU, we have rules covering hazardous sectors like conflict minerals and timber. With the proposed legislation, we want a set of rules that apply to all industries.

The mandate for the European Parliament to enter into negotiations is not perfect, but it is a compromise I can support. 

Our mandate will require both EU and non-EU companies operating within the EU to take responsibility for their environmental and social impact – as well as the impact of their suppliers. 

The European Parliament advocates for a risk-based approach where we request that company managers take responsibility for their actions and oversights. We have ensured a level playing field between European and foreign companies to allow for fair competition for European companies. 

I am also happy that we managed to preserve the right to representation and protection for vulnerable stakeholders. This means that we make sure companies must respect the rights of indigenous peoples across the world.

It is a compromise and therefore not perfect, so in an ideal world, I would have liked to see a reversal of the burden of proof, especially in the case, e.g. of the pollution of rivers, so it is the large companies’ responsibility to prove that they are not guilty since it would be disproportionately difficult for the injured part, e.g. native community, to establish the fault of the companies.

I would also have liked to have seen medium-sized companies included. I would have wanted a clear deadline for national agencies to ensure proper guidance for companies to be able to fulfill the requirements.

I would also have liked to see the finance sector included more fully. They should also show due diligence – or, as we say in Denmark, rettidig omhu.

What did we do in the JURI committee?

The European Parliament’s Committee on Legal Affairs (JURI) is responsible for the file, while eight Parliament committees provided opinions.

JURI adopted its report on the proposal on 25 March 2023, and demanded key amendments, including:

1) expanding the scope of companies subject to the directive;

2) broadening the definition of ‘value chain’, to include the sale, distribution, transport, and waste management of products; 3) introducing the single market clause, in order to prevent single market fragmentation;

4)proposing a risk-based approach to due diligence, by prioritisation;

5) introducing the principle of remediation for affected persons and/or the environment;

6) obliging companies to develop and implement climate change transition plans;

7) linking the variable remuneration for directors to these plans, for companies with over 1 000 employees;

8) proposing that the upper limit for sanctions should be no less than 5 % of net worldwide turnover;

9) ensuring the cost of legal proceedings is not prohibitive for claimants; and

10) enabling trade unions and civil society organisations to bring actions before a court.

See more in the ERPS Corporate sustainability due diligence “at a glance” note.

A little on the legislative process:

To avoid fragmentation, and give businesses and citizens legal certainty, Parliament called on the Commission in a legislative-initiative resolution to introduce mandatory due diligence legislation in March 2021.

In February 2022, the Commission proposed a directive laying down rules on corporate due diligence obligations, directors’ duties, civil liability, and protection of persons reporting breaches.

The legislative file follows the ordinary legislative procedure.

The Council reached a political agreement on a general approach in December 2022.

In Parliament, eight committees sent opinions to the Committee on Legal Affairs (responsible for the dossier), which adopted its report on the Commission proposal in April 2023.

Members voted on the report in plenary in May 2023, and now the co-legislators can start interinstitutional negotiations on the final text.

See more details on the Legislative Train Schedule website for Due Diligence Directive own initiative report and for the Commission proposal

What is Due Diligence?

Companies can play a key role in building a sustainable economy and society. At the same time, their global value chains can pose risks to human rights and the environment. A growing number of EU companies have taken initiatives to deploy due diligence processes, often using existing voluntary international standards on responsible business conduct. Some Member States have meanwhile started developing their own legal frameworks on corporate due diligence.

due diligence

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