The European Parliament has now adopted its position for negotiations with EU countries with regard to the EU’s very significant and wide-ranging draft legislation about human rights and environmental adverse impacts and supply-chain due diligence. This article takes a brief look at this development.
With regard to modern slavery and forced labour the statistics speak for themselves. According to the recent report by the organization Walk Free, “Global Slavery Index 2023” (https://cdn.walkfree.org/content/uploads/2023/05/17114737/Global-Slavery-Index-2023.pdf), an estimated 50 million people globally are in modern slavery, with some 28 million in forced labour and 12 million in child labour. Further, some US$ 468 billion of goods imported by the G20 are at risk of being produced with forced labour.
To address this situation and also other human rights and certain environmental issues there has been a growing trend in a number of countries around the world of adopting compliance legislation imposing Environmental, Social and Corporate Governance (ESG)/supply-chain due diligence requirements on businesses. With regard to the EU, last year the European Commission issued a “Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937” (“the proposed EU rules”) to set up a corporate sustainability due diligence duty on large companies operating in the EU (which we have written about in detail here: https://www.corderycompliance.com/eu-hr-eai-and-supply-chain-dd/).
What’s this all about?
Very briefly, under this corporate sustainability due diligence duty, companies will be required to undertake due diligence checks of their supply chains, along with their own operations and those of their subsidiaries, in order to identify actual and potential adverse impacts of their activities on both human rights and the environment. Identified potential impacts will need to be prevented or mitigated, and identified actual impacts will need to be minimised or stopped. Directors will have various responsibilities and non-compliance can result in civil liability damages.
The proposed EU rules will apply to EU-based companies in all sectors with more than 250 employees and a worldwide turnover over €40 million and to companies with over 500 employees and a worldwide turnover of more than €150 million. Non-EU companies with a turnover higher than €150 million where at least €40 million was generated in the EU will also fall in scope.
What’s the latest development?
The European Parliament’s position for negotiations with EU countries has now been adopted. The European Parliament is in broad agreement with much of the draft text but many amendments have nevertheless been proposed – as always, the devil will be in the detail. Two key areas where there may be significant negotiations on respective positions are those of directors’ duties and responsibilities, and, civil liability – following the Parliament’s proposed amended text the latter now reads as follows:
- “Article 22 Civil liability
1. Member States shall ensure that companies are liable for damages if:
- they failed to comply with the obligations laid down in this Directive and;
- as a result of this failure the company caused or contributed to an actual adverse impact that should have been identified, prioritised, prevented, mitigated, brought to an end, remediated or its extent minimised through the appropriate measures laid down in this Directive and led to damage.
In the assessment of the existence and extent of liability, due account shall be taken of the extent of the company’s efforts, insofar as they relate directly to the damage in question, to take remedial action, including that required of them by a supervisory authority, any investments made and any targeted support provided pursuant to Articles 7 and 8, as well as any collaboration with other entities and affected stakeholders to address adverse impacts in its value chains.
2a. Member States shall ensure that:
(a) the limitation period for bringing actions for damages is at least ten years and measures are in place to ensure that costs of the proceedings are not prohibitively expensive for claimants to seek justice;
(b) claimants are able to seek injunctive measures, including summary proceedings. These shall be in the form of a definitive or provisional measure to cease an action which may be in breach of this Directive, or to comply with a measure under this Directive;
(c) measures are in place to ensure that mandated trade unions, civil society organisations, or other relevant actors acting in the public interest can bring actions before a court on behalf of a victim or a group of victims of adverse impacts, and that these entities have the rights and obligations of a claimant party in the proceedings, without prejudice to existing national law;
(d) when a claim is brought, that a claimant provides elements substantiating the likelihood of a company’s liability under this Directive and has indicated that additional evidence lies in the control of the company, courts are able to order that such evidence be disclosed by the company in accordance with national procedural law, subject to the [European] Union and national rules on confidentiality and proportionality.
2b. Companies that have participated in industry or multi-stakeholder initiatives, multi-stakeholders initiatives, or used third-party verification or contractual clauses to support the implementation of specific aspects of their due diligence obligations can still be held liable in accordance with this Article.
3. The civil liability of a company for damages arising under this provision shall be without prejudice to the civil liability of its subsidiaries or of any direct and indirect business partners in the value chain. In such instances as where a subsidiary is under the scope of this Directive and has been dissolved by the parent company or has dissolved itself intentionally in order to avoid liability, the liability can be imputed to the parent company in case there is no legal successor.
4. The civil liability rules under this Directive shall not limit companies’ liability under [European] Union or national legal systems, including rules on joint and several liability.
5. Member States shall ensure that the liability provided for in provisions of national law transposing this Article is of overriding mandatory application in cases where the law applicable to claims to that effect is not the law of the Member State”.
The proposed EU rules are now before the Council of the EU for its consideration. The aim is to have everything agreed by the end of 2023 but this is maybe somewhat optimistic as there are a number of contentious issues to be agreed upon and so finalisation sometime in 2024 may be more realistic.
What are the takeaways?
Once adopted, it can’t be emphasised enough that the legislative measure will impose significant compliance obligations on organisations.
Organisations should keep track of the proposed EU rules and plan resources ahead in order to be able to implement its requirements when everything has been finalised.
Generally-speaking, in order to better manage their third-party risk in the field of ESG/supply-chain due diligence, organisations will need to:
- Put in place appropriate due diligence and risk management processes, procedures and policies – engage with vendors, and ensure that there is a “speak up” culture about topics such as modern slavery and forced labour;
- Train staff to deal with these issues; and,
- Get the Board on board – directors should take note of their duties and responsibilities to come.
See our film about spotting the signs of modern slavery here https://www.corderycompliance.com/spotting-the-signs-of-modern-slavery/.
Cordery’s Modern Slavery Action helps organisations meet their modern slavery reporting requirements for a fixed fee. There are more details here https://www.corderycompliance.com/solutions/modern-slavery-action/.
We write about modern slavery/ESG/supply chain due diligence and compliance issues here https://www.corderycompliance.com/category/modern-slavery-supply-chain-management/.
Recent modern slavery articles that we have written include the following:
- UK Modern Slavery and Supply Chains Procurement Guidance https://www.corderycompliance.com/uk-ms-scp-0523-07/;
- Modern Slavery/Forced Labour/ESG/Supply Chain Due Diligence and Compliance Legislative News Roundup https://www.corderycompliance.com/uk-ms-esg-dd-0223/;
- Litigation to Impose UK Ban on Xinjiang Products Fails https://www.corderycompliance.com/category/modern-slavery-supply-chain-management/;
- UK Modern Slavery Update – Reforms Finally On The Way? https://www.corderycompliance.com/uk-modern-slavery-update-3-reforms/;
- The Financial Reporting Council/UK Anti-Slavery Commissioner/Lancaster University report to prompt boardrooms to do more to eradicate modern slavery https://www.corderycompliance.com/uk-modern-slavery-update/;
- The proposed EU rules about Human Rights & Environmental Adverse Impacts Supply-Chain Due Diligence https://www.corderycompliance.com/eu-hr-eai-and-supply-chain-dd/;
- Greenwashing https://www.corderycompliance.com/greenwashing-power-modernslavery-esg/;
- The EU Proposed Forced Labour Products Ban https://www.corderycompliance.com/eu-labour-products-ban-1/;
- The EU’s Forced Labour Guidance https://www.corderycompliance.com/eu-modern-slavery-guidance/; and,
- Previous UK plans to overhaul the UK modern slavery compliance regime https://www.corderycompliance.com/uk-modern-slavery-compliance-rules-draft-amends/.
The European Parliament’s summary of its position can be found here: https://www.europarl.europa.eu/news/en/press-room/20230524IPR91907/meps-push-companies-to-mitigate-their-negative-social-and-environmental-impact and the Parliament’s suggested amendments to the proposal can be found here: https://www.europarl.europa.eu/doceo/document/TA-9-2023-0209_EN.html
For more information please contact Jonathan Armstrong or André Bywater who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 347 2365|