Europe

Europe

Summary of developments:
  • Conflict Minerals Regulation supply chain due diligence, adopted (enters into force 2021).
  • Timber Regulation mandatory due diligence system, adopted (entered into force 2013).
  • European Parliament adopted different reports and resolutions calling for mandatory HRDD (2016, 2017).
  • Green Card issued by eight national parliaments calling for EU legislative action (2016).
  • EU Fundamental Rights Agency opinion calls for imposing due diligence obligations, including for parent companies (2017).
  • EU Council Conclusions on business and human rights (2016).
  • EU Action Plan on Financing Sustainable Growth to examine due diligence requirements for corporate boards (2018)
  • Council of Europe Recommendation to Member States to introduce mandatory HRDD where risks are significant, ensure civil liability, and allow passive joinder of parties (2016).

Legislative Developments

EU Conflict Minerals Regulation

 

In a nutshell

In more detail

Name of Legislation

EU Conflict Minerals Regulation

Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017, laying down supply chain due diligence obligations for EU importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas.

Area of Law

EU Administrative law (trade)

 

Jurisdiction

European Union

 

Current Stage

Adopted

Will apply as of 1 January 2021.

Adopted on 17 May 2017.

Directly applicable to Member States, but most of the requirements will only apply as of 1 January 2021

Requirement

Due diligence + Third Party Audit + Disclosure

1. EU importers are required to ensure that their supply chain policy standards, contracts and agreements are consistent with the OECD Due Diligence Guidance.

2. Risk management obligations: EU importers must identify and assess risks of adverse impacts in their supply chains and implement a strategy to respond to the identified risks.

3. Third party audit obligations: EU importers are required to carry out independent third party audits.

Material Scope

Illegal commodities (conflict minerals)

 

Personal Scope

Importers of conflict minerals

Directly affecting 600-1000 importers of conflict minerals as defined in the Regulation. It will indirectly affect about 500 smelters and refiners whether they are based in the EU or not.

Reach of the requirements

Full supply chain in conflict affected and high-risk areas.

 

Enforcement

Rules for non-compliance to be laid down by member states.

Transparency: EU importers shall disclose the results of their third-party audits to member state competent authorities and publicly report the results of their due diligence practices;

Monitoring: Authorities’ post-checks; third-party audits with possibility for the third parties to refer to the competent authority;

Enforcement and liability: Member states’ tasked to lay down the rules applicable in cases of infringement.

Pros

Shows a tendency in the EU towards regulating corporate conduct and supply chains.Builds on the OECD Conflict Minerals Due Diligence.

Builds on the OECD Due Diligence Guidance for Responsible


Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

Can provide guidance on good human rights due diligence standards.

Cons

It does not include company duty of care or parent company liability.

No enforcement mechanism included in the law.

No mechanisms for access to justice for victims included in law.

Due diligence requirements only for importers of raw materials, not for downstream companies.

No establishment of companies’ duty of care or parent company liability.

Control and enforcement are left to member states (risks of inconsistency and different levels of control throughout the EU).

Resources

♦ Information on the European Commission Website.

   
 

EU Timber regulation

 

In a nutshell

In more detail

Name of Legislation

EU Illegal Timber Regulation

Regulation (EU) No 995/2010 of the European Parliament and Council of 20 October 2010, laying down the obligations of operators who place timber and timber products on the market.

Area of Law

EU Administrative law

 

Jurisdiction

European Union

 

Current Stage

Adopted in 2010.

Entered into force in 2013.

 

Requirement

Due Diligence and prohibition of placing on the market illegal timber and timber products

Prohibition of import of illegally harvested timber.

Primary duty:

1. Importers: a due diligence system to determine the source of timber and legality.

Due diligence elements: (i) Impact Assessment (ii) mitigation.

No direct reporting obligations.

2. Traders: traceability of their direct suppliers, and, when applicable, of clients.

Material Scope

Illegal commodities (Timber)

 

Personal Scope

EU companies.

Operators (natural or legal persons that place timber or timber products on the market) and traders (natural or legal persons who, in the course of a commercial activity, sell or buy timber or timber products on the internal market).

 

Reach of the requirements

Operator (any natural or legal person that places timber or timber products on the market) 

Full Supply chain

Trader: traceability of direct suppliers, and, when applicable, of clients.

 

Enforcement

Ex post checks.

States to determine enforcement mechanisms and penalties.

Transparency: No direct reporting obligations. Information obligations part of authorities checks.

Enforcement: ex post checks.

States to determine enforcement mechanisms and penalties, including fines, seizure of properties, suspension on trade authorization

Cons

 

Does not cover human rights issues related to timber, even those specifically related to indigenous and local communities, who are very often harmed by logging practices

Definition of “legality”: against the applicable legislation in the country of harvest. But what happens if the environmental or rights (applicable to the TR) standards are lower than EU or international relevant standards?

A Greenpeace investigation published in May 2014 demonstrates that EU Timber Regulation is ineffective: fraudulent paperwork is accepted at face-value and there is insufficient enforcement by EU authorities.

Political Statements

EU Parliament Report on Corporate liability for serious human rights abuses in third countries

On 25 October, 2016 the European Parliament adopted by a large cross-party majority of 569 votes for, 54 against, and 74 abstentions a report that calls for mandatory human rights due diligence.

“Calls addressed to Member States and their duty to protect human rights (...)

13.  Recalls the different but complementary roles of states and companies with regard to human rights protection; recalls that states, acting within their jurisdiction, have a duty to protect human rights, including against abuses committed by companies, even if they operate in third countries; strongly recalls that, where human rights abuses occur, the states must grant access for the victims to an effective remedy; recalls in this context that respect for human rights by third countries, including guaranteeing effective remedy for people under their jurisdiction, constitutes an essential element of the EU’s external relations with these countries;

15.  Calls on the EU, the Member States, third countries and all national and international authorities to adopt binding instruments devoted to the effective protection of human rights in this field as a matter of urgency and as widely as possible, and ensure that all national and international obligations stemming from the above mentioned international rules are fully enforced; (...)

18.  Calls on the EU and the Member States to lay down clear rules setting out that companies established in their territory or under their jurisdiction must respect human rights throughout their operations, in every country and context in which they operate, and in relation to their business relationships, including outside the EU; (...)

19.  Recalls that recent legislative developments at national level, such as the UK Modern Slavery Act’s Transparency in Supply Chains Clause and the French bill on duty of care represent important steps towards mandatory human rights due diligence, and that the EU has already taken steps in this direction (EU Timber Regulation, EU Non-Financial Reporting Directive, Commission Proposal for a Regulation setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas); calls on the Commission and the Member States, as well as all states, to take note of this model with regard to the introduction of mandatory human rights due diligence;

20.  Stresses that mandatory human rights due diligence should follow the steps required in the UNGPs and be guided by certain overarching principles related to the proactive identification of risks to human rights, the drawing up of rigorous and demonstrable action plans to prevent or mitigate these risks, adequate response to known abuses, and transparency; stresses that policies should consider the size of companies and resulting coping capabilities with special attention to micro, small and medium-sized enterprises; stresses that consultation with relevant actors should be ensured at all stages, as well as disclosure of all relevant project or investment-specific information to affected stakeholders;

21.  Calls on all states, and in particular the EU and Member States to prioritise for immediate action the establishment of mandatory human rights due diligence for business enterprises which are owned or controlled by the state, and/or receive substantial support and services from state agencies or European institutions as well as for businesses that provide goods or services through public procurement contracts”

Resources

♦ Full Report here.

Green Card Initiative from Eight National Parliaments

The “green card” is a form of enhanced political dialogue through which EU national parliaments can jointly propose new legislative or non-legislative initiatives, or changes to existing legislation, to the European Commission. Prompted by the French National Assembly, the initiative calls for the EU to develop duty of care legislation protecting individuals and communities whose human rights and local environment are affected by the activity of EU-based companies.

The letter sent to the Commission proposes the following:

“6. We call on the European Commission to support any initiative towards a strengthening of corporate social responsibility and table an ambitious legislative proposal implementing the CSR principles at European level and meeting the following characteristics:

  • 1. It shall apply to all enterprises having their headquarters in a European Union Member State, whatever their business sector. Where applicable, there shall be a threshold to exempt the smallest enterprises from it but it shall include parent companies and holdings;

  • 2. It shall include precise obligations regarding the duty of due diligence of companies with respect to their business relations, their subsidiaries and their suppliers to effectively prevent the overall human, social and environmental risks to which employees, local populations and environment may be exposed owing to their direct or indirect business

  • 3. It shall add to these rules effective, proportionate and dissuasive actions or even, where applicable, sanctions commensurate to the environmental, social or health damage caused by non-compliance.”

Resources

♦ Article on ECCJ Website.

EU Fundamental Rights Agency (FRA) Opinion

On 10 April 2017, the European Union Fundamental Rights Agency (FRA) published an Opinion on access to remedy in the context of business and human rights. The Opinion is a response to an EU Council request, formulated during the Dutch EU Presidency in the first semester of 2016. In its Conclusions from June 2016, the Council called on FRA to look at "possible avenues to lower barrier for access to remedy at EU level."

The Opinion is based on FRA’s analysis of judicial and non-judicial remedies, together with implementation issues. The Opinion contributes to raising awareness of the need for the EU to do more to improve access to effective remedy for victims of corporate abuse.

"Opinion 21: The EU could incentivise Member States to impose due diligence obligations, including for parent companies linked to human rights performance in subsidiaries or supply chains

Implementing access to remedy in business-related human rights abuse cases would also benefit from stronger legislative incentives. A recently adopted law in France could serve as a model for the EU, in addition to existing instruments such as the Non-Financial Reporting Directive. The French legislation (devoir de vigilance – "duty of care") obliges certain companies domiciled in France to conduct and document due diligence for their operations, including through their supply chains. Fines may be imposed for non-compliance. The French Constitutional Council has blocked elements of this legislation, which require further specification before the legislation can come into effect. Due diligence is a key component of the UN Guiding Principles’ second pillar on the corporate responsibility to respect human rights. Effective due diligence practices can also help to strengthen access to remedy”

Resources

♦ FRA Opinion on Access to Justice.

EU Council Conclusions on Business and Human Rights

Under the Dutch Presidency, the EU Council on Foreign Affairs adopted Conclusions on Business and Human Rights which reiterate the need for the EU and its Member States to enhance corporate respect for human rights as defined in the UN Guiding Principles, and address the obstacles faced by victims to access remedy.

"6. The Council welcomes the Commission's intention to launch an EU Action Plan on Responsible Business Conduct in 2016. This Action Plan should address the implementation of the Guiding Principles, including with regard to due diligence and access to remedy, and provide an overall policy framework. The Council furthermore encourages the Commission to enhance the implementation of due diligence and to foster dialogue and cooperation amongst all relevant public and private stakeholders."

"12. The Council recalls that access to effective remedies for victims of business-related human rights abuses is of crucial importance and should be addressed in National Action Plans. The Council acknowledges that further progress on this third pillar of the Guiding Principles is necessary."

"13. The Council calls on the Commission to address remedies in the forthcoming EU Action Plan on Responsible Business Conduct, including at EU legislative level as appropriate, and to consider providing guidance to Member States in this regard."

Resources

♦ Full text of the Council Conclusions.

European Commission Action Plan on Financing Sustainable Growth

On 8 March 2018 the European Commission released its Action Plan on Financing Sustainable Growth. Action point 10 commits to examining and assessing the need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain.

"Action 10: Fostering sustainable corporate governance and attenuating short-terminism in capital markets

1. To promote corporate governance that is more conducive to sustainable investments, by Q2 2019, the Commission will carry out analytical and consultative work with relevant stakeholders to assess: (i) the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain, and measurable sustainability targets; and (ii) the possible need to clarify the rules according to which directors are expected to act in the company's long-term interest."

Resources

♦ Full Plan here.

Council of Europe Recommendation

The Recommendation of the Council of Europe’s Committee of Ministers to member states on human rights and business (the Recommendation) has been adopted on 3 March 2016 by all 47 Council of Europe member states. The new document provides guidance to States on the effective implementation of the UNGPs. It fills existing gaps in this instrument by clarifying and/or elaborating some of its principles further, taking into consideration the full spectrum of member states’ international human rights obligations. If adequately implemented, the Recommendation can contribute to an enhanced system of legal accountability of business enterprises involved in human rights abuses and access to effective remedy for those who suffer harm.                                                                   

"20. Member States should apply such measures as may be necessary to encourage or, where appropriate, require that:

• business enterprises domiciled within their jurisdiction apply human rights due diligence throughout their operations

[Explanatory Note: "The introduction of a requirement may also be appropriate where the nature and the context of a business enterprise relate to sectors with particular human rights risks, instances in which the human rights impacts of business activities can be severe, where companies operate in conflict-affected or high risk areas or other contexts which pose significant risks to human rights" (para. 36).]

(...)

32. Member States should apply such legislative or other measures as may be necessary to ensure that human rights abuses caused by business enterprises within their jurisdiction give rise to civil liability under their respective laws.  

[Explanatory Note: “It is understood that the term "within their jurisdiction" refers to the domicile of the business enterprises in question” (para 54).]

(...)               

35. Member States should consider allowing their domestic courts to exercise jurisdiction over civil claims concerning business-related human rights abuses against subsidiaries, wherever they are based, of business enterprises domiciled within their jurisdiction if such claims are closely connected with civil claims against the latter enterprises.

[Explanatory Note: “The principle of legal personhood and the doctrine of limited liability, which was created in commercial law to encourage investment without fear of liability and thus to encourage economic growth, have as a consequence that the legal personality of one business is distinct from the legal personality of another. These doctrines also extend to parent companies and their subsidiaries, thereby aggravating for alleged victims of human rights violations involving business enterprises to establish civil liability of the parent company (unless the exception of “piercing the corporate veil” is applied by the domestic courts). From a procedural point of view, a barrier to justice may arise where the subsidiary operates in a third country, and thus in a different jurisdiction. Therefore, paragraph 35 of the Recommendation suggests that member States consider allowing their domestic courts to exercise jurisdiction in such cases against both the parent company if based in its jurisdiction, as well as the subsidiary, even if based in another jurisdiction. However, the claims against the parent company and the subsidiary should be closely connected in such instances. For example, a Dutch District Court has asserted jurisdiction over both Royal Dutch Shell Plc, registered in the United Kingdom and headquartered in the Netherlands, and Shell Petroleum Development Company of Nigeria Ltd., domiciled in Nigeria, in a case brought by Nigerian citizens in connection with oil pollution damage caused by a leaking pipeline in Nigeria (Decision of 30 December 2009 in case No. 30891 / HA ZA 09-579). The District Court considered that the claims against the two business enterprises were interconnected, because they related to the same facts and the defendants were held liable for the same damage. (para. 58, footnotes omitted)]"

Resources

♦  Full text of the Recommendations.

 

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