Historic new European Sustainability Due Diligence law follows pioneering BIICL study
European Commission launches new Directive on Corporate Sustainability Due Diligence following BIICL-led study
Today, on Wednesday, 23 February 2022, the European Commission released its highly anticipated Draft Directive on Corporate Sustainability Due Diligence, also known as the mandatory human rights and environmental due diligence Directive (mHREDD). This is a historic moment for the field of business and human rights, ESG and the strive towards sustainable and responsible business conduct.
The Directive is based on the BIICL-led Study on due diligence requirements through the supply chain (the EC study), published on 24 February 2020, exactly two years minus one day before the Draft Directive. The study highlighted the appetite for regulation at the EU level across stakeholders, including companies themselves: 70% of business respondents anticipated that the introduction of mHREDD at the EU level would benefit business by increasing legal certainty, levelling the playing field, and avoiding fragmentation by creating a unified EU-level standard rather than a mosaic of diverging domestic-level standards. The Draft Directive responds to these findings in its objectives and articles.
Key overview points include:
- The Draft Directive sets out duties for companies to undertake due diligence for actual or potential adverse human rights and environmental impacts in their own operations, those of their subsidiaries and in their value chains. It follows broadly the concepts set out in the UN Guiding Principles on Business and Human Rights (UNGPs).
- It applies to certain large European and non-European companies that operate in the single market, and within two years will expand to mid-cap companies that operate in certain 'high impact' sectors.
- Adverse human rights and environmental impact are defined with reference to a list of international conventions contained in an Annex.
- It provides for administrative oversight by public bodies, which includes powers to investigate and impose sanctions.
- It provides for civil remedies for victims.
Lise Smit, BIICL Senior Research Fellow in Business and Human Rights and Project Leader of the EC study, stated: "We are very proud of the impact of our study. This Directive has the potential to transform corporate governance and improve the landscape for all stakeholders, including rights-holders, business and the environment."
For a summary of the key points of the new Directive by Lise Smit and Claire Bright see here.