An opinion on the core elements of the proposed EU mHREDD legislation

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Martijn Scheltema

Pels Rijcken & Droogleever Fortuijn, The Hague

martijn.scheltema@pelsrijcken.nl

Robert McCorquodale and Martijn Scheltema have delivered an opinion on the core elements of the EU legislation on mandatory human rights and environmental due diligence (mHREDD).

A core reason why there is considerable corporate support for EU legislation on mHREDD is that it could provide for legal certainty, coherence and consistency, and what is often called a ‘level playing field’. It would also build on existing EU, national and international regulation, and would enable some of the causes of human rights violations and environmental damage by companies to be addressed in a coherent and consistent manner.

According to the authors, EU legislation on mHREDD should include all human rights in the European Convention on Human Rights and the European Social Charter, as well as customary international human rights law and indigenous rights. It should include environmental damage and environmental human rights, as is consistent with the EU Green Deal. It should extend to all companies domiciled in Member States, without any threshold, and make specific provision for certain sectors and types of companies to ensure there is clarity in the scope covered. Extending the scope to state bodies and state-owned companies would give much more effective coverage, as would including the transnational effects of activities of companies domiciled in Member States, including in their value chains.

The type of obligation to be implemented in EU legislation should be an open and broad substantive human rights and environmental due diligence (HREDD) requirement, including the entire value chain which covers all six steps of HREDD. It is also important to consult stakeholders on the different steps of HREDD a company undertakes. In particular, gender dimensions and vulnerable groups’ differences should be taken into account in such consultations and these should be culturally appropriate. As human rights challenges vary widely, depending on state, industry, (severity of the) human rights issue at hand or type of supply chain and for consultations with stakeholders, the EU may incentivise the development of industry and sectoral standards which support mHREDD.

The authors argue that a liability provision for not undertaking reasonable and appropriate HREDD is an option, as the legal systems of several Member States already include such liability if mHREDD is introduced at an EU level. Such a provision may trigger defensive conduct by businesses. If reasonable and appropriate HREDD is undertaken by a company, this could serve as a defence against liability.

The authors of the opinion also propose that the development of comprehensive methodologies for measuring human rights impact should be supported and facilitated by EU legislation, and should be commensurate and coherent with such methodologies regarding the environment and climate change. Preferably an EU body should assess and approve such integrated measurement methodologies, as is currently done in the EU Taxonomy on Sustainable Finance.

The opinion feels prescription of the use of new technologies is not necessary at this moment. However, EU legislation could include minimum requirements regarding these technologies to prevent exacerbating the human rights impact through these technologies and to support their functioning to facilitate measurement of human rights and environmental impacts.

The authors argue it is pivotal that monitoring and enforcement do not focus on mistakes made by companies (road to the bottom) but incentivises companies to improve continuously (road to the top) and, thus, elicit as much as possible positive changes in corporate behaviour. EU legislation on mHREDD should either implement public supervision on the EU level or include specific guidance on the shape and type of monitoring and enforcement in Member States. There should also be provisions on collaboration by, and exchange of, information between the relevant public supervisors in Member States facilitated by a European supervisory entity, in order to enable continuous learning of the national supervisors. It should also prescribe effective, proportionate and dissuasive sanctions for non-compliance.

The authors of the opinion propose that EU legislation on mHREDD should create civil liability for a failure to conduct reasonable and appropriate HREDD. In connection with this, the authors recommend addressing some procedural hurdles that rights holders may encounter in access to remedy. Civil enforcement may result in different remedies for rights holders, for example compensation of damages, and also in forward-looking court orders or arbitral awards. It may even introduce liability for harm caused by not undertaking reasonable and appropriate HREDD. Another issue may be whether provisions on lifting the corporate veil or directors’ duties should be implemented. Current jurisprudence has rendered this issue less prominent, as courts have in principle accepted responsibility of parent companies deploying and enforcing global policies in cases where these have been violated by subsidiaries.

EU legislation on mHREDD could enable criminal prosecution in cases of gross violations. Whether specific criminal sanctions should be developed at the Member State level should also be guided from the EU level in order to safeguard a coherent and certain EU-level law. However, criminal sanctions are effective only if public prosecutors prosecute repeated non-observance of mHREDD. This may not happen because of priority setting, the perceived chances of the success of a case, a lack of expertise or budgetary reasons.

The authors argue public supervision deploying administrative law and including development of administrative policies is also essential. Public supervisors are able to develop policies building on best practices much faster than case law, and can deploy and enforce them in markets. Furthermore, these policies of public supervisors may be challenged in administrative courts, which provides clarity regarding the conformity of this policy with the EU and Member State legislation for a whole market.

The full opinion can be accessed at:https://www.business-humanrights.org/en/expert-contribution-core-elements-of-an-eu-regulation-on-mandatory-human-rights-environmental-due-diligence

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