In March 2021, the European Parliament called on the Commission to put forward a European due diligence framework, which will notably require companies to deal with human rights and environmental issues in their supply chains.
VoteWatch reached out to Finnish MEP Heidi Hautala from the Greens/EFA (vice-president of the EP and shadow rapporteur for the Corporate due diligence and corporate accountability legislative initiative report) to find out more about the upcoming framework and what impacts it will have.
VoteWatch Europe: According to a Commission study, only 37% of companies apply some form of due diligence. Additionally, the Commission wanted to propose a Directive in the second quarter of 2021, but until today, no initiative has been taken on the EP’s resolution. In your opinion, what might be some reasons for this?
Heidi Hautala: In preparing this initiative the Commission has come to realise the complexity and multiple dimensions of bringing about sustainable business across all sectors, which has caused delay. It seems that there are also misunderstandings and false conceptions about the logic and application of human rights and environmental due diligence, which complicates the debate. However, there is common understanding between business, investors, civil society and those politicians that have long been part of this debate that the introduction of hard law, strongly anchored in the UN Guiding Principles on Business and Human Rights with its ”smart mix” of measures”, is necessary, to make business sustainable , and for the economy to survive in the coming decades.
VoteWatch Europe: Some MEPs who supported the resolution in general would have liked to introduce the possibility for Member States to exempt SMEs from due diligence obligations. What do you think about this proposal?
Heidi Hautala: Firstly, I think that it is potentially detrimental for the SMEs to leave them outside of the scope. If large companies cannot rely on SMEs in their value chains to have conducted their due diligence, it can make SMEs less attractive due to the increased risk levels. It would also be detrimental to the overall leverage of the whole legislation if parts of the value chain are left outside the obligations.
Secondly, it is important to bear in mind that there are currently SMEs that already implement the UNGPs successfully. It is possible. The key is the notion of proportionality. Companies should be expected to carry out due diligence, which is proportional to their capabilities. However, it is clear that SMEs require special support measures alongside the legislation. This was also reflected in the EP’s position. Furthermore, sector alliances can be a very useful resource especially for SMEs.
VoteWatch Europe: The Report proposes a proportionate application of Due Diligence obligations. It says that “a proportionate approach should take into account, amongst other elements, the sector of activity, the size of the undertaking, the severity and likelihood of risks […]”. Additionally, no “disproportionate disadvantages” shall be created for undertakings. How could this be applied in practice and what could or should be the institutional design in order to ensure the practicability and efficiency of due diligence? In the end, what could be the optimal mix between substantive duty and formal requirements?
Heidi Hautala: The purpose of the legislation is to prevent negative impacts to human rights and to the environment. It is the company that is best placed to identify where the highest risks are for negative impacts, and to devise a plan to mitigate the risk of those impacts. This is not a one-off exercise or a tick-the-box form, but an on-going process where the aim is to improve and progress on the path. It is not useful to make specific descriptions to a company of what specific impacts it has to look for and how it has to address them. However, we do have international human rights conventions and multilateral environmental agreements that the legislation needs to refer to. There is already comprehensive guidance that exists in the form of the UNGP and the OECD guidance on multinational enterprises. The due diligence legislation will be a part of a larger architecture that comprises the Corporate Sustainable Reporting Directive, Sustainability disclosure requirements for investors and the Taxonomy regulation.
VoteWatch Europe: With regard to timber extractions, a European legal framework of due diligence is already in place. How do you evaluate the impacts of this directive?
Heidi Hautala: I assume this question refers to the EU Timber Regulation and the Flegt VPA Regulation.
What has been a crucial and innovative element in the Flegt VPA has been the ability to address governance issues – inclusiveness of decision making, eradicating corruption, ensuring sufficiency of legality definitions and the functioning of customs controls among others. Due diligence alone will not lead to results unless there are sufficient supporting measures to ensure an enabling environment for sustainable business. By cleaning value chains without paying due attention to the conditions in the producing countries, we do not solve anything.
Thereby also in the future implementation of the Due diligence legislation, the role of DG INTPA will be crucial. I would like to point to the pilot of Sustainable Cocoa dialogue as a blueprint for mobilising the whole EU toolbox to affect change across a value chain.
VoteWatch Europe: Looking concretely at member states like Germany, France, or the Netherlands, do you believe that their due diligence legislations meet the Parliament’s objectives?
Heidi Hautala: France is the first country to have horizontal due diligence legislation in place. It has been a pioneering member state and it has provided a very useful example and a blueprint for subsequent legislation in other member states and in the EU. France, the next EU Council presidency, knows that as the pioneer it will benefit from EU wide due diligence legislation. They will certainly do their part of the job.
The law in Germany on the other hand deviates considerably from the UN Guiding principles, to the point where it is hard to see the usefulness of the law to the objectives it is set to achieve. We may still see fundamental improvements in the text once the new government is in place in Germany.
VoteWatch Europe: What impacts do you expect of European due diligence obligations in the short- and long-term with regards to the trade relations between the EU and third countries?
Heidi Hautala: The EU’s partner countries need to see how to provide an enabling environment for sustainable business. European markets will no longer accept forced labour or bonded labour products, and deforestation and ecosystem destruction has to be eradicated from the value chains. All this will factor in the decision making in companies when looking at the attractiveness of a sourcing location. At worst companies leave more difficult countries without addressing the problems. In order to induce positive change, the EU has to provide the support and assistance to its partner countries so that they will be able to meet the rising standards in the EU.
If you want to discover more about the MEPs’ position on due diligence issues, take a look at our in-depth assessment of the views and influence of MEPs’ on due diligence policy. For more information, training, consultancy or media relations, contact us at [email protected]