European Parliament report calls for harmonisation of stricter due diligence requirements

The European Union should urgently adopt binding requirements for undertakings to identify, assess, prevent, cease, mitigate, monitor, communicate, account for, address and remediate potential and/or actual adverse impacts on human rights, the environment and good governance in their value chain, the European Parliament’s Committee on Legal Affairs has said.

In a report with recommendations to the European Commission on corporate due diligence and corporate accountability, committee rapporteur Lara Wolters said that voluntary due diligence standards have limitations and have not achieved significant progress in preventing human rights and environmental harm and in enabling access to justice.

Having the EU adopt such binding requirements would be beneficial for stakeholders, as well as for businesses in terms of harmonisation, legal certainty, a level playing field and mitigating unfair competitive advantages of third countries that result from lower protection standards as well as social and environmental dumping in international trade, Wolters said.

The committee said it was convinced that due diligence increases certainty and transparency with regards to the supply practices of undertakings sourcing from countries outside the Union and would help protect consumer interests by ensuring the quality and reliability of products.

Wolters insisted that while it is the duty of undertakings to respect human rights and the environment, it is the responsibility of states and governments to protect human rights and the environment, and this responsibility should not be transferred to private actors.

“Due diligence is primarily a preventative mechanism and undertakings should be first and foremost required to take all proportionate and commensurate measures and to make efforts within their means to identify potential or actual adverse impacts and adopt policies and measures to address them,” the report said.

The committee said that due diligence obligations should be carefully designed to be an ongoing and dynamic process instead of a ‘box-ticking exercise’ and that due diligence strategies should be in line with the dynamic nature of adverse impacts.

“Those strategies should cover every actual or potential adverse impact on human rights, the environment or good governance, although the severity and likelihood of the adverse impact should be considered in the context of a prioritisation policy.”

The report also proposed that, to enforce due diligence, Member States should set up or designate national authorities to share best practices, carry out investigations, supervise and impose sanctions, taking into account the severity and repeated nature of the infringements.

The committee called on the Commission to always include, in the external policy activities – including in trade and investment agreements – provisions and discussions on the protection of human rights.

It also asked the Commission to conduct a thorough review of undertakings based in Xinjiang that export products to the Union in order to identify potential breaches of human rights, especially those related to the repression of Uighurs.

Wolters said the European Union should provide immediate support to small and medium-sized undertakings which face a challenging situation because of the COVID-19 pandemic. The creation of a favourable market environment should be a priority, she said.