The European Commission’s proposal on due diligence rules carries the risk of heavily shifting responsibilities to smaller players in the supply chain, EURATEX has said.
- To avoid this, the EU Due Diligence framework must imbibe from existing global guidelines, using a risk-based approach, i.e., the UN Guiding Principles on Business and Human Rights (UNGP) and OECD Due Diligence Guidance for Responsible Supply Chain in the Garment and Footwear Sector (OECD), scope of which should be formed on proportionate, transparent criteria, relative to companies’ size and risk.
- This contention was made in a position paper titled 'Corporate Sustainability Due Diligence: EURATEX Position Paper'.
Risk Factors: EURATEX has made several arguments:
- The different application of due diligence legislation across Europe is a serious risk because the proposal is a Directive and several proposal’s parts entail significant room for different interpretation. This endangers the level-playing field for EU companies.
- Harmonisation efforts should be introduced, like developing EU guidelines, and clear methodologies on carrying out due diligence, setting out precisely the scope of relevant legal actions under civil liability, and presenting more precise definitions.
- To achieve concrete progress in the due diligence practices while avoiding unintended consequences, several concrete improvements shall further be applied: a mechanism to support SME’s and avoid disproportionate complexity, namely the bureaucracy that companies may find themselves requiring to manage, and civil liability to be limited to Tier 1, which is the level where actions can actually be better controlled.
- Climate mitigation efforts currently introduced in the draft proposal, go far beyond the framework of original due diligence. European Due Diligence should focus exclusively on human rights as protected by the UNGP guidelines.
The Recommendations
Facilitate a risk-based approach and accordingly, a scope based on size and risk
- Introduce a risk-based approach, where risk management drives the actions by companies and not only findings of audits reports and focuses on continuous improvement.
- Following risk-based approach principles, define scope that is equal for all industries, proportionate, and based on size and risk.
- Capture the nature of the process that human rights due diligence is, allowing flexibility and not for a static box-ticking exercise.
- Incentives for good performance in due diligence should be provided and more emphasis on learning-orientated approach based on engagement and support should be given.
- Guarantee the introduction of guidelines on how to fulfil due diligence by indicating so in Article 13.
- Ensure that guidelines are not reinvented, but rather aligned with OECD/UNGP guidelines.
Ensure a level-playing field through harmonisation, clarity, and better market surveillance
- Limit the usage of “should” to provide more certainty. Following risk-based approach principles, define scope that is equal for all industries, proportionate, and based on size and risk.
- Present more precise wording to limit interpretation, by providing examples of: established business relationships, reasonable terms, fair terms, reasonable grounds, appropriate measures, administrative sanctions, triggering of civil liability.
- Introduce more definitions on: indirect/ direct partners, legal entity.
- Develop methodologies/guidelines for: preventing and mitigating adverse human and environmental impact, identifying actual/ potential adverse impacts, procedures for complaints, for setting up, overseeing due diligence, clarifying whether conducting due diligence is necessary for all risks listed in the Annex, or whether companies could assess which to prioritise in accordance to their own risk assessments. Concept of prioritisation and proportionality of actions should have a more central role in the Directive, as expressed in existing guidelines (UNGP and OECD). These could be introduced in EU due diligence guidelines as mentioned in Article 23.
- Specify suitable industry initiatives for verification of compliance with contractual assurances.
- Set minimum criteria after which should be possible to lodge a complaint and institute a step in the procedure that allows for relevant parties to hold an informal dialogue before a legal procedure may be launched preventing companies from long and costly processes, for example by the grievance mechanisms indicated in OECD/UNGP guidelines. This procedure could also be facilitated with the national OECD contact points and could be clarified in EU due diligence guidelines as mentioned in Article 23.
- Ensure that the European Network of Supervisory Authorities exchanges on actions for the purpose of carrying out harmonising efforts.
- Set out a clear scope of the relevant legal actions under civil liability, by defining who can bring a relevant legal action before the relevant court (i.e. a right to action) and under which circumstances. The right balance must be found between enabling the access to justice or a right to remedy and reaffirming the principles of the burden of proof (the presumption of innocence) of business.
- Introduce coherent director’s duty of care. As the proposal stands now, it presents unspecified and very far-reaching general policy goals, creating legal uncertainty about director’s own actions.
- Introduce a monitoring and enforcement mechanism that works equally for each EU member state.
Establish clear support mechanisms for SMEs and decrease burden of bureaucracy
- Measure the support that will be necessary for SMEs.
- Work with industry on guidances and capacity building for supply chain partners.
- Ensure all-encompassing harmonised support mechanisms for SME’s across the Union i.e. harmonised financial aid, trainings by introducing these in the proposal.
- Facilitate companies’ compliance by safe harbour provisions and positive/negative lists, e.g. following the example of the already existing EU export control law.
- Reporting obligations must be kept to a minimum, usage of standards should be continued and companies should be consulted on these obligations.
Acknowledge the limits of civil liability
- Introduce a clearly and legally defined definition of the supply chain, the depth of which is limited to the level of the direct supplier (“Tier 1”).
- Limit legal liability to business relationships where companies have one direct contractual relationship (Tier-1).
- Limit the imposition of sanctions to intentional and grossly negligent violations.
Limit Due Diligence to human rights and exclude climate mitigation
- European Due Diligence should focus exclusively on human rights as protected by the UNGP guidelines.
