On March 10, 2021, the European Parliament adopted a resolution submitting to the Commission and Council a draft Directive on corporate due diligence and corporate accountability.
While the draft Directive incorporates certain elements proposed in September by the Committee on Legal Affairs, others have been left out such as the constitution of criminal offense in case of intentional repeated infringements.
The Directive proposed by the Parliament applies to: a) large corporations governed by the law of a member State or established in the territory of the EU, b) all publicly listed small and medium sized corporations and high-risk small and medium sized corporations, c) all aforementioned corporations that are not governed by the law of a member State and are not established in the EU but that operate in the internal market selling goods or providing services (Article 2).
These corporations must carry out effective due diligence with respect to potential or actual impacts on human rights, the environment and good governance in their operations and business relationships (Article 4). In that regard, corporations must carry out “in good faith effective, meaningful and informed discussions” with relevant stakeholders, including trade unions and impacted stakeholders (Article 5). Information on the due diligence strategy must be publicly available (Article 6) and the effectiveness of the strategy and its implementation must be assessed at least once a year and revise accordingly (Article 8). Small and medium sized corporations must be eligible for financial support to perform their due diligence obligations (Article 15).
Further, a grievance mechanism, both as an early-warning mechanism and as a mediation system must be set up by corporations and must provide for the possibility to raise concern either anonymously or confidentially (Article 9). A corporation found to have caused or contributed to an adverse impact must provide for or cooperate with the remediation process. Remedy may consist of financial or non-financial compensation, reinstatement, public apologies, restitution, rehabilitation or contribution to an investigation. Extra-judicial remedy does not prevent civil proceedings. In such case, decisions issued by a grievance mechanism “shall be duly considered by courts but shall not be binding upon them” (Article 10).
Competent authorities are granted with investigation power to ensure that corporations comply with their obligations. Authorities can adopt interim measures to prevent irreparable harm including the suspension of activities and are empowered to impose administrative fines (Article 13).
In case of infringement, States are required to provide for “proportionate sanctions” and “shall take all the measure necessary to ensure that those sanctions are enforced”. Sanctions must be effective, proportionate and dissuasive and may include proportionate fines calculated on the basis of corporation’s turnover, temporarily or indefinitely exclusion from public procurement, from state aid, from public support schemes, seizure of commodities and other appropriate administrative sanctions (Article 18).
Finally, States must ensure that they have a liability regime under which corporations can be held liable and provide remediation. Statute of limitation for civil liability claims concerning harm arising out of adverse impacts on human rights and the environment must be reasonable (Article 19).
While this draft is a strong signal from the Parliament, it lacks important elements such as access to justice and remedy for victims located outside the EU and criminal liability as deterrent sanction.
To be continued.