In 2017, France pioneered the introduction of a legal duty of care for companies. The idea? To oblige companies to identify, prevent and mitigate human rights and environmental abuses throughout their value chain, i.e. in their own activities as well as those of their subcontractors. The aim was to avoid new tragedies like the Rana Plaza disaster in Bangladesh in 2013, where nearly 1,200 people died in the production workshops of European multinationals in particular.
Since then, many bodies have been considering the introduction of a “duty of care”, including the European Union, which for many months has been discussing the introduction of a European duty of care, known as the Corporate Sustainability Due Diligence Directive, or CSDD (CS3D). At the beginning of June 2023, the European Parliament voted in favour of this directive, marking a crucial legal step forward for CSR. But a number of issues remain to be resolved.
An ambitious duty of care voted by the Parliament
All MEPs had to vote on whether to approve a draft directive put forward by the European Parliament’s Legal Affairs Committee. A few weeks ago, this committee had already proposed an ambitious version of the text. In concrete terms, the directive proposes to considerably strengthen the legal responsibilities of companies in the event of human rights or environmental abuses, including at their suppliers’ sites.
With the “duty of care”, a company could be held legally responsible if one of its regular suppliers does not respect labour rights standards, or if its activities cause serious damage to the environment. All companies established in the European Union with at least 250 employees and a turnover in excess of €40 million will be affected. Companies outside the EU will also be subject to the duty of vigilance if their turnover exceeds €150 million, of which €40 million is generated in the EU.
The text will enable victims of human rights violations to take their case to court and seek compensation from the companies responsible. Guilty companies will then risk fines of up to 5% of their turnover. Not to mention the legal liability of directors, who would also be held liable. A legal revolution that makes companies and their managers truly responsible for the negative externalities of their activities across the entire value chain.
A European trialogue, against a backdrop of lobbying
The text voted on in Parliament is therefore highly ambitious, undoubtedly more so than the text adopted in France in 2017. It should enable the emergence of real social and environmental responsibility for companies, this time legal responsibility, which could hold them to account.
However, despite this vote in parliament, there is still a long way to go before the text is adopted by the European authorities. Indeed, the vote on 1 June is only the starting point for what is known as the European “trialogue”, i.e. the legislative discussions that the European Commission, the Council and the European Parliament will hold on the text. For the time being, however, each party has simply adopted its own position: the Parliament is proposing an ambitious version of the text, while the Council is opting for a much more lax position, which would exclude companies in the financial sector and companies’ downstream value chains from the scope of the directive.
The various European institutions will therefore have to exchange views in order to find a consensual position, and as with other European texts at the moment, this is likely to give rise to intense lobbying. Already in Parliament, the right and extreme right have joined forces to try to reduce the scope of the text, thus relaying the positions of a number of companies opposed to the text. The Council, for its part, has had a minimalist stance on the text from the outset, and is likely to seek to water down Parliament’s position in the coming weeks.
Difficult negotiations on European duty of care
Negotiations therefore look set to be difficult, and European employers’ lobbies are already manoeuvring to unravel the regulation. No sooner had the text been voted through Parliament than BusinessEurope, the lobby group for private companies and employers in Europe, was already denouncing a text that was “too prescriptive”, with “punitive” (sic) sanctions. Having already worked against the CSRD on sustainability reporting, Europe’s business community is now up in arms against the duty of care, rejecting any form of binding regulation on corporate social and environmental responsibility.
Conversely, many experts on the ecological transition, as well as associations, have welcomed the progress made in the text passed by Parliament, even advocating the adoption of more ambitious measures to force companies to control their social and environmental externalities.
Which of these voices will have the greatest impact on the European institutions? That’s what’s at stake in the forthcoming negotiations, which are expected to last until the end of the year or the beginning of 2024 at the very least… For a text that won’t come into force until 2026 at the earliest, not to mention any possible derogations and exemptions. So let’s hope that the foundations of all the Rana Plazas in the world are solid enough to hold out until then.
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