Tara
Van Ho, Senior Lecturer in Law, University of Essex
Photo credit: Infrogmation
of New Orleans, via Wikimedia
commons
The European Union’s Council and
Parliament have agreed to a provisional text for a new directive that would
require certain large corporations to undertake human rights and environmental
due diligence.
I was reminiscing just the other
day while having coffee all alone, and Lord, it took me away, back to a
first-glance feeling during my first UN Forum. My hope was mixed with equal
levels of scepticism about the likelihood that laws like this would be adopted
let alone be effective. Over the past twelve years, the hopes and scepticism
have been met in equal measure, but never more so than with this law.
While
the final text is not yet public, a press release indicates the key
expectations and components of the agreed text. MEP Axel Voss has posted the
side-by-side comparator of the various drafts, including the new draft
agreement. This draft
confirms:
-
The directive will apply to large EU companies
with a worldwide net turnover of €150million and 500+ employees;
-
It will eventually capture non-EU companies with
€300 million net turnover generated in the EU and the Commission will publish a
list of applicable non-EU companies the law;
-
Affected businesses will need to address actual
and potential adverse human rights and environmental impacts in their “business
chain of activities” which covers their own operations, their subsidiaries, and
“the upstream business partners of the company and partially the downstream
activities, such as distribution or recycling”;
-
The financial sector is (temporarily?) excluded
pending a review and “a sufficient impact assessment;
-
There is a specific list of human rights and
environmental protections that businesses will be expected to respect and
address, and a list of obligations the breach of which will constitute “an
adverse human rights impact”;
-
That list excludes from application certain ILO
core conventions because not all EU member states have ratified them;
-
Large companies will have an obligation of means
to develop and implement an effective plan to mitigate their impact on climate
change;
-
Those who are negatively affected (including
civil society or trade unions) can bring claims for civil liability within a
five-year period; and
-
At times, as a matter of last resort, businesses
may need to end their business relationships where negative impacts cannot be
prevented or ended.
This law represents progress for
many in the world. If implemented in good faith, it could provide better access
to remedies for victims who are negatively impacted by business operations. It
should also lead to the adoption of better and greater preventative measures,
avoiding the need for remediation in the first place.
It is the first mandatory human rights due diligence
legislation to address climate change, not just environmental damage. It
anticipates civil liability for businesses that breach their responsibilities.
It suggests compliance with the law as a criterion for public procurement,
placing the power of Member States’ purses beyond the law. The recognition that
at times business relationships will need to be terminated to ensure compliance
is significant and can help fill in gaps the negotiation has otherwise left
unaddressed, like the issue of conflict-affected and high-risk areas (which
I’ll return to later in the post).
I’d like to express my
appreciation to the NGOs and Parliamentarians who have gotten us to this point:
it is clear from the Council’s approach during negotiations that if you
would’ve blinked then they would’ve looked away at the first chance. I
particularly appreciate those who fought for the inclusion of international
humanitarian law and specific language on conflict-affected and high-risk
areas. This was needed and I was shocked by early rumours that the draft
agreement excluded this issue. I’m happy those were wrong.
The long-awaited human rights
requirements are intended to implement the 2011
United Nations Guiding Principles on Business and Human Rights (UNGPs). I
remember it all too well how the EU celebrated the adoption of the UNGPs and
how, together with the US and other capital-exporting states, promoted the
UNGPs as the standard for businesses when addressing human rights. The EU long
opposed proposals for an international
treaty on business responsibility for human rights because they felt that
it was unnecessary in light of the UNGPs’ existence and could distract states
from implementing the UNGPs.
Only recently, and only because Parliament
required it, the EU has joined the negotiations with all
the enthusiasm of a 6-year-old child called to dinner when they’re playing
with their dinosaurs (meaning: none). The new directive evidences strong
disconnects from the EU’s demand that the UNGPs lead is pretty and what the EU
advocates for in the binding treaty and what the directive now requires for
reasons I set out below.
In this post, I provide a list of
things the EU would’ve, could’ve, and should’ve done had the Council been as
serious as Parliament about implementing the UNGPs. The would’ves apply to an
ideal application of the UNGPs: applying to all businesses and with a more
robust and comprehensive understanding of human rights. The could’ves represent
those areas in need of greater development: consulting with rightsholders
abroad; and clarifying that contractual clauses are not enough. Finally, the
“should’ve” is applying the law to the financial and arms sectors, a bare
minimum expectation under the UNGPs, the exclusion of which should embarrass
Council members for decades to come (I would have said generations but that
felt a tad bit dramatic).
Would’ve: Applied to all
businesses
First, the UNGPs are explicit
that the responsibility to respect human rights applies to all businesses at
all times including small and medium-sized enterprises (SMEs). In the Geneva
treaty negotiations the EU has always walked a very thin line, insisting that the
treaty, like the UNGPs, should apply to all businesses, not just
transnational corporations. The initial Parliamentary
proposal for a directive would’ve (largely) continued this approach and
complied with the UNGPs. Yet, it was clear from the Commission’s
proposal and the Council’s response that we were never going to get a
UNGP-compliant directive. The Directive will now only apply to large companies
(and not in the financial sector, an issue I’ll return to). The press release
does not indicate an intention to expand the scope of the Directive in the
future.
Including SMEs is admittedly
difficult. In the transnational context, large European companies have
long forced SMEs in places like Bangladesh and Pakistan to absorb the cost of
social auditing processes while insisting on contracts that limit the legal
liability of European buyers and parents. This often leads to corrupt practices
for certifications or in redirecting revenue for the certification away from
protections or living wages for employees. That would defeat the purpose of the
law.
EU SMEs, on the other hand, often
already have a language of human rights, practices that facilitate due
diligence, and networks that can support their efforts to develop in this area.
A graduated expansion coupled with clauses aimed at protecting SMEs from the
abusive practices we’ve seen elsewhere could’ve provided an important example
of how SMEs can be included in mandatory human rights due diligence legislation.
It also would’ve strengthened the EU’s position in the Geneva-based
negotiations.
Instead, whenever the EU pushes
for an expansion of the treaty, I hope states like Pakistan and Bangladesh point
out the hypocrisy.
Would’ve: Taken a broader
approach to human and labour rights
The UNGPs also call for
businesses to account for all human rights. In Principle 12, it states that
businesses should account for, “at a minimum,” the International Bill of Human
Rights (the Universal Declaration of Human Rights, the International Covenant
on Civil and Political Rights, and the International Covenant on Economic,
Social and Cultural Rights) and the ILO Core Conventions. Where relevant,
businesses need to rely on other standards as well.
The EU’s press release suggests
that the directive will only invoke treaties that are universally ratified by
EU member states. That would mean most of the major UN treaties are addressed but
there are some disturbing omissions, including the International
Convention on the Protection of All Migrant Workers and of their Families
and the ILO Core Conventions. Those are rather significant omissions given
issues of modern
slavery in EU food supplies, and more broadly problems with the treatment
of migrant workers throughout EU corporate supply chains.
The list also prioritises EU
commitments over relevant obligations where the law has extraterritorial
impacts. There should have been a recognition that at times the Inter-American
and African systems on human rights can be applicable. This recognition is
important as the Inter-American and African systems have produced stronger
jurisprudence on various issues, including indigenous rights and
community rights than Europe
(significantly stronger in the Inter-American system) while the
Inter-American system also produces more progressive jurisprudence on the
definition and nature of reparations, and the direct
responsibility of businesses. While the African system has more limited
jurisprudence, its jurisprudence on land rights and community rights is
similarly more advanced than the European system’s.
Sometimes, I miss who I used to
be when I could naively believe the absence of reference to the other human
rights systems was an oversight, but I fear this strengthens the case for the
laws as a form of neo-coloniality by suggesting a hierarchy of rights and
systems that centres European expectations in legislation that is supposed to
reflect broader standards.
Could’ve: Undertaken Direct
Consultations with Foreign Rightsholders
The failure to recognise the
relevance of Inter-American and African jurisprudence reflects a broader
procedural failure by the Commission to consult foreign rightsholders who will
be affected the law. I cannot do greater justice to this criticism than Caroline Omari Lichuma
has done already in her TWAIL
critique of European human rights due diligence laws.
While my experience suggests that
many victims groups and rightsholders want mandatory laws, what they want in
those mandatory laws matters just as much as the desire for a law. They
had a right not just to voice their support for (or criticism of) the law but
to make substantive demands for the law itself. What would the additional
demands of rightsholders look like? Well, sometimes you just don't know the
answer ‘til someone's on their knees and asks you for a particular legislative
proposal, but a very recent study suggests that consultation might have led to
different approaches to remediation, particularly for climate-related harms.
I often find that memories feel
like weapons. In this field, we have often seen European businesses and states
undertake “new” initiatives they claim are for the benefit of others without
actually talking to the “others.” For example, studies suggest “social
auditing” and certification schemes do not deliver on the promises European
companies and social initiatives claim. This is unsurprising. Writing in the
U.S., the founding father of critical race theory, Derek Bell, has explained
that many “anti-racist” developments really represent interest convergence of
White and Black leaders. As such, the concessions are less radical or
responsive than what racialised communities would seek themselves. These
additional demands, however, are often dismissed or ignored. When Dr Lichuma
provided an overview of her critique at the 2022 UN Forum on Business and Human
Rights, one European delegate infamously responded that Europe’s position
wasn’t a matter of imperialism but of “leadership.” Real leadership, however,
would reflect the results of consultations with rights-holders not just the
political interests and concessions of European leaders.
Could’ve: Clarified that Contractual
Clauses are not Enough
Recital 34, para 43 in the table
contains an extensive discussion of the kinds of measures companies can take to
comply with their human rights responsibilities. One of those is the
development of contractual clauses with business partners. I worry that I've
seen this film before and I
didn't like the ending.
I’ve now mentioned twice that
social auditing is a sham. There will be exceptions to this rule and I can
point people to a few of my favourite exceptions, but let me reiterate what
existing research
indicates: social auditing is generally ineffective and often detrimental for
rights-holders, providing a veneer of respectability for disrespectful
practices.
Increasingly, it is clear that
this is equally true of index listings meant to advise institutional investors
on their human rights risks. Last year, the US advisory company Morningstar
adopted rules aimed at exempting Israel that so fundamentally misunderstand the
UNGPs that it renders all its human rights reporting questionable (short story:
Morningstar concluded Israel isn’t a conflict-affected area…). More recently,
index provider MSCI accepted audits from Xinjiang, China, as evidence that the
car company Volkswagen was seriously addressing the issue of Uyghur forced
labour. No company can adequately address the issue of Uyghur forced
labour when operating in Xinjiang and (again, I cannot emphasise this enough) it
is irresponsible to rely on a social audit in this context. Because these
indexes set their own rules, and have no professional board standards, I can’t
actually accuse them of professional malfeasance but these responses are
shockingly inept.
Human rights due diligence is not
supposed to be the same as an audit, but often businesses looking for a quick
and dirty misdirection will use social audits and contractual clauses as a
substitution for due diligence. I fear that if contractual clauses are allowed,
due diligence will start to look more and more like social auditing and
indexing and less like the robust and circular mechanism of assessment,
responsiveness, and reparations than it is supposed to be.
The directive could and should
clarify that while contractual clauses can be important they cannot transfer
legal liability.
Should’ve: Applied to the
Financial and Arms Sectors
At Recital 18, para 27, and Recital 19, para 28, we find an effective
exemption from the law for the arms and financial sectors, respectively. In
Recital 19, the CSDDD excludes “downstream business partners” from the scope of
due diligence obligations. I knew this was true from the press release, but
seeing the blatant language was surreal. I’m laughin', but the joke's not funny
at all.
I’m going to set aside the arms
sector for now (because I’m working on a lot regarding that sector right now), but
the exemption for the financial sector is gross (gross being a legal term of
art, just ask anyone…). The draft agreement says that “as regards regulated
financial undertakings, only the upstream but not the downstream part of their
chain of activities is covered by this Directive.” In other words: the bank is
not responsible for breaches caused by its financing of another’s activities no
matter how much the bank should have known how its financing would be used for
human rights violations.
Out of every group you’re
concerned with protecting, out of every business and industry, it is the banks
you the Council thinks can’t do due diligence?
Really?
The banks that kept looted Nazi
material from their rightful Jewish owners for decades?
The banks that repeatedly
financed South Africa’s apartheid regime, saving it when it was on the brink of
collapsing?
The banks accused of facilitating
money laundering for drug lords and terrorists?
The ones who facilitate tax
evasion?
The banks that finance dam
projects in indigenous lands with such disregard for human rights that many of
their logos should just be “Hi, it’s me, I’m the problem. It’s me.”
The banks that know how to do extensive
due diligence on operational impacts when it’s in their financial interests?
Those banks? That’s
who needs protecting with this law?
You cannot be serious about human
rights if you are not serious about tackling the responsibility of the
financial sector. When it comes to the Council members who betrayed the
rights-holders with this clause, I got a list of names and yours is in red,
underlined, France and Austria. France was the first to indicate resistance to
the application to the financial sector, but it is Austria’s recent pressure on
Ukraine, in which it
leveraged international assistance for the war on the removal of Austrian
Raiffiesen Bank from the list of international sponsors of war, that is perhaps
the worst development in this area. People need to know this, so they know
where to put pressure moving forward.
It appears there will be an
“impact assessment” to determine if the law should apply to this industry, but
that will be too little and far too late.
It’s also wholly unnecessary.
There is nothing particularly
special about banks or the financial industry that makes human rights due
diligence hard. They just don’t want to pay for it to be done properly. That’s
not surprising. No company wants to pay for it. Disney once complained about
reporting requirements before we even had any human rights due diligence laws
because they didn’t way to cut into CEO bonuses or shareholder profits. The
desire to not spend money on human rights due diligence is not an adequate
reason for allowing those complicit in the Nazi genocide or South African
apartheid or Russia’s unlawful war of aggression in Ukraine to continue to
evade human rights responsibilities. If anything, their focus on profits and
finances over people is exactly why this law is needed.
Concluding note
So that’s it: my would’ves,
could’ves, should’ve for the EU. At times, the CSDDD provides me with hope
about the direction of travel for this field, but in other areas it represents
a crisis of my faith.
PS, Taylor Swift’s birthday was
on the same day as the final trilogue.
As a fun Easter Egg hunt for my fellow Swifties, I’ve sprinkled her lyrics
throughout this post (13 times, obviously). I’ll send a friendship bracelet to
the first Swiftie who emails me a list of all the hidden gems. Please use the
subject line “T-Swift Easter Egg Hunt” in your email. My email address can be
found on my Essex
profile.
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