Date Posted
24 April 2024 15:04 BST
Article Author

Europe’s new due diligence law falls short

Europe’s weakened Corporate Sustainability Due Diligence Directive, which has just been approved by the European Parliament, is a missed opportunity for strong regional regulation of transnational corporations. Not only has the law been dehydrated for the sake of business interests, but the due diligence paradigm for addressing human rights abuses is inherently flawed and cannot be a substitute for a higher level of regulation.

Since the 1970s there has been a movement from civil society and countries of the global South to establish an international framework of human rights obligations for transnational corporations, but this movement has faced strong resistance.

When the first draft of binding international norms for transnational corporations emerged in the UN in 2004, it was rejected with the argument that binding norms weren’t necessary because of the brand-new Global Compact. When countries voted at the UN General Assembly in 2014 to establish a Working Group on a binding legal instrument, the same argument was heard again: that a treaty was not necessary and the non-binding UN Guiding Principles on Business and Human Rights (UNGPs) should be the standard to pursue. The UN’s Working Group has been working on a binding treaty for the ten years since then, but agreement has still not been reached on a text.

It has become clear that non-binding frameworks like the OECD Guidelines for Multinational Enterprises and the UNGPs are not enough in the face of human rights violations which to this day have not been fully remediated, such as the Rana Plaza building collapse in Bangladesh and the rupture of the Mariana and Brumadinho dams in Brazil. Research on Germany’s National Action Plan for the UNGP found that only about 20 per cent of businesses had voluntarily complied with UNGP standards.

Since corporations are no longer able to advocate for non-mandatory guidelines as the answer, due diligence has become the new bet. Countries of the Global North and business interests started to diminish the importance of a binding international instrument and presented national legislation as the main solution, based on the paradigm of due diligence.

National legislation is important and useful and has always been perceived by civil society and legal experts as complementary to an international treaty. However, there are gaps such as liability throughout the value chain, extra-territorial jurisdiction and enforcement of foreign decisions or court judgements: these should be dealt with internationally, because of the structures and activities of transnational corporations.

For transnational corporations that use their size and structure to evade liability, national law alone can favour impunity: firstly because this kind of legislation is generally not able to address jurisdiction and enforcement of decisions, and also because corporations can pressure governments, especially in the Global South, to weaken their domestic frameworks in a “race to the bottom” competition to host investments.

Additionally, due diligence is a limited paradigm for addressing the impunity of transnational corporations. Although due diligence could be a useful tool for preventing violations along the supply chain, its purpose is only to prevent violations in future and not to solve those which have already occurred or are ongoing.

Other effective mechanisms of prevention, which are demanded by communities affected by transnational investment, should also be included in law. These include free prior and informed consent (including the right to say “no”), independent technical advice for communities and meaningful participation in the installation of an investment project, among others.

The UNGPs have established human rights due diligence and expanded the concept beyond compliance and risk analysis, but this concept is still limited by its reliance on self-monitoring by corporations and cannot resolve abuses by itself. This is why civil society needs to beware of the arguments that due diligence can replace a binding treaty or should be the standard for that treaty, rather than a higher level of regulation.

Brazil’s framework law encompasses due diligence, though it does require free, prior and informed consent by communities and provides for access to information. It also establishes liability, sets out legal remedies and provides for extra-territorial jurisdiction. Latin American and African civil society are fighting for their own legislation to set a paradigm that addresses their realities and gaps more effectively than due diligence alone.

European countries have already adopted national legislation, as in France and Germany, or are in the process of doing so as in the UK and the Netherlands. These laws were strongly advocated for by campaigners and can become useful tools, but they have the inherent limitations of the due diligence approach and have been dehydrated by the corporate lobby in France and Germany.

The EU’s regional law, the Corporate Sustainability Due Diligence Directive (CSDDD) has been discussed since 2022. The Directive would create a duty on large European companies to identify, end, mitigate, prevent and account for negative human rights and environmental impacts in their own operations and in their supply chains.

After negotiations between the European Commission, Parliament and Council, agreement was reached in December 2023. However, Germany announced a shift in its position and decided to abstain on the proposal. Then France and Italy raised last-minute opposition as a manoeuvre to weaken the text, under pressure from business. Civil society campaigned strongly, especially in France and Germany.

The legislation was agreed by EU member states on 15th March 2024 but in a much weaker form which lets down the expectations of civil society and legal experts and wastes the opportunity to create strong legislation at the regional level.

The law includes considerable gaps and vagueness which could enable transnational corporations to evade their obligations. For example, the financial services industry is not in scope, the climate provisions are insufficient and the sanctions mechanisms are weaker than they were in the original text. Also, the scope is significantly narrower and the vacatio legis (time to come into effect) has been increased to up to five years.

The European directive was adopted by the European Parliament on 24th April. The final text appears to be frailer than the national legislation in France and Germany, since the former imposes stronger obligations and the latter establishes more complete administrative sanctions. This creates insecurity about these laws being in force side by side. Strangely enough, it was the governments of these countries which insisted on weakening previous versions of the directive. 

It is still too soon to understand how and if the Directive will become a useful tool against human rights violations. A part of civil society does not believe in the potential of due diligence at all, and the French and German laws are only just starting to show their flaws and their potentialities. For EU countries that have no such legislation, the Directive could represent a first step forward, but it should not be considered the maximum standard. Rather, it should be seen as just one possible path which does not preclude more ambitious national legislation, and the Directive itself could be revised in future.

But most of all, the history of the Directive makes clear the necessity of an international treaty to complement national and regional frameworks. The impunity which transnational corporations profit from can only be addressed with a comprehensive system of instruments capable of redressing the huge breaches that affected people and communities have to deal with every day.

Andressa Oliveira Soares is a human rights attorney, advocacy consultant and PhD Candidate in International Law at the University of São Paulo, Brazil.

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