On 10 March 2021, the European Parliament adopted a resolution setting out recommendations to the European Commission to prepare a proposal for a directive on corporate due diligence and accountability. To contribute to an internal market that respects human rights, the environment and good governance, the legislator advocates for mandatory due diligence of undertakings’ value chains.
The directive would be obligatory for all large undertakings, as well as small and medium-sized high-risk or publicly listed undertakings, regardless of their registered office, when operating in the internal market. In essence, undertakings should identify and perform a risk assessment analysis in a statement or develop a due diligence strategy and within this context also define their value (upstream and downstream) chains, and above all adopt measures to cease, prevent and mitigate negative effects on human rights, the environment and good governance. Undertakings should monitor compliance of subcontractors and suppliers with their obligations, as well as regularly review the effectiveness and appropriateness of their strategy. They should publish the statement or strategy on their websites, including detailed information about their value chain. Participation of stakeholders such as trade unions and workers’ representatives is anticipated. Other obligations include grievance mechanisms and out-of-court remedies for damages before undertakings. Of course, litigation would remain available to stakeholders, and from this point of view it is important to note that there is no automatic liability relief for undertakings, even if they act with due diligence. Supervision would be carried out by a competent state authority in the form of an investigation, and infringing undertakings could be excluded (temporarily or indefinitely) from public procurement or state aid in addition to fines. At the same time, the proposal also anticipates an incentive in the form of financial support for small and medium-sized undertakings that would fulfill their obligations regarding due diligence.
Supervision of legally due diligent operations is essential for achieving effective business results. The future EU directive – when and in the form in which it will apply – will merely increase regulatory obligations. Therefore, it is already in the interest of undertakings to conduct a due diligence review of their business and gradually adjust their risk management practices and policies, as well as address their internal operations and contractual relationships in their value chains. Namely, the directive provides for calculation of fines based on the turnover of undertakings, which could impose an exceptional burden on large, small and medium-sized enterprises in case they suddenly find themselves in a situation where they are not performing business with due diligence.