The proposal aims to “prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss,” an official statement says, by implementing rules for businesses operating within the EU. Companies would have to look at their entire value chain to identify any infringement on human rights or environmental protection and modify their needs.
Company size not a reliable indicator of impact
The European Coalition for Corporate Justice (ECCJ), an advocacy group that has been pushing for EU-wide rules welcomed the directive: “Under the new law, companies could be held liable for harms committed at home or abroad by their subsidiaries, contractors and suppliers, and their victims will have the opportunity to file lawsuits before EU courts.”
But it also said the plans aren’t going far enough.
The new diligence law would apply only to EU companies that either are of substantial size and economic power--with over 500 employees and €150m in net turnover worldwide--or other limited liability companies operating in defined high impact sectors--that have between 250 and 500 employees and net turnover of between €40m and €150m turnover.
“This limitation means the draft legislation only applies to less than 0.2% of EU companies,” says the ECCJ in a press release. “By restricting the scope so dramatically, the proposal wilfully ignores many harmful business operations, as staff size and annual turnover are not reliable indicators of how a company is impacting the lives of workers and communities worldwide.”
In addition, smaller companies could implement due diligence laws two years later than the larger businesses. Non-EU companies that have a turnover of €40m or more generated in the EU would also have to submit to the new rules.
Small and medium enterprises--of which there are 32,000 in Luxembourg according to the economy ministry--would not fall within the scope of the proposal.
The proposal by the commission foresees the introduction of national administrative supervisory authorities appointed by EU member states. These would impose fines on companies in case of non-compliance. In addition to following human rights policies, larger companies with a higher turnover will have to review their business plan to be compatible with the targets set by the Paris Agreement.
However, the ECCJ warns that “The text implies that companies could fulfil their obligations by adding certain clauses in their contracts with suppliers and offloading the verification process to third parties.” Companies could then shift their responsibility to other parties.
Luxembourg and due diligence incidents
When contacted by Delano for comment, the ministry of foreign affairs said that it needed more time for a deeper analysis of the proposal.
The grand duchy has in past years accumulated a history of headlines for hosting companies embroiled in activities that violate human rights. Recent cases included Luxembourg-based CAE Aviation--involved in missions that targeted and killed Libyan civilians--and Israeli spyware firm NSO, which sells a spyware programme used to hack the phones of journalists, politicians and human rights activists.
Confectionary company Ferrero, which is supplied by hazelnut farms in Turkey that function on child labour and refugee worker exploitation, has its European head office in the grand duchy.
Though local businesses and NGOs demanded national legislation on due diligence, Luxembourg’s foreign affairs minister Jean Asselborn (LSAP) often took the blame away from the government and highlighted the importance of an EU-wide directive rather than local laws. Currently, companies in Luxembourg can voluntarily implement due diligence on human rights in their structures.
Should the proposal be approved by the European Council and European Parliament, businesses falling within the scope of the directive will have to integrate due diligence processes into their policies, prevent and mitigate potential impacts, minimise or end current impacts, monitor the effectiveness of these policies and publicly communicate on the matter.
Larger companies such as Amazon or Ferrero who have set up their headquarters in the grand duchy could be impacted by the directive.
Should the draft law be approved, Luxembourg and other member states would have two years to implement the directive. The grand duchy has, however, in the past, failed to respect EU deadlines, for instance in the case of firearms appropriation and ownership.