On 23 February, the European Commission published a proposal aiming at introducing stricter human rights standards in companies. Under this directive, should it be voted, a business would be liable for any harm done to human rights and the environment in activities contributing to the company.

Like the European Coalition for Corporate Justice, the Action Solidarité Tiers Monde (ASTM), an organisation acting in the initiative for due diligence, considers the proposal a positive but insufficient first step.

Proposal barely applicable to Luxembourg

Luxembourg's business sector, which is highly globalised, said the ASTM during a press conference on 2 March, is at a much higher risk of impacting the human rights of others. Companies should therefore be held accountable for their entire value chain, as well as transparently report their actions to protect human rights on a yearly basis.

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.

“It’s a good proposal, but it means that over 99% of Luxembourg companies will not fall under the legislation,” said Jean-Louis Zeien of the ASTM.

Instead, the ASTM suggests reevaluating the European proposal at a national scale. In Luxembourg, a company is considered large if it has more than 250 employees and a turnover of more than €50m, whereas a medium business has less than 250 employees but more than 50. It makes sense to apply the same rules when it comes to corporate due diligence, argues the ASTM. It therefore proposes for large companies of more than 250 employees and a €50m+ turnover and for small companies of less than 250 employees and less than €50m that are active in high risk sectors to be made accountable.

Holding companies--Soparfis--should also fall under the rule.

Including the financial and technological sectors

On top of demanding a stronger legal basis to support victims of corporate human rights abuses in financing a legal procedure, the initiative demands that more sectors be included in high risk areas. The agrobusiness, logistics including maritime logistics, food and mineral extraction sectors fall under that label in the proposal. The construction, the information and technology and the finance sectors do not.

With Luxembourg having made the news a few times recently for hosting companies that abused human rights--such as the spyware firm NSO or CAE Aviation--it should strive to not only close the loopholes found in the European proposal but also become a centre of excellence in terms of due diligence.

The ASTM argues that many financial actors have voiced their support for a national legislation and a more ambitious EU directive, but that the Luxembourg Bankers’ Association (ABBL) stated there was no need for such laws and that due diligence guidelines should be followed on a volunteer-basis.

Zeien, while presenting the ASTM’s counterproposal to the directive, explained that concrete strategies to mitigate human rights and climate abuses were too slow, and that Luxembourg’s finance place didn’t consider changing things at an adequate rate. “In our eyes, this isn’t acceptable and we deplore that finance actors and the sector aren’t counted in the high risk branches even though they invest in companies that may work in these high risk sectors,” said Zeien.

Taking notes on the EU’s good students

The ASTM also noted that climate change--which is tightly entangled with human rights--as well as gender-based abuses were largely left undiscussed in the proposal. Though large companies were asked to align their activities with the goals of the Paris Agreement, the consequences of not adapting were minimal. Here too, the organisation offered a solution in the form of sanctions and fines based on turnover, in addition to the exclusion of procurement procedures on public contracts.

The ASTM has sent a proposal to the foreign affairs minister Jean Asselborn (LSAP) and the government, but said it had so far not received a response. In the meantime, it invites the state to develop a stronger national action plan and stance on corporate due diligence and to follow the example of other EU countries--like France or Germany--that have put in place national legislation on the matter.

“We just ask that they follow the good students in the class because they already implement the right actions,” Zeien concluded.

In the past, Asselborn had said he would prefer to wait on an EU-wide directive. The ASTM hopes the grand duchy won’t take too long to announce its stance on the directive. 

Delano reached out to the ministry of foreign affairs which communicated that it was still analysing the proposal of the European commission.