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Business and Human Rights Update
We are witnessing a legal avalanche relating to business and human rights. Our Business and Human Rights Updates will keep you advised of initiatives of relevance to your business. We are also constantly chasing new tools to enable businesses to identify and effectively address potential harm to people and the environment. Ultimately, what protects people (and the planet) is also what best protects businesses.
Referred to as no less than a “game changer”, the European Commission has adopted its proposal for a Corporate Sustainability Due Diligence Directive ǀ The European Commission re-confirms its intentions to regulate a ban on products produced by forced labour

23 February 2022 was a busy day for the European Commission in the business and human rights space, with the: 
  • adoption of its proposal for a Corporate Sustainability Due Diligence Directive; and
  • publication of its strategy to promote decent work worldwide, which signals that an instrument banning forced labour products is being prepared.
Many have been looking forward to the proposed Directive. Only this month, more than 100 companies urged the European Commission in a joint statement to swiftly adopt a proposal for mandatory human rights due diligence.

As anticipated, the proposal is rooted in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for multinational companies. This Update will be one of many in the coming weeks aiming to gauge the extent of such alignment. In particular, we anticipate that Shift’s analysis will be helpful (to be published on 1 March, sign-up here). In the meantime, we have prepared an overview on some key elements.

Companies in scope include those incorporated:
  • within the EU:
    • with more than 500 employees on average and a net worldwide turnover of more than EUR 150 million in the last financial year; or
    • with more than 250 employees on average and a net worldwide turnover of more than EUR 40 million in the last financial year, where at least 50% of the net turnover was generated from manufacture and wholesale of textiles, clothing and footwear; agriculture, forestry, fisheries and the manufacture of food products, and the wholesale trade of agricultural raw materials, live animals, wood, food and beverages; or the extraction of mineral resources, manufacture of basic metal products and wholesale trade of mineral resources, basic and intermediate mineral products.

  • outside of the EU:
    • provided net turnover exceeds EUR 150 million within the EU; or
    • with net turnover of more than EUR 40 million provided at least 50% of their worldwide turnover was generated from one or more of the garment, food or extractive sectors listed above.
The Directive requires companies in scope to:
  • conduct due diligence in relation to potential and actual adverse impacts of a defined set of human rights, centred around workers’ and workplace rights, land rights and environmental related rights;
  • conduct due diligence in relation to adverse environmental impact resulting from violations of a defined set of environmental conventions;
  • adopt a plan for ensuring that its business model and strategy are compatible with the transition to a sustainable economy and with limiting global warming to 1.5˚C in line with the Paris Agreement.
The due diligence obligation of companies in scope generally includes:
  • establishing and annually updating a due diligence policy and integrating due diligence into all corporate policies;
  • taking appropriate measures, including consultations with potentially affected groups, to identify actual and potential adverse human rights impacts and adverse environmental impacts arising from their operations, the operations of their subsidiaries and “established business relationships” (with certain limitations for smaller companies in high-risk sectors and financial institutions);
  • taking appropriate measures to prevent or adequately mitigate potential adverse impacts. For example, by developing and implementing a prevention action plan, actively supporting SMEs with which the company has established business relationships, making other necessary investments, seeking contractual assurances from business partners and, as a last resort, refraining from entering into or extending existing relations;
  • taking appropriate measures to bring any actual adverse human rights or environmental impacts to an end - or, where that is not possible, neturalising or minimising the adverse impacts, for instance by paying damages to affected persons and communities; and developing and implementing corrective action plans;
  • establishing complaints procedures for third parties relating to potential or actual adverse impacts;
  • periodically and at least every 12 months assessing the effectiveness of their own due diligence, on business relationships, as well as that of their subsidiaries; and
  • annually reporting on their due diligence efforts, identified potential and actual adverse impacts and related actions taken.
Directors should have a duty of care to:
  • take into account the consequences of their decisions for sustainability matters such as human rights, climate change and environmental consequences;
  • ensure and oversee that the company puts in place and implements required due diligence actions with due consideration for relevant input from stakeholders and civil society organisations;
  • report to the board of directors about such efforts;
  • adapt the corporate strategy to take into account identified potential and actual adverse impacts;
  • adopt a plan to ensure that the company’s business model and strategy are compatible with the transition to a sustainable economy and with limiting global warming to 1.5˚C in line with the Paris Agreement.
Failure to comply?
The consequences of non-compliance are:
  • effective, proportionate and dissuasive sanctions and pecuniary sanctions based on a company’s turnover;
  • civil liability for damage caused by failure to prevent or mitigate potential adverse impacts or to bring actual adverse impacts to an end.
By reference to the categories summarised above, this new framework will apply to: 
  • EU and non-EU companies with a net turnover of more than EUR 150 million: 2 years from the entry into force of the Directive; and
  • EU and non-EU companies with a net turnover of EUR 40 million in “high-risk” sectors: 4 years from the entry into force of the Directive.
Next steps?
Negotiations will now continue with the European Council and European Parliament, which has already made its position known through its proposed Directive published on 10 March 2021. Further changes can be expected before the scope is fully finalised but this week marks a big step forward.

If you have questions or want to discuss any of these issues, you can always reach out to your existing contacts at the firm. You are also welcome to contact the members of our Corporate Sustainability and Risk Management team, some of whom are listed at the bottom of this page. 

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Erica Wiking Häger, Partner, erica.wiking.hager@msa.se
Malin Helgesen, Specialist Counsel, malin.helgesen@msa.se
Peter Linderoth, Partner, peter.linderoth@msa.se
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