Human rights alliance warns of due diligence gaps

March 04, 2022

The Investor Alliance for Human Rights has cautioned that “significant gaps” remain in the European Commission’s (EC’s) proposal for a directive on corporate sustainability due diligence.

The Alliance said it welcomed the proposal as an “important step forward”, but warned that the proposal did not meet the expectations laid out in international frameworks, such as the UN Guiding Principles on Business and Human Rights.

The Alliance stated: “Today’s proposal… falls short on a number of fronts in its promise to promote sustainable business and investor practices and ensure accountability for harms.”

The group of 94 investors representing over $6 trillion in assets under management had previously called for the due diligence to cover all business enterprises and financial institutions based in and operating within the EU, regardless of size, or whether public or private.

However, under the proposal issued by the EC, the due diligence requirements would cover less than 1% of EU and non-EU companies. SMEs would be exempt, and only those businesses with more than 500 employees and turnover of €150 million, or businesses in certain high-risk industries with more than 250 employees and turnover of €40 million, would be covered.

The Alliance said such a limited scope would allow human rights and environmental risks to go “undetected and unaddressed”.

It also shared concerns regarding liability. While “companies could be civilly and administratively liable for harms committed, at home or abroad, by subsidiaries, contractors and suppliers”, the Alliance also warned that numerous barriers to accessing justice remain “unresolved”, such as time limitations, access to evidence, legal standing and burden of proof.

The lack of provisions linking directors’ pay to sustainability criteria, as well as the lack of requirements for sustainability expertise on corporate boards, were also highlighted.

The proposal, which is the Alliance called the “first of its kind for the EU with potentially global effects”, aims to foster sustainable and responsible corporate behaviour throughout global supply chains, considering such issues as child labour, worker exploitation, pollution and biodiversity loss.

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