2021 law will make human rights due diligence mandatory for EU companies

European Commissioner for Justice Didier Reynders has announced that the European Commission will introduce legislation in 2021 to make human rights due diligence mandatory for EU companies.

Commissioner Reynders also indicated that the new law would include provisions for corporate liability and that the EU would also seek to ensure access to remedy for victims of abuses.

The 29 April 2020 announcement follows the publication in February of a study undertaken on behalf of the European Commission which concluded that a majority of stakeholders, including EU businesses, were in favour of making human rights due diligence mandatory.

The concept of human rights due diligence comes from the United Nations Guiding Principles for Business and Human Rights (UNGPs), which were unanimously endorsed by the Human Rights Council in 2011.   In order to meet their responsibility to respect human rights, the UNGPs recommend that business enterprises carry out human rights due diligence to identify, prevent, mitigate and account for actual and potential adverse human rights impacts which the enterprise may cause, contribute or be linked to.

Although the UNGPs are not of themselves binding, many businesses expressly commit to applying the principles and they have had widespread influence on the development of corporate policies and risk management processes, as well as the development of other international standards and domestic legislation.

In 2017, France became the first country to pass a law making human rights due diligence mandatory for large companies and there have since been calls for similar law reforms elsewhere, including in Germany, Kenya, Norway, Switzerland, Thailand, the UK and the US.

Human rights due diligence has also been recommended in guidance from governments on how businesses can comply with human rights reporting requirements, such as those imposed by modern slavery legislation in the UK and Australia, as well as under companies and securities laws.

The legislation proposed in the EU may go a step further by imposing a legal duty to carry out human rights due diligence and imposing sanctions for breach of this duty.  Commissioner Reynders indicated that the Commission will also consider the need to include provisions allowing victims of corporate abuse to obtain remedies.  It is also possible that the EU will extend the due diligence obligation to cover environmental impacts.

Commissioner Reynders has emphasised that any new law would be aligned with existing standards, including the UNGPs and the OECD Guidelines for Multinational Enterprises, meaning that companies with established human rights policies and due diligence processes based on these standards ought to be well placed to comply with any mandatory requirements that the EU may implement.  Businesses that have not yet adopted policies and processes to ensure respect for human rights in their operations and value chains should take steps to do so now.

Germany, which will assume the rotating presidency of the European Commission in July, has already indicated support for the push towards mandatory human rights due diligence requirements. It is expected that more details of the proposed legislation will be announced in the second half of this year.