Mandatory Due Diligence – Threat or Opportunity?
Proposals for mandatory due diligence – part 1
Recently, there has been much ado about the Dutch Bill on Responsible and Sustainable International Business Conduct in the Netherlands. Because of the effects of the obligations in this bill, Royal Boskalis threatened to leave the country. The Dutch Bill is comparable to the Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence in the EU. The Bill and the EU Proposal contain a due diligence obligation for companies. Boskalis is one of the largest dredging companies worldwide, with more than 10,000 employees and a revenue of almost 3 billion euros in 2021. According to Boskalis, the Dutch Bill contains a duty of care which is vaguely defined, posing great risks of liability which endangers the continuity necessary for business operations. MVO Nederland, a networking organisation for responsible and sustainable companies, is involved in the making of the Bill. This organisation claims that the Bill specifies and clarifies what is expected of international business conduct. MVO wants the Dutch Bill to be an example for the rest of the EU, which has caused a lot of discussion in the Netherlands.
Since mandatory due diligence is a sensitive subject which evokes many different reactions, we will write a series of blog posts about it. Before we dive deeper into the Dutch Bill and the European Proposal for a Directive, the first blog of the series is focused on what due diligence is and why institutes are planning on making it mandatory.
In 2008, John Ruggie put forward a framework for corporations to prevent their business operations from violating human rights or labour rights and harming the environment. On the basis of this framework, the UN Guiding Principles on Business and Human Rights were created. One of the two elements that these principles rest on is a human rights due diligence process. According to the UN, the Guiding Principles clarify that all business enterprises are required to exercise human rights due diligence to manage adverse human rights impacts with which they are involved. The four core components are: identifying and assessing adverse human rights impacts, integrating findings from impact assessment across relevant company processes, tracking the effectiveness of measures and communicating on how impacts are being addressed.
Ten years ago, the Rana Plaza Collapse in Bangladesh was a wake-up call for many companies all over the world that responsible and sustainable supply chains should be a top priority. Over the last decade, due diligence happened voluntarily on the basis of the non-binding OECD Guidelines for Multinational Enterprises (2011) and the UN Guiding Principles. However, the voluntary approach did not bring about enough improvement due to lack of legal clarity, complexity of value chains, market pressure, information deficiencies and costs. With regard to the importance of this subject, the EU therefore lays down rules on a due diligence obligation for companies to identify, prevent, mitigate and account for external harm resulting from adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and in the value chain. The proposal also contains rules on liability for violations of the due diligence obligation.
Most of us agree that a responsible and sustainable supply chain should be a high priority for companies these days. The question is, how will these new regulations be executed in practice? Additionally, to what extent will the due diligence duty make a change? Follow along for the rest of the series to find out!