Mandatory Due Diligence – Threat or Opportunity?

In part 3 we already dove into the European Directive, in which we discussed the main contents. In the previous blog of this series, it is already discussed that although a directive is currently being worked on at the European level, several EU countries already have legislation on business and human rights. In this blog, we will compare the European Directive to the Dutch proposal. Further on, the German and French regulations will also be discussed.

The Dutch proposal is similar to the European Directive. However, they vary in two aspects. The first aspect is the threshold for it to be applicable to a company, the second aspect is the scope of business activities to which the due diligence obligation extends.

In the European Directive, the threshold for applicability lies at 500 employees and a turnover of more than €150 million. In addition, the Directive is also applicable to companies in ‘high impact sectors’ (textiles, agriculture and minerals), with more than 250 employees and over €40 million turnover worldwide. Therefore, the proposed Directive does not apply to micro companies and small and medium enterprises (SMEs). In the Dutch proposal, the threshold is a bit more complicated. The Dutch proposal contains two types of obligations. Firstly, it contains a general duty of care, which is applicable to all companies, regardless of size or turnover. This is obviously much broader than the European Directive, since the latter does not contain this general duty of care. Secondly, the Dutch proposal also contains a due diligence obligation with a lower threshold than the European Directive. This threshold is met when a company meets at least two of the three criteria. The first criterion is a balance sheet total of €20 million, the second is a turnover of more than €40 million, and the third is more than 250 employees, regardless of the sectors. This means that the Dutch proposal contains an obligation for more companies to conduct due diligence than the European Directive.

In addition, the scope of business activities to which the due diligence obligation extends is also broader in the Dutch proposal compared to the European Directive. Even though in both proposals the duty applies to adverse impacts of the company’s own activities as well as from their subsidiaries, the proposals vary in regard to adverse impacts of activities of business partners. The European Directive includes activities of ‘established business relationships’ related to the value chain of the company in question, meaning: lasting relationships in view of intensity or duration (see article 3 sub f of the Directive). Therefore, the scope of business activities for which the company in question is responsible under the European Directive is limited. The Dutch proposal includes activities of ‘business relationships’ related to the value chain, not requiring the criterion of lasting relationships. Because of this, the scope of business activities to which the duty extends is broader, which means the company in question must perform due diligence in regard to more business activities.

To sum up, the Dutch proposal affects more companies, and requires these companies to perform due diligence regarding more activities. Therefore, in terms of burden for companies, preference of the corporate sector might go to the European Directive, while in terms of the goal of these proposals – protecting human rights and the environment – relatively speaking the Dutch proposal is preferable.

An easy overview and explanation of the European Directive can be found here.