4. But would small and medium enterprises not be crippled with excessive bureaucracy if included?
No – due diligence requirements would be proportional to the size of businesses. This means that a small company would have fewer requirements than bigger companies.
The cost would also not be great. An EU study has shown that the cost of carrying out mandatory supply chain due diligence would be less than 0.14% of total revenue for small and medium sized enterprises.
Regardless of the cost to business, the cost of human rights abuses to both humans and the environment at present is immeasurable. Under the UN Guiding Principles on Business and Human rights, all businesses have a responsibility to respect human rights in their operations.
“The scope of application of the current proposal is limited and not fully aligned with the UN guiding principles on Business and Human Rights” said leading scholar Anita Ramasastry from the UN working group on Business and Human Rights in reference to the proposed thresholds for businesses. She added “the blanket exclusion of a large amount of business entities means there is not, as of yet, a full ambition of a real level playing field”.
5. Are businesses supportive of this law?
Last month, over 100 high profile companies, investors, business associations and initiatives, including IKEA, Primark, Danone and Patagonia, called for ambitious and mandatory corporate human rights and environmental due diligence legislation from the EU.
They stated that “many European SMEs, including signatories to this statement, acknowledge that responsibility for human rights and the environment is not a matter of company size”, arguing that all businesses should be required to carry out proportional checks along their supply chains.
A level playing field is in the interest of businesses, as it would prevent businesses in one country undercutting their rivals in other countries, in areas such as workers’ rights and environmental protections.
6. Will communities affected by exploitation and abuse be able to seek justice?
Under the proposed law, companies could be held liable for harms committed at home or abroad by their subsidiaries and contractors along their supply chains, and their victims will have the opportunity to file lawsuits before Irish courts. This is very significant, and something civil society has been calling for a long time.
However, the draft law does nothing to address the serious legal hurdles that communities face to take such cases – including high costs, short time limits, limited access to evidence, and a disproportionate burden of proof.
“The Commission’s draft law promises a new path to justice and compensation for exploited, traumatised and injured workers and communities. But it ignores serious legal hurdles that make lawsuits costly, lengthy, and complicated” said Claudia Saller, director of the European Coalition for Corporate justice, in response to the draft directive. “That is why the future law must be victim-based. If the law doesn’t make it easier for victims to hold businesses accountable, then it is unlikely to make very much difference. And this lack of accountability will perpetuate some of the most pressing issues in the world today, like child labour, pollution and the destruction of nature.”
Furthermore, a dangerous loophole risks making the law ineffective in preventing harm beyond the first tier of the supply chain – and impeding victims from holding companies liable. The draft directive implies that companies could fulfil their obligations by adding certain clauses in their contracts with suppliers and offloading the verification process to third parties.
What could this mean in practice? Experts fear that if an affected person (for instance, a garment worker exploited in a factory in South East Asia) tried to take a case against an Irish company (which for instance, had a controlling influence over the working conditions in the supplier’s factory) through the courts in Ireland, the case potentially might fail if the Irish company had simply signed contractual agreements with its suppliers further down the supply chain.
Companies should not be allowed to shift their responsibilities on to their suppliers or to get away with harm by participating in voluntary industry schemes. If companies can easily evade accountability through loopholes, the directive will lack real teeth, and it could become a paper tiger.
7. And what about corporate contributions to climate change?
The draft rules would force large companies to adopt a climate transition plan in line with the 1.5 degree target of the Paris climate agreement. This would be a very significant step in extending the Paris obligations beyond states to corporations. It could have a serious impact on the biggest polluters in Europe.
However, the proposal lacks teeth. It does not foresee any specific consequences for the breach of this duty, which risks making the climate duty ineffective. At present, companies won’t be able to be sued for climate-related issues.