European Parliament Paves Way for Due Diligence Requirements

Key Summary

• The European Parliament advanced due diligence recommendations for upcoming EU legislation
• Companies would need to address human rights, environmental harm, and governance risks across full value chains
• Requirements would scale based on risk likelihood, severity, sector, and company size
• Non-EU companies would also need to comply to access the EU internal market
• The resolution supports liability, fines, reparations, and bans on products linked to severe abuses

On March 10, the European Parliament adopted a non-binding resolution with recommendations on the future of due diligence legislation in Europe.

This is an important step toward a legislative proposal that is expected from the European Commission in June. (See October 16, 2020 IPC blog post.)

The resolution states that companies should identify, address and remedy aspects of their entire value chain (e.g., all operations, direct or indirect business relations, or investment chains) that could or do:

• Infringe on human rights (including social, trade union and labour rights);
• Harm the environment (contributing to climate change or deforestation, for example); and/or
• Infringe on good governance (such as corruption and bribery). 

Importantly, due diligence is stressed as a proportionate activity based on the likelihood and severity of the impacts, the sector of activity, the size and length of the value chain, and the size of the undertaking.

Companies that want to access the EU internal market, including those established outside the EU, would have to prove that they comply with environmental and human rights due diligence obligations. The resolution also calls for additional measures, including a ban on imports of products linked to severe human rights violations such as forced or child labor. The report also calls for effective reparations for victims, and for companies to be held liable for their actions and subject to fines for causing or contributing to harm, unless they could prove they had observed due diligence obligations and taken measures to prevent harm.

The exact measures to be proposed by the European Commission as part of broader measures on corporate sustainable governance are currently under deliberation in Brussels, following industry consultations. In those consultations, IPC called for measures that are both effective in combatting the issues of concern and workable for electronics manufacturers; providing legal certainty, “reasonable” tier liability, and a light administrative burden.

The devil will now be in the details of the pending proposal, with questions remaining over, among other things, scope and liability (including the proportionality principle), expectations for environmental due diligence, as well as how EU-level obligations will interact with a spate of national-level measures, including a German supply-chain law currently nearing completion

For further information, contact me at AlisonJames@ipc.org.