Mandatory Due Diligence – Threat or Opportunity?

As mentioned in the previous blog of this series, the text of the Corporate Sustainability Due Diligence Directive (hereinafter: Directive) is not final yet. The European Council has adopted its negotiating position (‘general approach’), and the European Parliament is expected to vote on its position during its plenary in May. Negotiations between the Council, Parliament and Commission are expected to start in the summer, possibly reaching an agreement on the final text by the end of 2023. However, reaching that agreement may take a bit longer.

European companies and lobby group BusinessEurope have started a fierce lobby in Brussels, to adapt the proposed due diligence duties. They are trying to use their influence to make the Directive more entrepreneur-friendly. BusinessEurope takes the position that protecting human rights and the environment should only be an obligation of conduct, not an obligation of result. 

The lobby is also focused on the fact that national governments (like the Netherlands in the Dutch proposal) are working on domestic legislation on this subject, while the European proposal is still in progress. Proponents of mandatory due diligence are glad that national governments are taking the lead on these regulations, because Brussels is taking too long. Opponents are worried that national legislation on mandatory due diligence will harm the “level playing field” in the European Union. In order to maintain a level playing field, both Germany and France politically support the development of European legislation. But like we discussed already, heavy counter pressure in Brussels may cause European legislation to be postponed.

There can be some understanding for the concerns from businesses about the announced mandatory due diligence measures, but problems of climate change and its consequences (see also: IPCC report 2023), severe violations of workers' rights and lack of enjoyment of human rights cannot be denied. Current procedures through National Contact Points (NCPs), agreements promoting International Responsible Business Conduct (IRBC Agreements), and other ‘non-judicial grievance mechanisms’ (NJGMs) – accompanying the non-binding OECD-guidelines, may not be effective enough, since grave violations maintain to occur. 

In order to act on those violations, due diligence in a mandatory form may solve some issues that clearly could not be solved before. It would be good if companies realised that mandatory due diligence on a scale as large as possible will ensure the level playing field they have been calling for, for so long. Resistance means postponement, not abandonment; so if due diligence is going to be mandatory anyway, it better be adequate.