In February 2021, Shift submitted responses to the European Commission’s Consultation Proposal for an Initiative on Sustainable Corporate Governance. The feedback provided through this questionnaire will be taken into consideration as the European Commission drafts its policy position.
Shift’s key points include:
- EU legislation establishing a new corporate duty to conduct human rights and environmental due diligence (HREDD) has the potential to help level the playing field, ensure that Boards are aware of their responsibility to oversee the management of a company’s salient human rights and environmental risks, and drive a common understanding of what “quality” due diligence looks like. Importantly, it could also help ensure greater access to remedy through the inclusion of appropriate civil liability provisions.
- Directors should be accountable for overseeing how a company prevents and addresses its negative impacts on people and planet. Even without the reform of directors’ duties, the introduction of a corporate duty to conduct HREDD would make a significant contribution to this objective by requiring directors to oversee appropriate due diligence systems.
- The due diligence process expectations set out in the UNGPs and in the OECD Guidelines should form the core requirements on business in any new regulation. But to ensure meaningful implementation, those enforcing this new duty will need to pay attention to key features of HRDD that are indicative of the seriousness of a company’s efforts. National regulators will need guidance on how to assess whether there is an authentic intent and effort within a company to both find and reduce risks to workers, communities and other affected stakeholders. We propose what some of these “Signals of Seriousness” could be for HRDD in a draft resource attached to our submission, informed by initial testing with business, government, and civil society stakeholders.
- Any new duty needs to have improved outcomes for people as its ultimate goal. As such, it is important that HREDD is not conceived of as a “tick-box” exercise, but as one that necessarily involves the creative use of leverage beyond contractual terms or commercial leverage alone – including public advocacy where appropriate and partnership with industry peers and stakeholders to drive change – as well as meaningful engagement with affected stakeholders.
- Any new legislation should have a wide scope, including both SMEs (with appropriate flexibility in implementation) and foreign companies operating in/into the single market.
- To ensure a level playing field in practice, there need to be meaningful consequences for companies that clearly fail to meet a new duty, involving judicial and administrative measures. This should include:
- creating or endowing national-level regulatory bodies with the capacity and expertise to carry out regular reviews of corporate disclosure and performance and hold companies accountable;
- EU regulatory oversight through a new, fit for purpose entity with its own enforcement powers that brings together national regulatory bodies and expert stakeholders; and
- civil liability for certain harms with a defense where companies can demonstrate that they undertook due diligence that was appropriate and proportionate to the relevant impacts. The mere fact of conducting some form of due diligence should not be considered as a complete defense to liability, or as a safe harbor against claims being brought.
- A new corporate duty needs to be accompanied by a range of other EU policy measures to set the right incentives and help bridge the “accountability gap” between the likely scope of liability on the one hand and the full scope of HREDD in line with international standards on the other.