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Corporate Due Diligence proposal could improve access to justice, but contains fundamental weaknesses

4 mars 2022

Written by: Julia Christian

Corporate Due Diligence proposal could improve access to justice, but contains fundamental weaknesses

As Europeans’ awareness of the damage caused by their consumption of palm oil, cocoa, soya and other agricultural commodities has grown, political attempts to end the harm have accelerated. For example, the European Commission is currently proposing a raft of measures to stop businesses and investors from driving environmental and human rights abuses – including the land grabs and rampant illegal deforestation that producing these commodities fuels from Brazil to Côte d’Ivoire, and from Indonesia to Ghana. 

The latest proposal, which the Commission unveiled on 23 February 2022, is its long-awaited Corporate Sustainability Due Diligence Directive. The draft, however, is restricted in scope, and what remains contains significant loopholes.

Under the Directive, Member States will have to produce legislation ensuring that companies with more than 500 employees and a turnover of €150 million – and those with more than 250 employees and €40 million turnover in high-risk industries, including agriculture and forestry – stop human rights and environmental abuses in their entire supply chains by carrying out due-diligence. 

The European Coalition for Corporate Justice (ECCJ), which has been closely following the passage of this legislation, said that the proposal was “a turning point in the battle to end corporate impunity”, but that it contained dangerous gaps and flaws. 

Among the draft legislation’s most striking shortcomings, ECCJ point out that it would apply to fewer than 0.2 per cent of EU companies. It also allows companies to circumvent their due diligence obligations by getting their suppliers to sign pro-forma contract provisions, which campaigners warn is insufficient to instil the real due diligence needed. 

Impacts on forests and forest-dependent peoples

But what does the proposal specifically mean for forests and the Indigenous Peoples and other forest communities who inhabit them, as well as the smallholders producing the agricultural commodities, such as cocoa and oil palm, that drive deforestation?  

The draft’s environmental criteria for businesses say companies must avoid causing any measurable environmental degradation, including activities that affect ecological integrity such as deforestation. The draft references the “mutually supportive” proposal for EU Regulation on deforestation-free products, which takes a different approach. The Regulation covers specific commodities and places clear requirements for their entry onto the EU market. The Due Diligence Directive merely puts in place an obligation of corporate conduct. The Directive would add more value by covering activities not covered by the deforestation-free products Regulation  (such as mining). 

On the plus side, the Due Diligence Directive’s human rights criteria include numerous mentions of the rights to land ownership and use, including Indigenous Peoples. However, it omits explicit reference to the right to an adequate standard of living, despite this being in the Universal Declaration on Human Rights. The Draft’s annex of covered human rights that are covered does mention rights to fair wages, but as smallholders are not employees and do not receive a wage, it is not clear whether this applies to smallholders.

If businesses were required to ensure that people in their supply chains were properly paid, the social impact would be profound. This is especially the case for smallholders in the cocoa sector in Côte d’Ivoire and Ghana, where many farmers live in extreme poverty. In Côte d’Ivoire, farmers earn on average around 54 cents a day, about a third of what they need to live on.

The Draft’s recitals may provide some cause for hope, as they state that companies must look at the impact of their business model on human rights in their supply chains, including pricing practices.

The proposed Directive does not include a ban on forced labour, although the Commission had said that it would. Instead, the Commission said they are preparing a separate legislative instrument on forced labour. 

Limiting Liability

The Directive would mean that companies could be held liable for harms committed by their subsidiaries, contractors and suppliers, and that those they harm will have the chance to file lawsuits before EU courts, but the flip side is that businesses will not be liable for damages by their indirect partners. This could limit the impact in some agricultural sectors where much of supply is indirect. The opportunity missed here is considerable, as the proposed Regulation on deforestation-free products lacks access to justice mechanism. This ‘complementary’ Directive must therefore provide proper avenues for those harmed. 

The Due Diligence Directive has the potential to add to the Regulation on deforestation-free products in a truly helpful way, in particular on issues that are insufficiently dealt with such as access to justice, living income, and international human rights. At the moment though it is weakened from the core by its restricted scope on company size and the loopholes on companies’ responsibility for the behaviour of their suppliers. 

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