American Chamber of Commerce to the EU (AmCham)

The letter expresses support for the Directive and calls for maximum harmonisation across several articles.

The letter states that 'Our associations remain supportive of the proposed directive on corporate sustainability due diligence. However, we call strongly for maximum harmonisation provisions to be introduced into the legal framework so as to ensure a level playing field and avoid further internal market fragmentation. Divergent national legal regimes on due diligence would not only be costly and burdensome for companies of all sizes but, more importantly, risk undermining the achievement of the goals of the legislation in an efficient and effective manner'. Specifcally, 'we urge the European Parliament and Member States to adopt maximum harmonisation provisions such as those previously applied to consumer law. At a minimum such provisions should be applied to the scope (Art.2), definitions (Art.3), due diligence process (Arts. 4-8), communication (Art. 11), guidelines (Art.13), sanctions (Art. 20) and civil liability (Art. 22)'.

The entity is in favour of a legal framework agreement, broadly agrees with due diligence duty defintion, and advocates for an horizontal approach.

The entity agrees with the need of a legal framework (question 2). Advocates for an horizonal, minimum process and definition approach (question 15) and generally agrees with due diligence duty definition (question 14). In this respect, it states that '‘We generally agree with the above definition and support the intention of the EU to promote human rights and the safety of workers in global supply chains, as well as certain environmental impacts. However, it is important not to confuse the roles of companies and that of states. In the area of human rights, the division of responsibilities between the state responsibility to protect and the business responsibility to respect must be embedded in any legislative initiative. We believe that any due diligence duty should be consistent with existing international frameworks … which have guided implemented existing robust due diligence schemes'.

The entity, through a joint business statement (JBS), shows support while showing some concerns on implementation.

The entities indicates that: 'European business remains supportive of the objectives of the proposed directive ... and we urge co-legislators to work on a reasonable approach that is manageable for companies in practice'. It also states that 'we strongly call for full harmonization to ensure a level playing field and avoid further internal market fragmentation' and that 'legal clarity is paramount for the success of this initiative'.

The entity is in favour of an horizonatl approach, pursing the goal of having uniform rules applicable to all companies. It advocates for the inclusion of SMEs although calls for excluding micro-enterprises from the scope.

The entity responds to question 16 that micro-enterprises (less than 10 employees) should be excluded. It also states that ‘In any event, SMEs would be impacted by a due diligence duty, whether directly or indirectly (through their ‘customers’). As a result, we recommend that SMEs are explicitly included in the requirements with expectations scaled according to the size of the company (burden and/or expectation could be scalable – the vast majority of SMEs would be indirectly affected by any legislation in any event, as harmonised standards would be driven across sectors)’. In response to question 15, it states that ‘We are not in favour of a combination of the horizontal approach with sectoral or thematic at this stage as this could compromise the overarching goal of having uniform rules applicable to all companies across all Member States’.

The JBS does not oppose the inclusion of SMEs, but calls for safeguards to protect them.

The JBS seem to show support to the inclusion of SMEs, although it reiterates that: "The European economy, included SMEs which will be impacted even if formally out of the scope, need a workable due diligence framework that is drafted in a balanced and proportionate way."

The entity advocates for supervision by national authorities based on complaints (and/or reporting) about non-compliance with setting up and implementing due diligence measures, etc. with effective sanctions (such as fines). This should include a coordinating mechanism. It supports holding companies accountable through sanctions and remedy when they fail to maintain an adequate process

Although the entity recognises the challenges, it focuses in processes in its response to question 19a: '‘From the above considerations related to the difficulty – if not impossibility, in some cases - for companies to identify risks across their entire value chain, we believe that companies could be responsible for failing to maintain a reasonable due diligence process, or for providing inaccurate or deceptive statements about their process, and for harm as a result of lack of adequate measures. This should be supported by appropriate sanctions that could be used to provide remedy to those who have been affected’. Then it elaborates its response with additional comments and situations.

The entity opposes to regulate directors' duties

It states that 'The European Commission proposal introduces broad changes to directors’ duties which would give rise to liability and potential litigation risk, as well as significant uncertainty as to how these directors could meet these duties in practice. In principle, an EU directive should not regulate directors’ duties, as Member States already have different frameworks in place. The Directive should reflect the Council’s decision to delete provision on directors’ duties and, as stated above, the proposal to link directors’ remuneration to setting climate plans'.

The entity disagrees 'to some extent' that directros should be required to 'manage risks for the company in relation to stakeholders and their interests' and to establish proceddures to ensure that risks and impacts are identified, prevented and addressed.

In its response to question 7, it disagrees 'to some extent' and points out that: As a general principle, it should be required to set up adequate procedures to ensure that possible risks are identified. … However, extending these procedures to preventing and addressing potential impacts is a step too far. We need to remain cautious of the fact that companies lack control of preventing or addressing potentially identified risks. It should further be noted that risks identified should not determine whether a company will form partnerships or continue existing relationships with counterparties. … The Commission could provide guidance taking into account a general framework of suggested, but not exhaustive, risks assessed by the director of each company on a case-by-case basis. … Corporate governance mechanisms including strong processes and controls within the company have already been established to some extent, by most companies, through appropriate processes and governance arrangements’. In addition, in response to question 6, it shows opposition against directors’ duties on the matter, and refers to existing soft law frameworks.

The entity does not consider necessary to regulate directors' duties

The entity states that 'Regulating directors’ duties is unnecessary to reach the objectives of the proposal and does not belong in a due diligence framework. It will have negative side-effects, e.g. interfering with national company law systems and creating legal uncertainty, without added value to the ability of companies to apply effective due diligence'.

The entity is in favour of a requirement to provide remedy in case of harm.

In its explanation of the response to question 19a, the entity states that 'If a company has caused or may cause an impact, it should be expected to prevent or mitigate the impact and remediate any harm if impact occurred. If a company has contributed or may contribute to an impact, it should be expected to prevent or mitigate its own contribution or use its leverage with other parties to prevent or mitigate it (contribute to remediating harm if impact has occurred, to the extent of its involvement)'

The entity seems to be in favour of exerting leverage, although it opposes terminating business relationships.

The entity states that 'The Directive should dispense with the requirement to terminate a business relationship with respect to the activities concerned if the potential adverse impact is severe. First, it does not align with the principle of continuous improvement and sustainable remediation. Second, when the company has limited leverage with the partner, this may lead to undue termination of the contract, as it may be seen as a simpler course of action. Also, suspending or terminating contracts based on potential impacts, without due verification of the nature and presence of those impacts, may have severe, unfair consequences on smaller suppliers'.

The entity is in favour to use its leverage in others to remedy impacts.

The entity states that 'If a company has contributed or may contribute to an impact, it should be expected to prevent or mitigate its own contribution or use its leverage with other parties to prevent or mitigate it (contribute to remediating harm if impact has occurred, to the extent of its involvement). If a company has not caused or contributed to an impact, but may have operations, products or services linked to an impact through a business relationship, it should be expected to use its leverage with others, including suppliers, to prevent or mitigate this impact (with no responsibility to provide remedy but with the option to do so as chosen)'.

The entity notes concerns about the concept of "legitimate concerns" in grievance mechanisms but does not oppose them in principle.

The entity states that 'Article 9 requires companies to allow affected persons, trade unions and civil society organisations to submit complaints where they have ‘legitimate concerns’ relating to actual or potential adverse impacts. Furthermore, par. 3 also envisages the possibility for companies to establish procedures for complaints that they deem to be ‘unfounded’, yet it remains unclear as to what would constitute a ‘legitimate concern’'.

The entity oposes to proposed civil liability, and advocates for limiting to intent or gross negligence.

The entity states that ‘While the proposed regime would have to be enforced effectively, its far-reaching proposals create serious concerns about civil liability. There is a real risk that companies would face excessive and disproportionate consequences unless the EU addresses the reversal of the burden of proof and the application beyond companies' own operations to the value chain. As proposed by the European Commission, the regime would effectively upend the established principles of civil law by making companies liable for damage not caused by their own actions, but rather by the actions of others and create incentives for undue legal challenges. The inclusion of suppliers and subcontractors that are indirectly linked to the undertaking or placed along of its value chain is thus problematic and potentially impractical. Therefore, the EU should explicitly limit civil liability to circumstances where a breach occurs ‘intentionally or through gross negligence’ that causes or directly contributes to the adverse impact. In addition, any civil liability should not have a presumption in favour of the claimant. Burden of proof should remain the responsibility of the accuser as any reversal would compromise the integrity of the legal system and encourage reckless behaviour from competitive interests’.

The entity opposes broad civil liability for impacts in the value chain, preferring administrative enforcement

The entity states that 'While there is a need for effective enforcement of the proposed regime, there are also serious reservations about the far-reaching proposals for civil liability. These proposals are unprecedented and would lead to significant difficulties and uncertainties for businesses. Insofar as they apply beyond companies' own operations to the ‘value chain’, they would effectively upend the established principles of tort law by making companies liable for damage not caused by their own actions, but rather by the actions of others. In this context, it would be difficult to meaningfully apply the normal principles of causation, which play a key role in delimiting the scope of civil liability. There is a real risk that companies would face excessive and disproportionate consequences'.

Although the entity does not oppose to legal liability, it calls for a more balanced approach

The entity states that 'Legal liability provisions need to be balanced and truly incorporate the widely accepted principle that due diligence is first and foremost an obligationof means and that companies cannot be made liable for damages they have not caused or directly contributed to (intentionally or negligently)'

The entity advocates for considering only direct contractual relationships

It states that 'It is of the utmost importance that the definition of value chain is reasonable and foreseeable. The EU should adopt a proportionate, risk-based approach which captures only direct contractual relationships and allows for the prioritisation of measures to address the most critical and actionable risks'.

The entity opposes extending liability across the value chain beyond direct suppliers

It states that 'Companies should not be held liable for entities they may not even know exist, much less influence or control. Thus, the inclusion of suppliers and subcontractors that are indirectly linked to the undertaking or placed at the very end of its value chain is problematic and potentially impractical. The same would be true at the other end of the value chain with respect to customer use and disposal of products. Conducting due diligence on end users is a practical impossibility, regardless of the seller’s efforts. For those reasons, the definition of established business relationships and other relevant provisions should impose a legal obligation to conduct due diligence on upstream relationships only'.

Although the entity does not oppose to legal liability, it calls for a more balanced approach

The entity states that 'Legal liability provisions need to be balanced and truly incorporate the widely accepted principle that due diligence is first and foremost an obligationof means and that companies cannot be made liable for damages they have not caused or directly contributed to (intentionally or negligently)'

The entity disagrees to some extent with being legally required to identify their stakeholders and their interests.

The entity disagrees 'to some extent' with a legal requirement (for directors) to identify stakeholders and their interests as per question 6. It states that ‘Regulating actions to be taken by corporate directors would remove their ability to prioritise and focus on the corporate activities most appropriate for the long-term interests of the company and its stakeholders. In addition, the list of stakeholders should not be prescriptive and should take into consideration commercial sensitives and privacy concerns around their identification. … Additionally, companies are also responsive to investors who are increasingly interested in companies' ESG priorities. This issue is already subject to soft law, however some additional guidelines for harmonisation at EU level could be raised to the level of directors’ duties. It is more favourable to ensure that the existing guidelines are correctly implemented rather than putting forward additional legislative and/or regulatory measures’.

The entity disagrees to some extent that the EU should require directors to establish mechanisms for engaging with stakeholders as part of due diligence duty.

It disagrees to some extent (question 20a) with a mandatory requirement to establish mechanisms for engaging in stakeholder consultation, arguing that ‘It is the company that should be responsible for establishing protocols and/or processes for stakeholder engagement, not the Board of Directors. In order to operate effectively, businesses have to consult a broad range of stakeholders so that they can define and execute business strategy and have existing mechanisms in place to support this. It is already clear to businesses that balancing and embracing the interests of their stakeholders is key to securing their long-term sustainability. Civil society organisations are key interlocutors for companies, in particular with regard to dialogue on sustainable value chains, however, they should not be formally included in corporate management and strategic decision-making. Due diligence stakeholder dialogue is imperative. Additional requirements placed on Directors with regard to stakeholder engagement could add significant burden to business with little value added to business or stakeholders. Directors of EU legal entities are often subject to decisions made by parent companies outside the EU with little local decision-making powers. Requiring directors to implement specific mechanisms for engagement eliminates the ability of the board to prioritise and determine the appropriate engagement approach that might be best for the corporation under the circumstances’.

The entity disagrees 'to some extent' with a legal requirement for directors to manage risks for the company in relation to stakeholders

In its response to question 6, the entity disagrees 'to some extent' to a legal requirement for directors to manage risks for the Company in relation to stakeholders. It states that ‘regulating actions to be taken by corporate directors would remove their ability to prioritise and focus on the corporate activities most appropriate for the long-term interests of the company and its stakeholders.... Liability of directors is an effective tool when directors have control and decision-making power on these matters. ... , full application of the proposed director liability standards would be less effective and balanced for those cases. Therefore, AmCham EU argues that directors should not be held liable for their decision-making ... Additionally, companies are also responsive to investors who are increasingly interested in companies' ESG priorities. This issue is already subject to soft law, however some additional guidelines for harmonisation at EU level could be raised to the level of directors’ duties. It is more favourable to ensure that the existing guidelines are correctly implemented rather than putting forward additional legislative and/or regulatory measure'.