BUSINESSEUROPE

The entity supports a legal framework but considers that the current proposal is not realistic.

The entity indicates that it 'supports the aim to have an EU due diligence framework that is effective, workable, creates a level playing field and does not hold European companies responsible for factors beyond their control. Unfortunately, the current proposal would not deliver on these goals'. It then provides a number of key messages pointint out what it considers to be the proposal flaws. Among other comments, it explains that 'the proposal sets an inefficient system based on unrealistic expectations on companies harming their competitiveness. In line with the most ambitious national laws in the EU, due diligence obligations should not be extended to downstream activities'. It also points out that ' Better regulation principles must be upheld. The Commission’s own Regulatory Scrutiny Board pointed to serious flaws in the impact assessment, twice, which have not been appropriately addressed upon publication of the proposal'.

The entity doesn't consider that a legal framework on supply chains is needed and advocates for asking companies to follow existing guidelines and standards.

The entity responds to question 2 that a legal framework is not needed: 'it should be enough to focus on asking companies to follow existing guidelines and standards'. It states: ‘A European initiative on (mandatory) due diligence is expected soon, which will have a critical impact on companies … For large majority of EU companies, from all sectors and sizes, any future EU legislative framework should be workable, proportionate and effective. It should not be a way to simply transfer state responsibilities on to companies. It needs to take account of the needs of Small and medium-sized companies (SMEs).Companies understand the importance of preventing and mitigating risks that can occur in the supply chains but cannot be made responsible for any impacts/harm in the supply chain that are completely out of their control (or for acts of other autonomous entities).Any future rules must be clear, applicable in practice and should not lead to a legal patchwork of possibly incompatible with or duplicating national legislative initiatives (adding layers of rules on top of European obligations). Inspiration should be drawn from internationally recognised standards such as the UN Guiding Principles and the OECD Guiding Principles and applicable in practice’. It then describes 9 considerations that ‘need to be taken into account in order to make it a workable and effective instrument’.

The entity calls for full harmonisation.

The entity states that: 'The most important element of the proposal should be full harmonisation. This is necessary to avoid fragmentation of the EU single market and ensure a level playing field. This can be achieved by using, for instance, an “internal market clause”. If the EU wishes its model to be used as a reference elsewhere in the world, it cannot rely on the limited harmonisation provided by the directive that would potentially lead to 27 different frameworks'.

The entity opposes current thresholds for company coverage

The entity states that 'in its current form, the proposal would create one of, or even the most, stringent mandatory due diligence framework in the world regarding material reach and sizes of companies covered. The EU’s ambition to be a model-setter need to be carried out in a realistic way to generate uptake elsewhere in the world. It is not reasonable to hold European companies liable for issues that are outside of their control'. It also states that 'Lowering the threshold of the scope for companies operating in specific sectors is not convincing. The list of high impact sectors is very broad and covers most of the economy including everything produced within a sector regardless of whether the actual product or service can be deemed to have a high impact on human rights'. Specifically on SMEs, it points out that 'SMEs clearly will be affected and hence will face massive challenges, both as they are suppliers in the supply chain but also since they can be subject to contractual fines with their larger business partners. It must be considered that SMEs have less influence on supply chains due to limited resources and less market power. It is important to avoid unnecessary bureaucracy and burdens for SMEs in the concrete implementation'.

The entity advocates for excluding all SMEs (and micro-enterprises). In case of inclusion, be subject to lighter reporting requirements. It does not take an explicit position on sectors.

The entity responded to question 16 options of excluding all SMEs, micro-enterprises and, if included, be subject to lighter reporting and other requirements, in addition to receiving different types of support. It then clarifies that: '‘Until we see the details of the EU framework, we cannot rule out any of the specific measures suggested, …. All the options should be considered in the impact assessment from the point of view of effectiveness and administrative-burden reduction. SMEs face distinct challenges in meeting due diligence responsibilities because of their size and activities, available resources (scarcer than with multinational companies) and leverage in obtaining information (and a particular behaviour) in the supply chain. A possible mandatory approach will impose bigger burdens on them. And even if SMEs are out of the scope of an EU initiative, the obligations will be imposed on them downstream, as they may be part of the supply chain of companies that are within the scope. Therefore, support for SMEs will be necessary regardless of the scope’. The entity does not directly refer to sectorial scope."

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 oposes the current supervisory enforcement framework as excessive, legally vague and unbalanced

The entity states that 'The proposal foresees far-reaching powers for authorities. Investigative powers (e.g., onsite unannounced inspections) go even beyond what classical national authorities are entitled to do today in areas which are far more specific in terms of regulation (e.g., consumer protection). The proposed powers are not appropriately counter-balanced with due process and they lack appeal rights for companies targeted. There is not even an indication that the competences of the new appointed authorities are limited to activities that have some link with the European Union' ...he competence of the supervisory authority should be limited to the diligence obligations in the proposal, i.e., Articles 6-11, which is the focus of the proposal'.

The entity does not take position in relation to the different options presented by the consultation.

In response to question 19 it does not take a position in relation to the options proposed by the consultation and instead states that: '‘The nature and scope of enforcement mechanisms and sanctions will depend on the exact content and scope of the regulation/obligation. The underlying philosophy of future action on due diligence should be to push companies towards sustainability in their operations within supply chains, not to act as punishment’. Then it presents a number of considerations that it considers to be essential when drafting the enforcement mechanism.

The entity considers that directors' duties do not belong in a due diligence framework'.

The entity states that 'general directors' duties do not belong in a due diligence framework'. It adds that 'There is no convincing evidence that the corporate governance models of the Member States, which includes directors’ general duty of care, stand in the way of the sustainable transition. Article 25 will therefore not result in clarification as argued by the Commission but will do the opposite – it will create legal uncertainty ... There could be serious negative consequences attached to this unnecessary EU regulation of directors’ duties because it would create legal uncertainty about when management decisions are lawful/unlawful ...'.

The entity strongly disagrees with a legal requirement for directors to establish procedures to ensure risks and impacts on stakeholders are identified, prevented and addressed, and to manage risks for the Company in relation to stakeholders and their interests.

In its response to question 7 on whether directors should be legally required to establish procedures to ensure risks and impacts on stakeholders are identified, prevented and addressed, it states that: ‘‘Legally imposed requirements would raise several critical questions’ What would be the methodology followed? How would these procedures and targets fit companies of different sizes, sectors, ownership and board structures range of activities? And as a consequence, how could companies have legal certainty that they have complied with legal requirements in a reasonable way? How not to fall into a one-size-fits-all approach hampering and slowing down decision-making processes in companies without a clear added value? … Furthermore, the mentioned aspects the use of targets and the new taxonomy reporting requirements have been addressed in various pieces of regulation with regard to a company’s responsibility, as, for example, the NFRD. Adding further requirements to director’s duties increases the complexity of a company’s management unnecessarily’. In relation to managing risks for the Company in relation to stakeholders, it states: 'Companies do not need detailed legislation to see the self-interest in identifying the company´s relevant stakeholders and include their interests in the strategy and risk management of the company …’.

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 does not refer explicitly to remedying human rights harms it has caused or contributed to. Instead, it proposes a narrow liability framework, where civil liability would only apply if the company directly caused the harm and failed to carry out due diligence. It rejects vicarious liability for harms caused by business partners and supports a safe harbour approach. No reference is made to compensation or other forms of remedy, including in cases of contribution to harm.

In its response to question 2 on whether a legal framework is necessary, the entity has considerations in relation to ‘accountability and remedy’, where it states that: ‘Accountability is about taking reasonable steps to prevent and address risks whilst recognising it is not possible to control the whole supply chain. Any framework should be based on an obligation of means and there should be no vicarious liability whereby companies become responsible for actions of other autonomous entities’. In response to question 19a, the entity refers to civil liability, they say that: ‘Civil liability should only apply if (i) due diligence has not been carried out and (ii) usual rules of civil liability are satisfied (damages occurred and a causal link between the two is established). There should be no vicarious liability whereby companies become responsible for actions of other autonomous entities’. It also calls for a safe harbor: ‘The notion of “safe harbour” should be applied here meaning companies should not be liable for impacts if they demonstrate that reasonable due diligence measures were taken (idem if appropriate remedies have been implemented)’. It does not refer to compensation or other remedies, including harms to which it contributed to (it rejects vicarious liability).

The entity supports grievance mechanisms but calls for limits on who can access to them.

The entity states that 'Only directly affected parties or entities with at least a legitimate interest should have the right to file substantiated complaints. This should also be mirrored in Article 9 on the company own complaint channel. Clarify that substantiated complaints in Article 19 only refer to potential breaches of companies’ due diligence obligations in Articles 6 to 11'.

The entity does not respond to the question of whether grievance mechanisms as part of due diligence should be promoted at the EU level, but strongly disagrees with requiring (directors) to establish consultation channels for engaging with stakeholders as part of due diligence duty.

Although the entity does not respond directly to the requirement of grievance mechanisms for all stakeholders (question 20c), it strongly disagrees with a requirement to establish mechanisms for stakeholder consultation as part of due diligence duty. In relation to this second part, it states that: ‘We recognise that the consultation of relevant stakeholders is important in the normal functioning of companies. To generate significant benefits, the company, best placed to know the impact stakeholders have on its activities and inversely (the impact it has on those stakeholders), should be given the flexibility to determine the relevant stakeholders depending on its specificities and the type of measures/mechanisms to inform, consult and engage with them. Companies already organise the dialogue with their stakeholders using different mechanisms that are suitable to the intended goals … New legal requirements risk destabilising or duplicating existing effective provisions. They could lead to either meaningless box-ticking exercises or to conflicting situations (between different stakeholders’ interests) that would reduce efficiency of decision-making processes in companies and harm their competitiveness'.

The entity opposes to proposed civil liability and calls for deleting article 22

The entity states that 'Article 22(5) seems to indicate that EU law would be extended to impacts occurred in third-country operations even if the specific case would not be covered by a Member State’s tort law. This amounts to a simplified extension of applicable law raising important questions from an international private law perspective. It interferes with existing and wellestablished international private law rules without a convincing justification, leading to problems such as parallel litigation processes and lis pendens.17 There is no need for new rules to ensure cases concerning events in other countries can be adequately brought before and decided by courts in the Member States. The current rules of international private law, in particular the Rome II Regulation, already provide for a sufficient and comprehensive framework on which law is applicable to which case and allow events which happened in third countries to be brought before (competent) civil courts in the Member States. Therefore, this provision should be deleted'.

The entity doesn't consider this a suitable option as enforcement mechanism, and limits the cases where this enforcement mechanism can be applied.

Question 19a asks about enforcement mechanisms through a multiple-choice format, one of which is: 'judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations'. The entity did not select this as one of its preferred measures. In relation to civil liability, it states that they: 'should only apply if (i) due diligence has not been carried out and (ii) usual rules of civil liability are satisfied (damages occurred and a causal link between the two is established). There should be no vicarious liability whereby companies become responsible for actions of other autonomous entities’.

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 opposes extraterritorial liability

The entity states that 'Article 22(5) seems to indicate that EU law would be extended to impacts occurred in third-country operations even if the specific case would not be covered by a Member State’s tort law. This amounts to a simplified extension of applicable law raising important questions from an international private law perspective. It interferes with existing and wellestablished international private law rules without a convincing justification, leading to problems such as parallel litigation processes and lis pendens.17 There is no need for new rules to ensure cases concerning events in other countries can be adequately brought before and decided by courts in the Member States. The current rules of international private law, in particular the Rome II Regulation, already provide for a sufficient and comprehensive framework on which law is applicable to which case and allow events which happened in third countries to be brought before (competent) civil courts in the Member States. Therefore, this provision should be deleted'.

The entity opposes extending obligations to the entire value chain; supports limitation to direct suppliers.

It states that 'To ensure feasibility and a realistic possibility of achieving the objectives of the proposal, mandatory (and comprehensive) provisions should be limited to those parts of the supply chain with which companies have a direct contractual supplier relationship (primarily first tier). This is more efficient and effective as well as in line with other national mandatory frameworks (e.g., France, Germany). This is without prejudice to companies applying the OECD Guidelines and UNGPs to their interactions in value chains, something they can continue to do either individually or via sectoral and other non-mandatory initiatives'.

The entity does not consider that a legal framework on due diligence is needed and that the due diligence definition provided needs to be revised.

The entity does not consider that a legal framework on due diligence is needed (question 2) and that the due diligence definition provided needs to be revised (question 14). Specifically, it states that: 'Due diligence should be risk-based, proportionate and context specific. Due Diligence should also set priorities, by seeking first to prevent and mitigate most severe human rights impacts. There is need for clear explanation of what “adequate processes” are. What a “reasonable effort” is can also lead to multiple interpretations which is especially problematic when it is linked to a legally binding and sanctioned obligations. … Moreover, taking into account the broad definition of a supply chain, it becomes virtually impossible to evaluate every business relationship on its impact on health and environmental impacts’. It also disagrees with supply chain definition: ‘we disagree with this definition which is too broad. Are “suppliers” both upstream and/or downstream, and does it include all levels/tiers of suppliers throughout the value chain or (as we prefer) just tier 1 suppliers where the company has a possibility to impact/have contractual agreement? In practice, it is impossible to manage all the risks related to a company’s “business relationships” along the whole supply chain. Companies’ efforts should be limited to first-tier suppliers/subcontractors. The scope of “business relationships” within the supply chain must be clearly defined. We suggest that this only covers such parties that the company is directly connected to through contractual relationships’. It does not explicitly refer to any of the approaches to due diligence duty proposed by the consultation.

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 criticises vague stakeholder definition and calls for narrowing it to those with a legitimate interest

It states that 'This definition of stakeholder basically means anyone on earth can be considered as a stakeholder, which can have far-reaching consequences for what companies will have to deal with e.g., in terms of complaints. Alternative definitions of stakeholder should be considered, for example drawing inspiration from existing European Court of Justice case law12. A stakeholder could be defined as a person who has specific attributes peculiar to them or by reason of circumstances that differentiate them from all other persons and who has a specific and actual (or soon to occur) injury that is causally connected to the conduct complained of that a favourable decision is likely to cure. Stakeholder consultation must follow the logic of prioritising exchanges, especially if there are many of them, to avoid the multiplication of contacts with each individual likely to be affected'.

The entity strongly disagrees with a legal requirement of stakeholder identification.

The entity strongly disagrees with question 6 about a requirement (for directors) to identify stakeholders and their interests. It states that: ‘Companies do not need detailed legislation to see the self-interest in identifying the company´s relevant stakeholders and include their interests in the strategy and risk management of the company. In order to remain competitive, companies need to act in a sustainable manner which ultimately is also in the interest of shareholders … Companies need to preserve their flexibility to determine not only the relevance of specific stakeholder groups to their business and how they interact with groups of different natures, but also the potential materiality of different stakeholder groups’ interests to the company over the short, medium and long-term. … It is not reasonable to believe that companies can carry out an exhaustive overview of all their stakeholders’ interests. There is no definition of “stakeholders” and no reasonable definition can be found due to the specificity of each company's environment. We strongly believe that any legal consequences attached to this definition would be unreasonable and counterproductive’.

The entity seems to support a requirement of consultation, although does not support this to be part of directors' duties and calls for prioritisation of contacts.

It states that 'Stakeholder consultation must follow the logic of prioritising exchanges, especially if there are many of them, to avoid the multiplication of contacts with each individual likely to be affected. It is recommended to add wording to Articles 6(4), 7(2), point (a) and 8(3), point (b) that allow companies to prioritize the consultations. If the company can demonstrate sincere effort on the part of stakeholder consultation, this should be taken into account'. In addition, it points out that 'The two negative opinions issued by Regulatory Scrutiny Board strongly underlined this also regarding director’s duties. This proposal is not the appropriate place, nor is the legal basis, to set this obligation for companies'.

The entity strongly disagrees with requiring directors to establish consultation channels for engaging with stakeholders as part of due diligence duty.

The entity strongly disagrees with a requirement to establish mechanisms for stakeholder consultation as part of due diligence duty. It states that: ‘We recognise that the consultation of relevant stakeholders is important in the normal functioning of companies. To generate significant benefits, the company, best placed to know the impact stakeholders have on its activities and inversely (the impact it has on those stakeholders), should be given the flexibility to determine the relevant stakeholders depending on its specificities and the type of measures/mechanisms to inform, consult and engage with them. Companies already organise the dialogue with their stakeholders using different mechanisms that are suitable to the intended goals … New legal requirements risk destabilising or duplicating existing effective provisions. They could lead to either meaningless box-ticking exercises or to conflicting situations (between different stakeholders’ interests) that would reduce efficiency of decision-making processes in companies and harm their competitiveness'.

The entity shows opposition to the proposal to regulate long-term stakeholder-aligned risk governance via directors' duties, asking to delete article 25

The entity states that 'Article 25 thus creates unnecessary legal uncertainty, violates the subsidiarity principle and – on top – has no direct connection with due diligence. It should therefore be deleted'.

The entity strongly disagrees with a legal requirement for directors to manage the risks of the company in relation to stakeholders and their interests.

The entity strongly disagrees with question 6 about a requirement (for directors) of management of the risks for the company in relation to stakeholders and their interests. It states that: ‘Companies do not need detailed legislation to see the self-interest in identifying the company´s relevant stakeholders and include their interests in the strategy and risk management of the company. In order to remain competitive, companies need to act in a sustainable manner which ultimately is also in the interest of shareholders. Directors are factoring this in by seeking to consider the different societal and stakeholder interests in corporate strategies and decisions. However, depending on the industry, the location, the context, the type of business decision or topic, the consideration of different stakeholders might require different approaches. … Directors’ duties cannot be put on a checklist formula as assumed by the previous (consultation) question. On the contrary, they need the flexibility to identify in the present and in the long term which stakeholder interests it should consider in accordance with its activity, structure, nature and size. It is not reasonable to believe that companies can carry out an exhaustive overview of all their stakeholders’ interests. … We strongly believe that any legal consequences attached to this definition would be unreasonable and counterproductive’.