Due Diligence: Putting people and planet first with responsible business conduct

By due diligence we mean “reasonable care”. In particular, the care we expect companies to take to respect human rights, the environment and good governance. We want to guarantee this care (or ‘diligence’) by making it mandatory for companies to put in place measures for responsible business conduct. These measures would oblige businesses to monitor and identify risks, and address and remedy the negative impacts linked to a company’s operations. These would include, for instance, a company’s impacts on social and labour rights, or on a natural ecosystem or on local governance where there are risks of corruption or bribery.

We are fighting to make responsible business conduct the norm. Doing business in the 21st century must mean doing business responsibly. To make this happen, we need to go beyond the current voluntary standards and have binding EU rules on due diligence for companies, which oblige them to look at their entire value chain. Due diligence should not be a box-ticking exercise, but a continuous process.

We are fighting to strengthen access to justice for victims that have been harmed at the hands of EU companies. In short, we are fighting to put people and planet first, not profits.

In 2022, in response to demands from the European Parliament led by the S&D Group, the European Commission published proposals for a Directive on corporate sustainability due diligence. The Legal Affairs committee appointed S&D MEP Lara Wolters as Parliament’s rapporteur on these legislative proposals.

We want to make sure that companies are performing environmental, governance and human rights due diligence throughout their entire value chain – including if that value chain reaches outside of Europe. Even where supply chains are highly complex, we expect companies to do all that can be reasonably expected to prevent harm.

The rules need to be broad in scope and apply to all EU companies, including financial services companies. All companies with more than 250 employees and a turnover of at least €40m should be covered by the obligations.

Voluntary measures on due diligence (such as the OECD Guidelines for Multinational Enterprises) have not succeeded in bringing about an overall shift in the mindset of EU businesses: recent research shows only 37% of business respondents currently conduct environmental and human rights due diligence, and only 16% cover the entire supply chain.

We want a level playing field where companies using voluntary measures are not put at a competitive disadvantage for doing the right thing.

There is widespread support for a mandatory framework on due diligence among civil society, international standard setters, member states and companies themselves. Even if companies don’t actively seek to do harm, many still lack legal certainty and clarity on what is expected of them.

In a recent vote in the legal affairs committee, a strong majority of the political groups supported the S&D Group’s vision for binding new due diligence rules.

There are a number of examples where due diligence would have prevented environmental and human rights disasters.

In Bangladesh in 2013, over a thousand workers were killed and injured, the majority of them women, because of structural failures in the Rana Plaza building. This disaster shone a light on the abusive working conditions that are often found in the global textile supply chain. With binding due diligence rules, we can make sure that EU businesses make all reasonable efforts to identify and address violations of the rights of those workers who make the clothes we buy and wear every day.

The contamination of Ogoniland in the Niger delta is another shocking example of how a lack of responsible business conduct has harmed the environment and caused immeasurable damage to people’s health, homes and livelihoods.                

In the factories of a global tech supplier in Shenzhen, a wave of suicides showed some workers would rather die than face another day on the assembly line. Rather than improve working conditions, the corporate response was to have large nets installed outside many of the buildings.  This type of business conduct should never be accepted from the supplier of an EU company, and victims or their representatives should be able to hold mother companies accountable.

Only by holding companies accountable for the consequences of their business conduct can the EU effectively uphold its global climate commitments. As the largest market in the world, EU companies play a vital role in setting global standards. By extending the scope of due diligence right along the supply chain, the EU can be a positive influence in the world as an international standard-setter to respond to challenges such as climate change and human rights abuses.

With new rules, we can also make companies liable if they fail to fulfil their due diligence obligations; in other words, if they have contributed to or caused damage that could have been prevented, we can make sure victims get easier access to justice.

We believe the CEOs of companies should be responsible for the supervision of the due diligence process. We want to make sure there is no more hiding and no more loopholes. In companies with more than 1000 employees, we want to see remuneration linked to the fulfilment of due diligence.

Companies will be required to engage with affected stakeholders and their representatives, such as unions, throughout the due diligence process. If a company does not have sufficient information about potential harm, it should engage civil society organisations with relevant information.

We want to see sanctions on companies that fail to comply with the rules, with penalties of up to 5% of a company's global turnover. Public naming and shaming by authorities should be another tool to make sure companies comply, alongside the removal of products from the EU market. Violations of due diligence rules also affect a company’s consideration in public procurement processes.

On 1 June 2023, the European Parliament adopted its position on mandatory rules to insert the impact on human rights and the environment into business conduct. Despite attempts by conservatives in the European Parliament to dilute the new rules, a majority of MEPs voted in favour of our more progressive approach.

With Parliament’s negotiating mandate agreed, the S&D Group will continue to lead the hard work between now and the end of the current mandate to reach an agreement with EU governments in the Council.

This is a turning point. Most companies take their duty towards people and the environment seriously and these new, fair rules will help companies even more by stopping those few large cowboy companies – businesses run in a dishonest, unethical way – from breaking the rules.