Posted by Aurélie Duchesne

Towards an EU directive on mandatory due diligence: building on the French experience

In 2017, France adopted the first ‘duty of vigilance’ law for large companies (DoV). In doing so, it set up a unique and ambitious legislative framework that has been closely followed by commentators in France and other countries.

As talks progress about a possible EU Directive on mandatory human rights and environmental due diligence, what lessons can we learn from the French experience? Here are a few points for consideration:

Alignment with the UNGPs

The DoV contains a specific explanatory statement that it is aligned with the UN Guiding Principles on Business and Human Right (UNGPs). By the time the law was passed, several companies had already incorporated the UNGPs in their “CSR” activities. To date, a large majority of the vigilance plans published by companies refer directly to the guiding principles . However, whilst the DoV is based on the UNGPs, it does not specifically incorporate them into national law. On some levels such as the type of companies covered by the law, it has a more limited scope, and it lacks detail or is silent on other UNGP issues such as the adoption of internal policies or the establishment of operational grievance mechanisms. Against this backdrop, a clearer alignment of the Directive with the key principles of the UNGPs could bring more clarity on the operational requirements companies are expected to comply with, and build consistency with other emerging measures.

Set expectations that go beyond compliance

Review of the plans published during the DoV in the first three years of implementation reveal some notable developments. The first vigilance plans that were published focused primarily on describing internal policies, governance, risk mapping methodologies and other mitigation and prevention actions. The follow-up reports provide more detailed information such as indication of countries and raw materials at risk, training provided, and ongoing disputes. However, these are still lack a consistent and comprehensive approach and some tend to read more like a compliance or “tick box

Provide basic guidance on reporting

The publication of formal guidelines setting up a minimum standard for reporting could help minimize the risk of divergent interpretations. As any EU Directive will be able to benefit from the first national experiences, there is an opportunity to ensure that reporting is a tool for companies to showcase their understanding and knowledge of human rights as well as their actions in this area.

Develop guidance and give more thought to KPIs

The issue of the quality reporting cannot be dissociated from that of key performance indicators (KPIs). Indeed, the production of relevant KPIs is a stumbling block for vigilance plans, and for other sorts of human rights reporting such as Modern Slavery Statements. KPIs are crucial to assess the effectiveness of due diligence measures, their progress and to (re)orient a company’s actions. These indicators must provide a mix of quantitative and qualitative information. Our experience with UK MSA statements indicates that while companies have gradually improved the development and publication of KPIs, these tend more towards narrative description than metrics. The EU Directive could provide the opportunity to undertake substantive work to define a list of KPIs capable of making reported information (more) meaningful and transparent. This will vary by sector and geography and emerging practice may likely cross national borders.

Use the opportunity to establish a clear list of the in-scope companies and a consolidated reporting platform

From the early stages of the DoV law, NGOs have been pointing at the lack of legal provisions requiring the creation of a list of the companies in scope and they have consistently urged the French  government to take necessary actions to foster greater transparency. This point was supported by an evaluation report on the implementation of the DoV, commissioned by the Ministry of Economy and published in January 2020, which also recommended the creation of a dedicated state service. In the meantime, the informal role of watchdog  has fallen upon NGOs. These difficulties do not seem to be unique to the French law. In the UK, criticism of  the lack of a list of companies covered by the Modern Slavery Act led the government  to send to the companies in scope, encouraging them to register on a database. New proposals in the UK involve the establishment of a single database, and Australia has developed an online register listing declarations made under their MSA.

Develop a functioning system of liability and sanctions for non-compliance

The DoV provides that failures in due diligence may lead to civil liability where there are negative impacts but the process is complicated. NGOs and civil society are responsible for instigating legal actions against companies for alleged breaches of the duty of vigilance, both on the human rights and environmental aspects. Forthcoming court decisions have the potential to clear up some of the uncertainties regarding the competent authority to determine the breach and the core issues of access to justice and reparations. In parallel, a growing number of stakeholders are highlighting the need for corporate liability for negative impacts and are warning against being able to use “due diligence” as a defence strategy/shield. Similarly, recent discussions within the UN Working Group highlight a willingness to focus efforts and place greater emphasis on Pillar III of the UNGPs related to grievance mechanisms. By setting up a liability framework which could  allow victims to obtain compensation for the damage suffered where appropriate, a future EU Directive could contribute to the “smart mix” of solutions promoted by the UNGPs.

Create a flexible and adaptable regulatory framework

The scope of the DoV – as will presumably any EU Directive – covers human rights but also the risks related to the health and safety of people and the environment. Recently, the social and economic impact of the Covid-19 crisis underscored the importance of having a regulatory framework that is not too prescriptive and is capable of capturing new risks and as yet unknown challenges.