European Duty of Vigilance: Key Recommendations

Following the adoption of a resolution of the European Parliament on 10 March 20211, the Commission presented to the European Parliament and the Council, on 23 February 2022, a proposal for a directive on the duty of vigilance of businesses in matters of sustainability (known as CSDD). This directive, announced by Ursula van der Leyen in 2020 and eagerly awaited, aims to establish a framework to make a large number of companies more responsible for the social and environmental impacts of their activities. The Council of the European Union published its general approach on December 1, 2022 on the text2, while the European Parliament expressed its opinion on June 1, 20233.

While the trilogue on the CSDD is engaged in a timetable restricted by the prospect of the European elections4, two reports relating to this proposal for a directive appeared before the summer a few weeks apart5: on the one hand, the report of information tabled by the European Affairs Committee on the duty of vigilance of companies in terms of sustainability presented by Ms. Sophia Chikirou and Ms. Mireille Clapot in June (AN report)6; on the other hand, the report from the think tank Le Club des juristes entitled “Duty of vigilance, what European perspectives? », resulting from the reflections of a working group chaired by former Prime Minister Bernard Cazeneuve published in July (CJ Report)7.

By way of introduction, both reports highlight the imperative to prevent market fragmentation. Indeed, a certain number of laws relating to the duty of vigilance regarding human rights and environmental violations in the value chain have recently been adopted or are under discussion. Even if these legislations are all more or less inspired by the duty of “diligence”, as outlined in the Principles of the United Nations8 and the Organization for Economic Co-operation and Development (OECD)9, the danger of The fragmentation of rules is on the rise, which is a source of significant costs for large companies as transnational supply chains are closely connected. This is why the need to understand the duty of vigilance at the European level is emphasized10, with the European Union also having to play a leading role in international negotiations to enable its generalization.

The two reports also start from the observation that uncertainties in the implementation of French law persist – as evidenced by the first decisions rendered on the admissibility of the Total Uganda11, Suez12, and Total Climat13 cases. It is therefore necessary to ensure that the future directive prevents such errors, which are regrettable for both companies and potential victims of a breach of the duty of vigilance.

The main recommendations of the two reports regarding the development of the directive will be jointly presented, following the plan of the text discussed.

On the scope

Thresholds


One of the points of divergence between the European Parliament and the Council relates to the scope of application of the directive, the first being more ambitious than the second. The AN Report goes in the direction of the first, by suggesting that the duty of vigilance be imposed on companies with 250 employees as well as on the ultimate parent companies, but also on non-European companies having achieved a turnover of more than 150 million euros, including 40 million on European soil (by themselves or their subsidiaries): this involves strengthening the extraterritorial scope of the text. The CJ Report for its part notes that, although it seems appropriate in general to align as much as possible the various “compliance” obligations to which companies are subject, the alignment of thresholds between the “CSRD” directive adopted on 14 December 202214 and the CSDD is not necessarily imposed to the extent that the vigilance obligations are more demanding than the reporting obligations. The two reports are in any case favorable to support for SMEs: beyond financial support, the supervisory authorities whose creation is envisaged could in particular ensure good information for SMEs and their principals to identify countries and sectors at risk, relying on the standards and tools developed by the OECD, as recommended by the CJ Report. In addition, both reports recommend evaluating the relevance of the thresholds after the text enters into force.

Another point of contact between the two reports, they both call for clarification on the difference in nature of the obligations of the CSRD and CSDD: in fact, if the points of contact between these two texts are numerous, there is a difference in nature fundamental between the duty of vigilance (which has a material scope, implying a continuous deployment of due diligence procedures) and the reporting obligations (which have a more formal nature, with an informative purpose).

Sectors

Another discussion concerns the sectors of activity covered by the CSDD. Two difficulties arise.

The first concerns the integration, within the scope of the text, of financial activities. The AN Report considers that financial institutions must strive to identify, measure and prevent the risks associated with their direct customers, with a view to promoting one.

This article is originally published on dalloz-actualite.fr

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