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Focus on Regulation

Growing convergence towards a hard law duty of care in the EU

Recent years have seen a general move towards increased accountability and responsibility obligations imposed on businesses to respect human rights and prevent adverse impacts throughout the value chain. Nearly ten years after the adoption of the UN Guiding Principles on Business and Human Rights (“UNGPS”), mandatory human rights due diligence initiatives are on the rise both at the Member States and EU levels.

Within Member States

France propelled itself to the forefront of BHR regulation by imposing binding obligations on companies in relation to human rights due diligence, with the very broad law on the “duty of vigilance of parent companies and main contractor companies” back in 2017.

In summary, this statute provides that French corporations with over 5,000 employees in France and/or over 10,000 employees worldwide (including the employees of affiliates) are to set up, publish and implement a “vigilance plan”. The objective of such plan is to identify, anticipate and prevent human rights violations that might result from the activities of the parent company, its subsidiaries and controlled affiliates, and suppliers and subcontractors.

To ensure effective protection of fundamental rights, individuals’ safety and environment, the statute provides that parent companies may be held liable in the scope of civil proceedings for any damage resulting from non-compliance, i.e. failing to prevent human rights violations through the effective implementation of a well-designed vigilance plan.

Other countries around the EU are contemplating adopting similar routes with some support from the business community:

  • Last February, 60 companies addressed a letter to the Belgian government, asking for a national legal framework compelling enterprises to take responsibility in human rights and environment-related matters.
  • The same suite of events happened in Luxemburg. In the context of parliamentary debates about a potential Luxembourgian legislation on due diligence and the duty of care in human rights matters, 32 companies have expressed themselves in favour of the adoption of such a legal framework.
  • In early March, Germany took an even bigger step and is close to joining the circle of European countries having adopted a “hard law” legislation on the duty of care (see our previous post in this regard here). According to the text adopted by the German Council of Ministers , companies with more than 1,000 employees will be given a permanent duty of care. In case of misconduct, companies must expect fines between € 100,000 and € 800,000. Companies with more than € 400 million in annual turnover must expect fines of up to 2% of their annual turnover. If the text is approved by the Bundestag (German Federal Parliament), the law is expected to be implemented in two stages: first it will come into force on 1st January 2023 for companies with more than 3,000 employees, then on 1st January 2024 for those with more than 1,000 employees.

Latest developments at EU level

This shift from soft to hard law is also being observed at the level of the European Union itself, where an ambitious legal project on due diligence and duty of care is being discussed.

The European Commission opened an important consultation asking about the possibility of introducing a mandatory duty for all companies operating in the EU to conduct human rights and environmental due diligence across their supply and/or value chains. A Hogan Lovells team led by Christelle Coslin, Liam Naidoo, Julia Marlow and Kevin O’Connor has submitted a response to the European Commission consultation on their sustainable corporate governance initiative. You can read the response in full here.

Concurrently, on 10 March 201, members of the European Parliament approved an own-initiative report proposing that companies be responsible for analysing human rights risks in their supply chain and publishing their due diligence strategy. This would apply to multinational corporations, small companies listed on the stock exchange, and small companies operating in high-risk sectors. In addition, all companies seeking access to the European single market would be asked to prove that they respect human rights and environmental due diligence obligations.

The results of the European Commission’s consultation and the European Parliament’s initiative are likely to lead to new EU legislation in this area.

Please get in touch with a member of Hogan Lovells’ Business and Human Rights group or your usual Hogan Lovells contact if you wish to discuss this evolution. We stand ready to assist companies from all industry sectors to assess how to adjust their processes and operations in this context.