24 February 2022

Proposed Directive on Corporate Due Diligence: the European Commission's missed opportunity

Proposed Directive on Corporate Due Diligence: the European Commission's missed opportunity

The European Commission has unveiled its proposal for a "Corporate Sustainability Due Diligence" Directive which aims to impose a duty of care on companies to remedy human rights, social and environmental abuses in global value chains. Improving the integration of environmental and social issues into corporate governance and operations was a key element of the text.  

While the introduction of a binding European duty of care for companies is a significant step towards a more sustainable European economic ecosystem that respects human rights, we consider that the legislative proposal is not ambitious enough on several levels and we will not fail to question the co-legislators on three essential points:

  • On the indexation of part of the variable part of the remuneration of executive directors of large companies on social and environmental criteria, we are far from the initial ambition: the legislative proposal does not impose a formal obligation to link part of the bonuses of executive directors to extra-financial performance criteria, a provision for which the Impact France Movement has been advocating for several months. The text requires large companies [over 500 employees] that have already set up a system linking the calculation of bonuses to environmental performance to link these to the new climate transition plans provided for in the text. We think that we need to go further: through a mechanism that obliges the indexation of a part of the variable remuneration of managers to extra-financial performance criteria, a powerful lever for transformation; through the setting of a minimum percentage of this variable part indexed to these criteria, and through the implementation of indicators common to all companies concerned by this obligation.  
  • We also consider that the scope of the legislation is too narrow: only companies with more than 500 employees will have to implement a demanding European duty of care. SMEs, even those operating in high-risk sectors, are for example excluded from the process. Companies with between 250 and 500 employees are covered by the implementation of a "simplified" due diligence only when they operate in certain risk sectors. The proposal may therefore not cover many harmful business activities. We therefore consider that the scope of the directive should be considerably broadened in order to bring about a more responsible business model in Europe.
  • Finally, "due diligence" must be carried out on the entire value chain of companies, and not be limited to "established business relationships". The risk here is that the scope of the measure will be considerably weakened.

The Impact France Movement therefore calls for the scope of this text to be strengthened in the forthcoming discussions.

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