The EU may move towards mandatory business & human rights regulation

Arnaud POITEVIN
Business & Human Rights Lawyer

The awakening of the EU

Members of the European Parliament (MEPs) adopted last 29 April a motion calling for resolution for mandatory human rights due diligence for corporations. The motion coincided with the second anniversary of the Rana Plaza building collapse and progress of the Bangladesh Sustainability Compact.

This motion 2015/2589(RSP) demands the Council to consider the necessity of a new EU legislation ‘to create a legal obligation of due diligence for EU companies outsourcing production to third countries, including measures to secure traceability and transparency’.

Groundbreaking Proposals by some MEPs also calls "on the Council and the Commission to include a mandatory and enforceable CSR clause in all bilateral  trade and investment agreements signed  by the EU, which would bind European  investors to the principles of CSR ".

However ambitious is the initiative, this very resolution so far does not legally bind the Council or the Commission for a legislative proposal (for adopted pursuant to Rule 123 of the Rules of Procedure of the European Parliament). But it is a precedent that may lead to a request to the European Commission by the European Parliament for a legislative proposal under Article 225 of the Treaty on the Functioning of the European Union.

France as the proponent, while further discussions expected at G7

France draft corporate human rights due diligence law no 2578 adopted on 30 march 2015 by lower house Assemblée Nationale is mentioned as an inspiration in the motion. Top French official, including Matthias Fekl, State secretary for foreign trade, but also according to whispers, Finance minister Emmanuel Macron and even President François Hollande, want a swift EU regulation on the matter even before the French law is definitely adopted by the Senate, at best in a few months. One easily understand that French businesses are not very eager to be the only virtuous ones to bear the burden of the proposed regulation.

A significant move may also come from the G7 summit presided by Germany and scheduled for coming 7 & 8 June. Chancellor Angela Merkel, who insists that companies based in G7 countries should scrutinize that international guidelines compliance of supply chains are being upheld, will address three priority points: transparency, prevention and the possibility of voicing complaints. 

Mandatory human rights due diligence: Coup de grâce to corporate impunity?

One thing is certain, these initiatives threatens to be the biggest blow to the dogma of the “corporate veil”, also known as the “autonomy of legal personality”. Golden calf of corporate lawyers, this quasi universal legal provision grants unjustifiable privileges to parent companies and shareholders. For a company, the veil implies a limitation or even an exemption of civil, administrative or criminal liability. In other words, a company may almost enjoy impunity by creating a fictionally distinct legal entity it controls, a subsidiary. Most multinationals are designed in this manner as groups of a plethora of subsidiaries. If a subsidiary commits wrongful acts, including corruption, health impairment or environmental or human rights harm, it will be very difficult to extend liability to the mother company, and even more if operating abroad and/or through anonymous companies, in which case it is quasi impossible, not to mention suppliers.

This long lasting legal framework is one of the major hindrance of any action designed to ensure effective responsible business conduct. The "corporate veil" must seriously be questioned. France has opened the way. The EU may follow shortly. Swiss civil society just launched a popular initiative with the aim to organize a binding referendum on the matter. Maybe the starting point of a binding framework within the EU and industrialized countries ?