EU-wide legislation that sets binding requirements for businesses to respect human rights and the environment in their value chains is expected to be tabled this summer.
How will the European Commission use this legislation to increase accountability for companies? Salla Saastamoinen, Acting Director-General of the Directorate-General for Justice and Consumers (DG JUST) weighs in.
Why bring in mandatory due diligence law?
The directive responds to unsustainable corporate governance practices, Saastamoinen told delegates at a recent European Food Forum (EFF) event.
To begin with, current regulation has failed to eliminate environmental and human rights violations along supply chains. National law on board duties is unclear, and voluntary international due diligence frameworks have ‘failed to mainstream good behaviour’, she explained.
Current national law on corporate accountability is fragmented, Saastamoinen continued. “Some Member States have started to bring in due diligence laws, they have acted against certain types of threats, for example child labour.”
The Netherlands, for example, has enforced a Child Labour Due Diligence Law in an effort to stamp out modern slavery in the country’s global supply chains.
“Some Member States have gone further,” said the Acting Director-General. France, for example, has taken a cross-sectoral approach, referred to as the ‘law on the duty of vigilance’. It requires all large French companies to undertake due diligence with regard to the companies they control, and all their contractors and suppliers.
Not all can be blamed on regulation, however. Market failures are also at play, Saastamoinen suggested.
Companies have been focusing on maximising short-term financial value, to the detriment of long-term performance, sustainability, and resilience, she told delegates. “So they are not thinking about the long-term, and sustainability requires…more long-term thinking.”
And although European companies ‘certainly aim’ for a high level of responsibility, Saastamoinen raised concerns that there are ‘still cases’ where they cause negative human rights impacts and negative environmental impacts through their supply chain.
“For these reasons, we need to tackle these realities.”
Sustainable Corporate Governance
As voluntary action has ‘not brought about the necessary change’, the Commission is preparing a Sustainable Corporate Governance Initiative.
While no firm decisions have been made, Saastamoinen revealed the initiative aims to improve the EU regulatory framework on company law and corporate governance via several approaches.
These include enabling companies and their directors to focus on long-term sustainable value creation, rather than short-term benefits, she explained.
The initiative also hopes to better align the interests of companies, their shareholders, managers, stakeholders, and society. Helping companies better manage sustainability-related matters in their own operations and value chains with regards to social and human rights, climate change, and the environment, is also to be expected. This will help businesses identify, to see if they can mitigate, any harmful impacts, the Acting Director-General added.
Implications for F&B
“The benefits, we think, are many,” said the Acting Director-General. And there is obviously keen interest: a recently closed open consultation generated close to half a million responses.
These respondents observed benefits such as harmonising the currently fragmented national laws, enabling a level playing field to operators across the block, providing legal certainty, and better mitigation of risks and impacts.
Other potential benefits include more sustainable development, Saastamoinen continued, including in non-EU countries.
So what does the Sustainable Corporate Governance Initiative mean for the food and beverage industry?
It will provide a framework encompassing a broad set of sustainability impacts, clearly setting out what businesses need to abide by. It will also create an ‘enabling environment’ incentivising companies to address their negative impacts ‘properly’, and acknowledge the challenges of traceability, for example via food safety tracking.
Finally, the Initiative will have an impact on the ground and in direct connection with the UN Sustainable Development Goal (SDG) agenda.
Concerning next steps, the Commission is currently looking at an impact assessment to determine the ‘most effective, preferred package’.
The impact assessments covers due diligence corporate duty, directors’ duties, remuneration, and feedback from the consultation.
Once that is ticked off, the Commission will move forward with developing the proposal – slated for a summer 2021 publication – before entering legislative negotiations