A ‘Green’ due diligence

The upcoming revision of the Non-Financial Reporting Directive must be an important step towards establishing a truly sustainable economic and environmental governance, argues Marie Toussaint.
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By Marie Toussaint

Marie Toussaint (FR, Greens/EFA) is a shadow rapporteur on the Sustainable corporate governance report

12 May 2021

Over recent years, we have seen a flood of commitments - from the world’s largest companies to the financial sector – aimed at fighting climate change, guaranteeing the preservation of biodiversity, promoting carbon pricing and respecting the planet’s boundaries.

Some might consider that these voluntary commitments are sufficient, and that no one but the business sector can change our economic model so that we can address the risks of the destruction of the planet. But we have to face reality; neither the public nor private sectors are moving fast enough to preserve our environment.

Climate change is accelerating, as is biodiversity loss, and crossing planetary boundaries. We are not acting quickly enough on the challenges of ecological destruction. And while the EU is still the second largest contributor to deforestation from trade over the world, it is also where the seats and headquarters of major polluting companies are located. This gives us a huge responsibility to manage the way we consume as well as the way we regulate.

“Our responsibility, as elected representatives of the people, is to design and adopt those rules that enable us to protect our only planet while guaranteeing social justice”

To take only one example, energy companies Shell (Netherlands) and Total (France) recently committed to trajectories aimed at limiting global warming to 1.5°C. However, their continued investment in new fossil fuel projects shows that their actions are very different from their words. Can these companies really change?

The dismissal of the heads of two major French companies, Isabelle Kocher at ENGIE and Emmanuel Faber at Danone, suggest otherwise. The reasons for these departures are unclear. The shareholders cannot openly reveal the reasons behind their vote as they are likely to be unacceptable to those that support changing to an economic model that would take care of the planet.

The race for profit impedes any real action and desire to change the economic model of these firms as quickly and deeply as the planet’s preservation requires. This is where the European Union must join the dance.

Our responsibility, as elected representatives of the people, is to design and adopt those rules that enable us to protect our only planet while guaranteeing social justice. In this context, the European Parliament called for the mandatory ‘green’ due diligence of companies. The establishment of a due diligence mechanism will guarantee that no product will be sold on the European market while causing a violation of human and social rights, public freedoms, or harm to the living world. This would represent a major turnaround of how trade has, up till now, been conceived.

However, due diligence alone will not be enough. Corporate governance reform is also urgently needed to compel companies to develop their activities while respecting planetary boundaries, the fight against climate change and the protection of biodiversity. Such a reform is also necessary to limit the power of shareholders to block the evolution of a company’s policies.

The upcoming revision of the Non-Financial Reporting Directive (NFRD) must be an important step towards the establishment of a truly sustainable governance. The revised Directive should extend existing rules to all listed and non-listed undertakings established in the EU, non-EU companies operating in the EU market, as well as all companies from high-risk sectors, including SMEs. This is what the European Parliament has demanded. Unfortunately, for now, the European Commission does not seem willing to answer this call, but to limit the new corporate governance rules to the bigger companies only.

“The European Parliament is already calling for ecocide to be recognised at the International Criminal Court. We must go one step further and recognise ecocide in EU law”

The adoption of strong sustainability criteria based on science, planetary boundary indicators and precise commitments to the fight against climate change and biodiversity loss must also be included in this revision, alongside the participation of civil society and environmental NGOs. Here also, we will be vigilant.

The EU must be ambitious and deliver on the European Green Deal. We cannot wait for the international community to move before adopting ambitious rules. And, as new regulations are being drawn up by the G20 on both taxation and environmental rules applicable to companies, the NFRD revision must be the opportunity for the EU to raise general, global discussions on corporate governance.

However as regards environmental protection, it is only by prescribing criminal penalties that we will be able to effectively enforce the obligation to protect the living. This is why we desperately need an ecocide law; to sanction the gravest damage to nature and the safety of the planet. The European Parliament is already calling for ecocide to be recognised at the International Criminal Court.

We must go one step further and recognise ecocide in EU law. Once such criminal responsibilities are established, there will be no reason for shareholders to push companies to persist in violating rights and overstepping planetary boundaries.

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