Making sense of the EU’s ‘comprehensive’ corporate sustainability rules

Hélène de Rengervé of Human Rights Watch explains how a new directive introduces ‘mandatory obligations’ for big companies to respect human rights.
A protest in Dhaka, Bangladesh on the occasion of the 10th anniversary of the collapse of the Rana Plaza building

By Sarah Schug

Sarah is a staff writer for The Parliament with a focus on art, culture, and human rights.

14 Jun 2024

Human rights organisations have described the European Union’s corporate sustainability due diligence directive, adopted by the Council of the EU last month, as groundbreaking legislation.   

By tackling human rights violations and environmental abuses in corporate supply chains, the measure aims to prevent tragedies such as the 2013 collapse of the Rana Plaza factory building in Bangladesh, which resulted in the death of more than 1,100 workers. The eight-story garment factory had manufactured clothes for international retailers like Primark and Bonmarché. 

On the tenth anniversary of the tragedy, in May last year, European Parliament President Roberta Metsola called it “a wake-up call for the Western world.” The new corporate sustainability directive introduces new obligations for large companies operating across global value chains that often manufacture their products in developing countries. These corporations will now be required to address human rights violations and adverse environmental impacts within their own operations – as well as that of their subsidiaries and business partners. 

Hélène de Rengervé, a senior advocate for corporate accountability at Human Rights Watch, sat down with The Parliament to help us make sense of the new legislation.   

The directive has been widely praised by NGOs. Why is it so significant?  

It’s the first time we have mandatory obligations for companies to respect human rights. In the past, it was always voluntary. There was no way to hold corporations accountable. The directive is trying to create a framework where victims can be protected in a much more efficient manner. It is trying to rebalance the system without being overly dependent on goodwill.   

It is quite comprehensive and covers all kinds of human rights and environmental abuses. And it obliges companies to consult with stakeholders, which has rarely been done in the past. We are very happy that stakeholder engagement is formalised and compulsory now.  

Who are these stakeholders?  

I’m referring to workers and the organisations that may represent them, such as trade unions or not-for-profit groups. Stakeholders also include local communities, any kind of civil society actors, local authorities or other people that may be impacted by human rights violations or environmental abuses.  

Most of those stakeholders are based at the level where the company operates, in third countries. Instead of the decision being made by someone in an office with no understanding of the situation on the ground, it gives these stakeholders access and enables them to express their own perspectives, creating a more balanced relationship.   

What are that the issues that tend to come up between companies and these stakeholders?   

For example, incidents of forced labour. There is very little capacity for workers themselves to interact with management because they are in a position of vulnerability. Now, the company or the supplier will have to engage with the workers and look at the different indicators of forced labour – and discuss with the workers themselves and with their representatives what can be done to actually mitigate a situation and remediate it.  

What was the catalyst for this directive?   

Recently there was the anniversary of the Rana Plaza catastrophe in Bangladesh. It took ages for any remediation to happen, and a global outcry was necessary. If you look at daily human rights violations, there are the low salaries in the textile industry, with a power imbalance so strong that the workers cannot claim anything.   

A lot of big brands push back, saying ‘it’s not us, it’s them’, but with this directive they cannot put the burden solely on the supplier. If their purchasing practices are for any reason part of the causes why those labor conditions are imposed on workers, they have to renegotiate with the suppliers, probably increase the price, and reduce short-term delivery requests.   

EU member states now have several years to implement the directive. How will it be enforced – and when do you expect to see a first slate of cases?   

When, I do not know. I think the litigation part will only be the tip of the iceberg.   

Trade unions are now empowered to bring up cases. Even though it might not always come to a court case, this will create an opportunity to engage in dialogue to highlight the more severe abuses. It will create a more balanced relationship between the victims and the companies. It creates an incentive for companies to look deeper into how they do things and why they do it that way. We hope it will create a change of behaviour, progressively, so that companies integrate all this into their processes from the start.   

There is also the obligation to set up a grievance mechanism, so that victims can bring up cases before they turn into human rights violations. The idea is to create a system where workers can address claims and problems early, before they turn into something unmanageable.   

Besides forced labor, what are some other examples that would fall under this directive?   

It could be land-grabbing in relation to indigenous populations, water pollution, bad waste management – think of ship dismantling in Southeast Asia for example. The whole setup of this industry is absolutely unbearable. Beyond unacceptable working conditions, there is environmental damage because chemical products are just thrown into the sea or on the beach.   

The directive excludes 99% of companies in the EU.  How is it so significant if it targets such a small number of businesses?   

Because it affects the biggest ones. They are the ones who have the biggest capacity to create damage. I believe around 98% of companies in Europe are SMEs [small and midsize enterprises]. They are not the ones that have the most financial capital nor the human resources to actually create human rights or environmental damage all over the world.   

Even though   civil society organisations are very disappointed by the reduction of the scope in terms of how many companies are covered, it is still a beginning. Plus, we expect that, because bigger companies are now required to set up fair contracting with their suppliers and to support SMEs in their supply chains in better implementing their own human rights policies, it will create a positive effect that will help smaller companies to be more compliant.  

Do you see any shortcomings with the directive?   

The biggest weakness is really the fact that it covers so few companies. The second biggest weakness is when you look at liability: Companies can only be held liable if they fail to do their due diligence properly. It's not for the human rights violation itself that they can be held liable. One other condition is that harm has to have been caused intentionally or negligently, and demonstrating that intention is very difficult in classic cases.   

What do you say to opponents of the measure, including Germany’s liberal party and pro-business lobby groups, who worry it will harm the economy by limiting business activity?   

We underestimate the ability of businesses to adapt. One feature of sustainable businesses is their ability to adapt to new concerns and environments. There has been an assessment done by the European Commission prior to the legislation, and it highlighted research showing that the more sustainable a company is, the more profitable it is. These companies complain that it requires a lot of investment and that it is expensive and complicated, but they are used to addressing much more complex issues than that every single day in their own operations. I'm sure they will find a way.  I'm not concerned about that – the willingness to do it is a problem.   

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