Although the entity is in favour of a due diligence legal framework, it considers that proposed directive is not workable
The entity states that the Directive ‘is a commendable effort to create a harmonised due diligence framework aimed at improving companies’ responsible business conduct and accountability in their activities. However, more must be done to ensure the regime is proportionate, workable and conducive to achieving the primary goal of the legislation, while respecting the due diligence preferences and approaches of other jurisdictions. … The misalignment between the goals of the Directive, the potential requirements and their enforcement risk the legislation’s requirements being too wide-ranging, disproportionate and unworkable for both in-scope companies and regulators, as well as unduly extraterritorial in nature. As a result, the new regime could have significant legal consequences and serious competitiveness implications for businesses with EU presence, as well as for the EU as a global economic player’. Finally, it also points out that 'The final rules should ensure that Member States cannot meaningfully diverge from the Directive in their national transposition. Failing to achieve this would defy one of the main purposes of the Directive, namely, to create a unified due diligence regime across the EU. For firms, 27 different due diligence regimes would lead to legal uncertainty and unnecessarily increase the administrative burden and the cost of doing business in the EU'.
The entity supports the introduction of binding legal requirements for mandatory human rights
The entity states that 'The introduction of a common set of binding legal requirements on mandatory human rights and environmental due diligence for all sectors and companies irrespective of size furthers important objectives'. It also points out that 'The proposal’s intention to promote human rights and the safety of workers in global value chains, as well as certain environmental impacts, is admirable. However, it is important not to confuse the roles of companies and states. In the field of human rights, the division between the state’s responsibility to protect and the business’s responsibility to respect must be embedded in any legislative initiative. In this vein, due diligence duty - which should follow a risk-based approach - and liability - which should be limited to direct established business relationships - should be decoupled'.
The entity calls for full harmonisation
The entity states that 'The most important element of the proposal should be full harmonisation. This is necessary to avoid fragmentation of the EU single market and ensure a level playing field. This can be achieved by using, for instance, an “internal market clause”. If the EU wishes its model to be used as a reference elsewhere in the world, it cannot rely on the limited harmonisation provided by the directive that would potentially lead to 27 different frameworks'.
The entity is supportive of including all sectors and sizes, although feasibility should be ensured
The entity states that 'The introduction of a common set of binding legal requirements on mandatory human rights and environmental due diligence for all sectors and companies irrespective of size furthers important objectives. Such requirements must, however, also serve to combat growing internal market fragmentation in this sphere, which is proving unworkable for companies. Legislation must ensure that there is a level playing field and that requirements are the same for companies domiciled in or outside the EU'.
The JBS does not oppose the inclusion of SMEs, but calls for safeguards to protect them.
The JBS seem to show support to the inclusion of SMEs, although it reiterates that: "The European economy, included SMEs which will be impacted even if formally out of the scope, need a workable due diligence framework that is drafted in a balanced and proportionate way."
Although the entity opposes civil liability it acknowledges the need of enforcement mechanisms based on administrative european supervision
The entity states that 'While there is a need for effective enforcement of the proposed regime, there are also serious reservations about the far-reaching proposals for civil liability. ... an enforcement system based solely on the administrative model of the European supervisory authorities should be followed. Indeed, one of the main criticisms made by the Regulatory Scrutiny Board was lack of consideration of a stand-alone administrative supervision option. Under the proposed Directive, the supervisory authorities are to have significant investigative and enforcement powers, including the ability to investigate substantiated complaints and impose substantial sanctions. They would therefore be well-placed to ensure effective enforcement – a preferred model'.
The entity opposes to regulate directors' duties
It states that 'The European Commission proposal introduces broad changes to directors’ duties which would give rise to liability and potential litigation risk, as well as significant uncertainty as to how these directors could meet these duties in practice. In principle, an EU directive should not regulate directors’ duties, as Member States already have different frameworks in place. The Directive should reflect the Council’s decision to delete provision on directors’ duties and, as stated above, the proposal to link directors’ remuneration to setting climate plans'.
The entity opposes imposing additional obligations on directors.
The entity states that 'Due diligence legislation should not impose specific sustainability requirements on companies or liability on individual directors. Companies should be able to choose how (eg specific targets) they meet their sustainability requirements as they strongly vary between companies, sectors and issues. Overly onerous and imprecise requirements on individual directors should be avoided, as they could discourage highly qualified individuals from taking up directorships of European companies'.
The JBS rejects including directors' duties in the Directive.
The JBS states that: 'regulating directors' duties does not belong in a due diligence framework. It will have negative side-effects, including the disruption of existing, well-established governance models of the member states, without added value to the ability of companies to apply effective due diligence'.
The entity is in favour of a requirement to provide remedy in case of harm.
The entity states that 'The CS3D should focus on engagement with affected stakeholders, the complaints mechanisms and ensuring remedy where harm has occurred. These would better align with international frameworks. In relation to business partners, it states that 'Civil liability should be limited to those relationships in which companies have the legal means of enforcement and recommend that the legislation cover only direct contractual business relationships within the supply chain. This would be most likely via a contractual relationship, with links to causing or contributing to an impact and an associated level of responsibility for correction and remedy'.
The entity seems to be in favour of exerting leverage, although it opposes terminating business relationships.
The entity states that 'The Directive should dispense with the requirement to terminate a business relationship with respect to the activities concerned if the potential adverse impact is severe. First, it does not align with the principle of continuous improvement and sustainable remediation. Second, when the company has limited leverage with the partner, this may lead to undue termination of the contract, as it may be seen as a simpler course of action. Also, suspending or terminating contracts based on potential impacts, without due verification of the nature and presence of those impacts, may have severe, unfair consequences on smaller suppliers'.
The entity is in favour to use its leverage in others to remedy impacts.
The entity states that 'If a company has contributed or may contribute to an impact, it should be expected to prevent or mitigate its own contribution or use its leverage with other parties to prevent or mitigate it (contribute to remediating harm if impact has occurred, to the extent of its involvement). If a company has not caused or contributed to an impact, but may have operations, products or services linked to an impact through a business relationship, it should be expected to use its leverage with others, including suppliers, to prevent or mitigate this impact (with no responsibility to provide remedy but with the option to do so as chosen)'.
Although the entity considers that compalint mechanism as part of due diligence would be a best practice, it disagrees with a formal, legal requirement for stakeholder consultation
Although the entity indicates that 'a company specific complaint mechanism as part of the due diligence would cover the requests of the OECD Guidelines in the most effective way', it disagrees to some extent (question 20a) with a mandatory requirement to establish mechanisms for engaging in stakeholder consultation, arguing that 'In our view companies should from a business-perspective proactively reach out to their key internal stakeholders and depending on each industry as well to external stakeholders, but it should be part of the audits within the self-regulated initiatives'. In addition, it disagrees to some extent (question 20a) with a mandatory requirement to establish mechanisms for engaging in stakeholder consultation, using similar arguments.
The entity oposes to proposed civil liability, and advocates for limiting to intent or gross negligence.
The entity states that ‘While the proposed regime would have to be enforced effectively, its far-reaching proposals create serious concerns about civil liability. There is a real risk that companies would face excessive and disproportionate consequences unless the EU addresses the reversal of the burden of proof and the application beyond companies' own operations to the value chain. As proposed by the European Commission, the regime would effectively upend the established principles of civil law by making companies liable for damage not caused by their own actions, but rather by the actions of others and create incentives for undue legal challenges. The inclusion of suppliers and subcontractors that are indirectly linked to the undertaking or placed along of its value chain is thus problematic and potentially impractical. Therefore, the EU should explicitly limit civil liability to circumstances where a breach occurs ‘intentionally or through gross negligence’ that causes or directly contributes to the adverse impact. In addition, any civil liability should not have a presumption in favour of the claimant. Burden of proof should remain the responsibility of the accuser as any reversal would compromise the integrity of the legal system and encourage reckless behaviour from competitive interests’.
The entity recognises liability for due diligence failures but avoids supporting judicial enforcement as one of the enforcement mechanisms
Question 19a asks about enforcement mechanisms through a multiple-choice format, one of which is 'judicial enforcement with liability and compensation in case of harm caused by not fulfilling the due diligence obligations'. The entity did not select this as one of its preferred measures. However, it shows support for liability linked to due diligence failure, although avoids supporting judicial enforcement. It states that 'we align with definitions of liabilities that consider the quality of due diligence measures taken, company knowledge or expected anticipation of the impact itself, and extent to which a company may have contributed. If a company has caused or may cause an impact, it should be expected to prevent or mitigate the impact and remediate any harm if impact occurred'. it adivocates for incentives 'race to the top rather than using slower, less effective, judicial enforcement'.
Although the joint statement does not oppose to legal liability, it calls for a more balanced approach
The joint statement indicates that 'Legal liability provisions, including sanctions, need to be balanced, follow legal traditions around breach-damage-causality and truly incorporate the widely accepted principle that due diligence is first and foremost an obligation of means. The complexity of value chains cannot be underestimated when analysing impacts which can have multiple competing causes, players and dynamics. Therefore, companies cannot be made liable for damages they have not -intentionally or negligently - caused'.
The entity advocates for considering only direct contractual relationships
It states that 'It is of the utmost importance that the definition of value chain is reasonable and foreseeable. The EU should adopt a proportionate, risk-based approach which captures only direct contractual relationships and allows for the prioritisation of measures to address the most critical and actionable risks'.
The entity considers that a legal framework is needed (requirement of due diligence) and generally agrees with the definition of due diligence duty. It, however, would restrict scope to direct suppliers.
The entity agrees that a legal framework is needed as per question 2. In response to question 14, on whether it agrees with due diligence duty definition provided by the consultation, it states that ‘We generally agree with the above definition and support the intention of the EU to promote human rights and the safety of workers in global supply chains, as well as certain environmental impacts. However, it is important not to confuse the roles of companies and that of states. In the area of human rights, the division of responsibilities between the state responsibility to protect and the business responsibility to respect must be embedded in any legislative initiative. We believe that any due diligence duty should be consistent with existing international frameworks … For regulations to concretely address these issues, a clear definition of ‘business relationships’ is required, preferably consistent with the cause-contribute framework outlined in the UNGPs. We believe that only direct contractual business relations within the supply chain, targeted to a level in which the company is directly connected should be covered by the legislation. This would be most likely through a contractual relationship, usually accompanied by some intellectual property (IP)/data link, with links to causing or contributing to an impact, with associated level of responsibility for correction and remedy. But we are also aware that, in practice, suppliers and subcontractors positioned at the very end of the value chain are very hard to identify and therefore the company has no leverage, influence or control over them’.
The joint statement argues that companies can't focus in all elements of their value chains. It also calls for a reduction of obligations
The joint statement states that 'To ensure that the future Directive is truly consistent with a risk-based approach, widely supported in international instruments in the UN and OECD, companies cannot be expected to focus on every single element of their value chains. The ability to prioritise the identification of and action to address the most salient risks is a necessity that must have a crucial impact on compliance with the due diligence process and its consequences'. It also points out that 'we call for revisiting and shortening the annex to only include those conventions and treaties that create concrete obligations on companies so not to mix up their roles with the one of states'.
The entity disagrees to some extent with being legally required to identify their stakeholders and their interests.
The entity disagrees 'to some extent' with a legal requirement (for directors) to identify stakeholders and their interests as per question 6. It states that ‘Regulating actions to be taken by corporate directors would remove their ability to prioritise and focus on the corporate activities most appropriate for the long-term interests of the company and its stakeholders. In addition, the list of stakeholders should not be prescriptive and should take into consideration commercial sensitives and privacy concerns around their identification. … Additionally, companies are also responsive to investors who are increasingly interested in companies' ESG priorities. This issue is already subject to soft law, however some additional guidelines for harmonisation at EU level could be raised to the level of directors’ duties. It is more favourable to ensure that the existing guidelines are correctly implemented rather than putting forward additional legislative and/or regulatory measures’.
The entity disagrees to some extent that the EU should require directors to establish mechanisms for engaging with stakeholders as part of due diligence duty.
It disagrees to some extent (question 20a) with a mandatory requirement to establish mechanisms for engaging in stakeholder consultation, arguing that ‘It is the company that should be responsible for establishing protocols and/or processes for stakeholder engagement, not the Board of Directors. In order to operate effectively, businesses have to consult a broad range of stakeholders so that they can define and execute business strategy and have existing mechanisms in place to support this. It is already clear to businesses that balancing and embracing the interests of their stakeholders is key to securing their long-term sustainability. Civil society organisations are key interlocutors for companies, in particular with regard to dialogue on sustainable value chains, however, they should not be formally included in corporate management and strategic decision-making. Due diligence stakeholder dialogue is imperative. Additional requirements placed on Directors with regard to stakeholder engagement could add significant burden to business with little value added to business or stakeholders. Directors of EU legal entities are often subject to decisions made by parent companies outside the EU with little local decision-making powers. Requiring directors to implement specific mechanisms for engagement eliminates the ability of the board to prioritise and determine the appropriate engagement approach that might be best for the corporation under the circumstances’.
The entity disagrees 'to some extent' with a legal requirement for directors to manage risks for the company in relation to stakeholders
In its response to question 6, the entity disagrees 'to some extent' to a legal requirement for directors to manage risks for the Company in relation to stakeholders. It states that ‘regulating actions to be taken by corporate directors would remove their ability to prioritise and focus on the corporate activities most appropriate for the long-term interests of the company and its stakeholders.... Liability of directors is an effective tool when directors have control and decision-making power on these matters. ... , full application of the proposed director liability standards would be less effective and balanced for those cases. Therefore, AmCham EU argues that directors should not be held liable for their decision-making ... Additionally, companies are also responsive to investors who are increasingly interested in companies' ESG priorities. This issue is already subject to soft law, however some additional guidelines for harmonisation at EU level could be raised to the level of directors’ duties. It is more favourable to ensure that the existing guidelines are correctly implemented rather than putting forward additional legislative and/or regulatory measure'.
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